This is the accessible text file for GAO report number GAO-10-576R 
entitled 'Medicare Payments to Federally Qualified Health Centers' 
which was released on July 30, 2010. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United States Government Accountability Office: 
Washington, DC 20548: 

July 30, 2010: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Henry A. Waxman: 
Chairman: 
The Honorable Joe Barton: 
Ranking Member: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Sander M. Levin: 
Chairman: 
The Honorable Dave Camp: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

Subject: Medicare Payments to Federally Qualified Health Centers: 

To increase access to primary and preventive care services for 
individuals living in medically underserved communities, Congress 
authorized federally qualified health centers (FQHC) as a health care 
facility type and established requirements for Medicare coverage and 
payment as FQHCs under the Omnibus Budget Reconciliation Act (OBRA) of 
1990.[Footnote 1] FQHCs are typically rural and urban safety net 
providers that provide primary and preventive care services to 
individuals regardless of their ability to pay. In general, a health 
center may qualify as a FQHC if it receives a federal grant under 
Section 330 of the Public Health Service Act; meets the requirements 
to receive such a grant; or is an outpatient health program/facility 
operated by certain tribal or urban Indian organizations.[Footnote 2] 
Currently, Medicare reimburses FQHCs for these services with an all- 
inclusive payment rate--resulting in a payment per visit for all 
covered services provided during the visit--with certain limits to 
ensure FQHCs' costs are reasonable for the provision of services. 
These limits include productivity guidelines and upper payment limits. 
Productivity guidelines encourage FQHCs to achieve a minimum number of 
visits each year for certain medical professionals employed by the 
centers; upper payment limits are a cap on the per visit amount FQHCs 
are paid by Medicare, updated annually by the Medicare Economic Index 
(MEI).[Footnote 3] 

The recently enacted health reform legislation requires changes in the 
way Medicare pays FQHCs. The Patient Protection and Affordable Care 
Act (PPACA) requires the Secretary of Health and Human Services (HHS) 
to establish a prospective payment system (PPS) for Medicare payments 
to FQHCs, which, in effect, will eliminate the Medicare FQHC all-
inclusive payment rate, upper payment limits, and productivity 
guidelines currently in effect and described in this report.[Footnote 
4] Under the new PPS, FQHC payment rates will be based on their 
estimated reasonable costs for each covered service. Beginning on or 
after October 1, 2014, the estimated aggregate amount of Medicare FQHC 
prospective payment rates is to be set at 100 percent of the estimated 
amount of reasonable costs that would have occurred if the PPS had not 
been implemented, without the application of the upper payment limit 
or productivity guidelines. In the first year after implementation, 
the amount of payment increases is to be determined by the MEI; in 
subsequent years, the amount of payment increases is to be determined 
by the MEI or by changes in the costs for a market basket of FQHC 
goods and services. The PPS is required to include a process for 
appropriately describing the services furnished by FQHCs and establish 
payment rates for specific payment codes based on such descriptions of 
services. In addition, the PPS is required to take into account the 
type, intensity, and duration of services furnished by FQHCs and may 
include adjustments--such as geographical adjustments--determined 
appropriate by the Secretary. PPACA further provides that by January 
1, 2011, the Secretary is to require FQHCs to submit information 
determined necessary to develop and implement the PPS, including 
Healthcare Common Procedure Coding System (HCPCS) codes.[Footnote 5] 
PPACA also expanded the definition of Medicare-covered preventive 
services provided at FQHCs. 

Prior to enactment of PPACA, members of Congress expressed concerns 
that the Medicare FQHC upper payment limits do not adequately cover 
the costs of services provided to Medicare beneficiaries. Members of 
Congress stated in letters to the Secretary of HHS that Congress 
intended health centers to be paid at a rate that covers the cost of 
providing services to ensure that health centers do not subsidize 
Medicare payments with other federal grant dollars. Prompted by 
letters from Congress, HHS directed the Health Resources and Services 
Administration (HRSA) and CMS to work together to review the adequacy 
of these rates. HRSA, in consultation with CMS, hired a consulting 
firm to analyze the Medicare FQHC upper payment limits. Results from 
the unpublished report found that 70 percent of FQHCs had costs per 
visit that exceeded the upper payment limit in 2004, with FQHCs' 
aggregate costs exceeding the maximum Medicare reimbursement under the 
upper payment limits every year from 1997 to 2004. 

The Medicare Improvements for Patients and Providers Act of 2008 
required GAO to examine the payment structure that Medicare used to 
pay FQHCs for services provided to Medicare beneficiaries and to take 
into consideration the prospective payment methodology used by 
Medicaid to make payments to FQHCs.[Footnote 6] This correspondence 
examines the relationship between Medicare payments and the costs 
submitted by FQHCs for services provided to Medicare beneficiaries and 
provides information on how CMS established the Medicare FQHC payment 
structure. In this correspondence we also describe the preventive 
services added to or expanded within Medicare since the upper payment 
methodology was implemented in 1992 (see enclosure I) and the key 
features of the Medicaid PPS (see enclosure II). We did not examine 
the PPACA prospective payment system or the impact it will have on 
FQHCs. 

To determine the extent to which Medicare payments to FQHCs have 
covered the costs of services furnished to Medicare beneficiaries, we 
obtained Medicare FQHC cost report data for FQHCs in 44 states, 2 
territories, and the District of Columbia from the Medicare fiscal 
intermediary (FI) responsible for collecting FQHC cost reports from 
most states in 2007. We obtained the most recent final cost reports 
submitted in calendar year 2007, reviewed by the Medicare FI, and 
settled in coordination with the FQHCs.[Footnote 7] FQHCs identify 
themselves as either rural or urban on the submitted cost reports and 
may submit a consolidated cost report if they have multiple clinic 
locations.[Footnote 8] For simplicity, we counted each cost report as 
one FQHC with its population status as rural, urban, or mixed for 
FQHCs submitting consolidated cost reports with both urban and rural 
clinics. We included in our analysis cost reports for FQHCs reporting 
at least 200 Medicare visits, for a total of 922 FQHCs. We analyzed 
the costs per visit reported by FQHCs, determined the amount of FQHCs' 
Medicare costs if the upper payment limits had not been applied, and 
compared the results to FQHCs' Medicare costs with payment limits 
applied. We examined the difference in FQHCs' Medicare costs when 
using FQHCs' actual number of visits and when using the minimum number 
of visits required by the productivity guidelines. CMS officials told 
us that the agency generally does not audit FQHC cost reports. To 
determine the reliability of the FQHC cost reports for our purposes, 
we therefore interviewed the Medicare FI about the policies and 
procedures for collecting and processing FQHC cost reports and 
reviewed documentation detailing the FI's Medicare FQHC cost report 
review procedures and electronic cost report data checks. We examined 
the reliability of the 2007 Medicare FQHC cost report data used in 
this report by performing appropriate electronic data checks and 
checks for obvious errors, such as missing values and values outside 
of expected ranges. We determined that the FQHC cost report data were 
sufficiently reliable for purposes of our analysis. We also 
interviewed officials from CMS and from 3 FQHCs about Medicare 
payments to FQHCs. 

We conducted our work from May 2009 through July 2010 in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objective. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence 
to meet our stated objective and to discuss any limitations in our 
work. We believe that the information and data obtained, and the 
analysis conducted, provide a reasonable basis for any findings and 
conclusions in this product. 

Results in Brief: 

Based on GAO analysis of Medicare cost reports submitted by FQHCs in 
2007, Medicare payments to most FQHCs were less than FQHCs' submitted 
costs of services. About 72 percent of FQHCs had costs per visit that 
exceeded the upper payment limits. However, FQHCs varied greatly in 
their costs per visit, with FQHCs with the highest costs per visit 
having relatively fewer Medicare visits than FQHCs with the lowest 
costs per visit. The application of productivity guidelines reduced 
Medicare payments to 7 percent of FQHCs, which did not meet the 
minimum number of visits required by the productivity guidelines and 
had costs per visit that did not exceed the upper payment limits. 
Overall, application of the upper payment limits and productivity 
guidelines reduced FQHCs' submitted costs of services by about $72.8 
million from about $504 million to about $431 million--about 14 
percent--in 2007. Since Medicare pays 80 percent of the FQHCs' costs 
(beneficiary coinsurance is 20 percent), the application of these 
limits reduced Medicare FQHC payments by $58.2 million. 

We obtained written comments on a draft of this report from HHS. In 
its comments, HHS stated that the report provides helpful general 
background information on the Medicare FQHC program. HHS also raised 
concerns about the findings of the report because the Medicare cost 
report data that we analyzed have not been subject to a 
"comprehensive, full-scope" audit. Because CMS officials previously 
told us that the agency has not audited the cost reports, we took a 
number of steps to examine the reliability of the data, and we 
determined the Medicare FQHC cost report data to be reliable for the 
purposes of our analysis. 

Background: 

Medicare represented a small proportion of FQHCs' total revenue and 
patient population in 2007, while Medicaid represented a relatively 
larger proportion of both. When CMS established the Medicare FQHC 
payment structure in 1992, the agency modeled it on the rural health 
clinic (RHC) payment structure, incorporating productivity guidelines 
and upper payment limits to pay FQHCs an all-inclusive payment rate 
for services provided to Medicare beneficiaries. Medicare FQHC-covered 
services include both primary and preventive services furnished by 
certain physician or nonphysician providers; 13 preventive services 
have been added to Medicare Part B or expanded, and therefore to FQHC 
services, since the payment structure was established in 1992. 

FQHCs' Insurance and Revenue Sources: 

In 2008, there were 1,080 Section 330 grantees that served over 17 
million patients; 8 percent of these patients were Medicare 
beneficiaries and 36 percent were Medicaid beneficiaries.[Footnote 9] 
(See table 1.) HRSA officials reported a 72 percent increase in the 
Medicare beneficiary population at these FQHCs from 2001 to 2008 (from 
745,000 beneficiaries to almost 1.3 million beneficiaries). FQHCs 
depend on a variety of revenue sources to provide services to their 
patient population. In 2008, Medicaid was the largest source of 
revenue for FQHCs receiving Section 330 grants, accounting for 37 
percent of total revenue, while Medicare was a smaller revenue source 
at 6 percent. 

Table 1: FQHC Patient Population by Insurance Source and Revenue 
Source, 2008: 

Source: Medicare; 
Percent of patients by insurance source: 7.5%; 
Percent of total FQHC revenue: 6.0%. 

Source: Medicaid; 
Percent of patients by insurance source: 35.8%; 
Percent of total FQHC revenue: 37.1%. 

Source: Other public insurance; 
Percent of patients by insurance source: 2.8%; 
Percent of total FQHC revenue: 2.8%. 

Source: Private insurance; 
Percent of patients by insurance source: 15.6%; 
Percent of total FQHC revenue: 7.5%. 

Source: Self-pay; 
Percent of patients by insurance source: N/A; 
Percent of total FQHC revenue: 6.2%. 

Source: Uninsured; 
Percent of patients by insurance source: 38.3%; 
Percent of total FQHC revenue: N/A. 

Source: Federal grants (including Section 330 grants); 
Percent of patients by insurance source: N/A; 
Percent of total FQHC revenue: 20.4%. 

Source: Nonfederal grants; 
Percent of patients by insurance source: N/A; 
Percent of total FQHC revenue: 13.9%. 

Source: Other revenue; 
Percent of patients by insurance source: N/A; 
Percent of total FQHC revenue: 6.1%. 

Source: Total; 
Percent of patients by insurance source: 100.0%; 
Percent of total FQHC revenue: 100.0%. 

Source: 2008 Uniform Data System data reported by HRSA. 

Note: The Uniform Data System data reported include only FQHCs that 
receive Section 330 grants. 

[End of table] 

Establishment of Medicare FQHC Payment Structure: 

CMS established the Medicare FQHC payment structure with a final rule 
with comment in 1992, followed by a final rule in 1996.[Footnote 10] 
CMS based Medicare FQHC payments on its RHC payment structure for 
simplicity and ease of administration and due to existing similarities 
between FQHCs and RHCs. CMS established an all-inclusive payment rate 
for Medicare to pay freestanding FQHCs for the primary and preventive 
services provided to Medicare beneficiaries, subject to productivity 
screening guidelines and upper payment limits to ensure the 
reasonableness of FQHCs' costs.[Footnote 11] CMS adopted productivity 
screening guidelines used in the RHC program, which require FQHCs to 
maintain at least 4,200 visits per year per full-time equivalent (FTE) 
physician; at least 2,100 visits per year per FTE physician assistant 
or nurse practitioner; or a combination of those thresholds for FQHCs 
with various combinations of staff. CMS increased the RHC payment 
limit to reflect the different practitioner mix and utilization of 
preventive services at FQHCs, and created separate urban and rural 
FQHC upper payment limits to recognize the potential for higher 
operating costs for urban FQHCs. CMS uses the MEI as an inflation 
adjuster to annually increase the Medicare FQHC upper payment limits, 
adjusting the limits on the first day of the year (and each subsequent 
year) by the percentage increase in the MEI applicable to primary care 
physician services. (See table 2 for the urban and rural upper payment 
limits for recent years.) 

Table 2: Medicare FQHC Upper Payment Limits, 2006-2010: 

Calendar year: 2006; 
Urban upper payment limit: $112.96; 
Rural upper payment limit: $97.13. 

Calendar year: 2007; 
Urban upper payment limit: $115.33; 
Rural upper payment limit: $99.17. 

Calendar year: 2008; 
Urban upper payment limit: $117.41; 
Rural upper payment limit: $100.96. 

Calendar year: 2009; 
Urban upper payment limit: $119.29; 
Rural upper payment limit: $102.58. 

Calendar year: 2010; 
Urban upper payment limit: $125.72; 
Rural upper payment limit: $108.81. 

Source: CMS. 

Notes: The calendar year 2010 FQHC upper payment limit rates reflect a 
1.2 percent increase over the 2009 rates, in accordance with the rate 
of increase in the MEI, plus an additional $5.00 increase mandated by 
the Medicare Improvements for Patients and Providers Act of 2008. 
These upper payment limits reflect the total payments to FQHCs; 
Medicare pays 80 percent and the beneficiary coinsurance is 20 percent. 

[End of table] 

Medicare FQHC All-inclusive Payment Rate: 

The Medicare FQHC all-inclusive payment rate generally includes 
payment for the professional components (e.g., physicians' or 
nonphysician providers' work) of certain physician or nonphysician 
services, and services and supplies incident to the services. The 
technical components (e.g., the actual performance of tests such as x-
rays) of these services and other Medicare services not paid under the 
FQHC benefit (e.g., certain laboratory tests, durable medical 
equipment, and ambulance services) generally are billed separately to 
Medicare Part B.[Footnote 12] The all-inclusive payment rate is equal 
to the lesser of a FQHC's cost per visit or the upper payment limit. 
[Footnote 13] A FQHC's cost per visit is calculated as total allowable 
costs divided by total number of visits for the FQHC's reporting 
period. Allowable costs include the costs of Medicare FQHC services 
and supplies commonly provided during an office visit as well as 
overhead costs like FQHC administration. A visit is defined as a face-
to-face encounter between a patient and a physician and certain 
nonphysician providers when a FQHC-covered service is provided. 
[Footnote 14] 

The Medicare FI applies productivity guidelines and upper payment 
limits to determine a FQHC's all-inclusive payment rate. The FI 
compares productivity guidelines to the number of visits reported by 
the FQHC and uses the greater of the FQHC's actual visits or the 
guidelines' minimum number of visits as the denominator in the 
calculation of cost per visit. If a FQHC's actual visits do not meet 
the minimum, the center must use minimum visits as the denominator, 
which results in a lower reported cost per visit.[Footnote 15] To 
determine the all-inclusive payment rate, the FI applies the lesser of 
the FQHC's cost per visit or the appropriate upper payment limit. The 
FI then pays the FQHC 80 percent of the all-inclusive payment rate 
multiplied by the total number of Medicare visits (beneficiary 
coinsurance is 20 percent). 

Medicare FQHC-Covered Services: 

The Medicare FQHC services established in 1992 included primary and 
preventive services furnished by or under the supervision of a 
physician, nurse practitioner, physician assistant, clinical 
psychologist, or clinical social worker. In addition to certain RHC 
services, the Medicare FQHC services included a number of preventive 
services (e.g., medical social services, physical exams targeted to 
risk, blood pressure measurements, nutritional assessments and 
referrals, and preventive health education). Since 1992, Congress has 
added or extended Medicare coverage to 13 preventive services--such as 
initial preventive physical exams, pelvic exams, and prostate cancer 
screenings--some portion of which are paid under the all-inclusive 
payment rate. (See enclosure I for the list of added preventive 
services.) 

Medicare Payments Were Less than the Costs of Services Submitted by 
Most FQHCs: 

Medicare payments to most FQHCs were less than the costs of services 
that FQHCs submitted to CMS in 2007. About 72 percent of FQHCs had 
costs per visit that exceeded the upper payment limits; application of 
the upper payment limits reduced FQHCs' submitted costs of services by 
$71.7 million. Seven percent of the 922 FQHCs had fewer than the 
number of visits required by the productivity guidelines, and had 
costs per visit that did not exceed the upper payment limits; 
application of the productivity guidelines reduced these FQHCs' 
submitted costs of services by $1.1 million. Overall, application of 
the upper payment limits and productivity guidelines reduced FQHCs' 
submitted costs of services by about $72.8 million from about $504 
million to about $431 million--about 14 percent--in 2007. Since 
Medicare pays 80 percent of the FQHCs' costs (beneficiary coinsurance 
is 20 percent), the application of these limits reduced Medicare FQHC 
payments by $58.2 million. 

The Upper Payment Limits Limited Medicare Payments for Most FQHCs: 

Of the 922 FQHCs used in our analysis, 661 FQHCs (72 percent) had 
costs per visit that exceeded the upper payment limit in 2007. (See 
table 3.) Of those 661 FQHCs, more than half had costs per visit that 
exceeded the upper payment limit by $20 or more. (See fig. 1.) A 
slightly larger proportion of rural FQHCs (77 percent) had costs per 
visit that exceeded the upper payment limit, compared to 71 percent of 
urban FQHCs. The difference between the total Medicare costs as 
submitted by FQHCs without applying the upper payment limits and 
FQHCs' total Medicare costs with the upper payment limits applied 
totaled $71.7 million in aggregate in 2007--on average, a difference 
of $17 per visit based on 4,155,907 Medicare visits across all FQHCs. 
Medicare payments based on those costs--given that Medicare pays 80 
percent of costs and beneficiary coinsurance is 20 percent--would have 
been $57.4 million more if FQHCs were paid their cost per visit based 
on their submitted costs of services instead of the upper payment 
limit. 

Table 3: Upper Payment Limits--FQHCs with Costs Exceeding the Upper 
Payment Limit, 2007: 

FQHC status: Mixed rural-urban; 
Percentage of FQHCs that exceeded the upper payment limits: 58; 
Difference between total Medicare costs applying upper payment limits 
and total Medicare costs not applying upper payment limits: -
$8,379,925. 

FQHC status: Rural; 
Percentage of FQHCs that exceeded the upper payment limits: 77; 
Difference between total Medicare costs applying upper payment limits 
and total Medicare costs not applying upper payment limits: 
-$19,102,474. 

FQHC status: Urban; 
Percentage of FQHCs that exceeded the upper payment limits: 71; 
Difference between total Medicare costs applying upper payment limits 
and total Medicare costs not applying upper payment limits: 
-$44,237,135. 

FQHC status: All; 
Percentage of FQHCs that exceeded the upper payment limits: 72; 
Difference between total Medicare costs applying upper payment limits 
and total Medicare costs not applying upper payment limits: 
-$71,719,534. 

Source: GAO analysis of Medicare FQHC cost report data submitted in 
2007. 

[End of table] 

Figure 1: FQHC Distribution of the Difference between Cost per Visit 
and Upper Payment Limit, 2007: 

[Refer to PDF for image: vertical bar graph] 

Dollar amount below and above the weighted upper payment limit: 

> $100 below: 
Number of FQHCs: 0. 

$50-99.99 below: 
Number of FQHCs: 2. 

$30-49.99 below: 
Number of FQHCs: 18. 

$20-29.99 below: 
Number of FQHCs: 40. 

$10-19.99 below: 
Number of FQHCs: 72. 

$5-9.99 below: 
Number of FQHCs: 52. 

$1-4.99 below: 
Number of FQHCs: 58. 

<$0.99 below: 
Number of FQHCs: 19. 

Upper payment limit: 

<$0.99 above: 
Number of FQHCs: 20. 

$1-4.99 above: 
Number of FQHCs: 68. 

$5-9.99 above: 
Number of FQHCs: 92. 

$10-19.99 above: 
Number of FQHCs: 130. 

$20-29.99 above: 
Number of FQHCs: 101. 

$30-49.99 above: 
Number of FQHCs: 122. 

$50-99.99 above: 
Number of FQHCs: 95. 

>$100 above: 
Number of FQHCs: 33. 

Source: GAO analysis of Medicare FQHC cost report data submitted in 
2007. 

[End of figure] 

There was notable variation in costs across FQHCs. More than two-
thirds of Medicare visits to FQHCs had costs per visit exceeding the 
upper payment limit; almost half of Medicare visits had costs per 
visit that were more than $10 higher than the upper payment limit. 
Further, some FQHCs with the highest costs per visit had relatively 
fewer Medicare visits. Conversely, some FQHCs with the lowest costs 
per visit were well under the payment limit, but reported thousands of 
Medicare visits. For example, the five FQHCs with the highest costs 
per visit together reported fewer than 2,900 Medicare visits in 2007, 
while the five FQHCs with the lowest costs per visit together reported 
more than 8,700 Medicare visits. 

CMS's Productivity Guidelines Lowered Medicare Payments to Some FQHCs 
in 2007: 

Applying CMS's productivity guidelines to FQHCs' number of visits 
resulted in lower costs per visit for purposes of determining Medicare 
payment for some FQHCs in 2007. Of the 922 FQHCs used in our analysis, 
38 percent had fewer visits than the minimum number of visits required 
by CMS's productivity guidelines. These FQHCs were required to use the 
minimum number of visits as the denominator in their calculations of 
costs per visit on their cost report, which resulted in lower reported 
costs per visit. 

Seven percent of the 922 FQHCs had fewer than the number of visits 
required by the productivity guidelines and also had costs per visit 
that did not exceed the upper payment limits. As a result, the 
difference between FQHCs' total Medicare costs based on cost per visit 
without applying the productivity guidelines and FQHCs' total Medicare 
costs applying the productivity guidelines was $1.1 million in 2007. 
(See table 4.) Payments based on those costs would have been $861,965 
more than FQHCs were actually paid (Medicare pays 80 percent of costs 
and beneficiary coinsurance is 20 percent). 

Thirty-one percent of the 922 FQHCs did not meet the minimum number of 
visits required by the productivity guidelines and had costs per visit 
that exceeded the upper payment limit with productivity guidelines 
applied. Therefore, the productivity guidelines did not affect the 
Medicare payments for these FQHCs. 

Table 4: Productivity Guidelines--FQHCs That Did Not Meet the 
Productivity Guidelines' Minimum Number of Visits, 2007: 

Status: Mixed rural-urban; 
Percentage of FQHCs that did not meet the productivity guidelines' 
minimum number of visits: 27%; 
Percentage of FQHCs that did not meet the productivity guidelines' 
minimum number of visits and had costs per visit that did not exceed 
the upper payment limits: 7%; 
Difference between total Medicare costs using the minimum number of 
visits required by productivity guidelines (with productivity 
guidelines applied) and total Medicare costs based on actual number of 
visits (not applying productivity guidelines): -$165,423. 

Status: Rural; 
Percentage of FQHCs that did not meet the productivity guidelines' 
minimum number of visits: 33%; 
Percentage of FQHCs that did not meet the productivity guidelines' 
minimum number of visits and had costs per visit that did not exceed 
the upper payment limits: 5%; 
Difference between total Medicare costs using the minimum number of 
visits required by productivity guidelines (with productivity 
guidelines applied) and total Medicare costs based on actual number of 
visits (not applying productivity guidelines): -$154,093. 

Status: Urban; 
Percentage of FQHCs that did not meet the productivity guidelines' 
minimum number of visits: 42%; 
Percentage of FQHCs that did not meet the productivity guidelines' 
minimum number of visits and had costs per visit that did not exceed 
the upper payment limits: 7%; 
Difference between total Medicare costs using the minimum number of 
visits required by productivity guidelines (with productivity 
guidelines applied) and total Medicare costs based on actual number of 
visits (not applying productivity guidelines): -$757,940. 

Status: All; 
Percentage of FQHCs that did not meet the productivity guidelines' 
minimum number of visits: 38%; 
Percentage of FQHCs that did not meet the productivity guidelines' 
minimum number of visits and had costs per visit that did not exceed 
the upper payment limits: 7%; 
Difference between total Medicare costs using the minimum number of 
visits required by productivity guidelines (with productivity 
guidelines applied) and total Medicare costs based on actual number of 
visits (not applying productivity guidelines): -$1,077,456. 

Source: GAO analysis of Medicare FQHC cost report data submitted in 
2007. 

[End of table] 

FQHCs' Total Medicare Costs Without Limits Exceeded Total Medicare 
Costs with Limits by 17 percent in 2007: 

Medicare costs of services submitted by FQHCs before applying the 
productivity guidelines and upper payment limits totaled about $504 
million; application of the productivity guidelines and upper payment 
limits reduced FQHCs' total Medicare costs by $72.8 million to about 
$431 million. Overall, total Medicare costs submitted by FQHCs without 
applying the upper payment limits and productivity guidelines were 117 
percent of FQHCs' costs subject to these limits. Since Medicare pays 
80 percent of the FQHCs' costs (beneficiary coinsurance is 20 
percent), the application of the upper payment limits and productivity 
guidelines reduced Medicare FQHC payments by $58.2 million. 

Agency Comments and Our Evaluation: 

We obtained written comments on a draft of this report from HHS. In 
its comments, HHS stated that the report provides helpful general 
background information on the Medicare FQHC program and the 
establishment of the Medicare FQHC upper payment limits. HHS commented 
that it would take elements of the report into consideration in 
developing the prospective payment system for FQHCs that PPACA 
requires. 

HHS also raised concerns about the findings of the report because the 
Medicare cost report data that we analyzed have not been subject to a 
"comprehensive, full-scope" audit. Because CMS officials previously 
told us that the agency has not audited the cost reports, we took a 
number of steps to examine the reliability of the data, including an 
interview with representatives from Medicare FI responsible for 
compiling and maintaining FQHC cost report data to understand the data 
quality and verification they do on behalf of CMS. The information 
conveyed during this interview in conjunction with our electronic 
testing of the data were the basis of our determination that the FQHC 
cost report data were sufficiently reliable for the purposes of our 
analysis, as noted earlier in this correspondence. Nonetheless, for 
the prospective payment system scheduled to take effect October 1, 
2014, the estimated aggregate amount of Medicare FQHC prospective 
payment rates is to be set at 100 percent of the estimated amount of 
reasonable costs that would have occurred if the PPS had not been 
implemented, without the application of the upper payment limit or 
productivity guidelines. As such, HHS may need to address its concerns 
about the historical FQHC cost report data if the department uses 
these data to estimate the amount of FQHCs' reasonable costs for the 
prospective payment system. 

HHS also provided technical comments, which we incorporated where 
appropriate. HHS's comments are provided in enclosure III. 

We are sending copies of this report to the Secretary of Health and 
Human Services and other interested parties. In addition, the report 
is available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-7114 or kingk@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions 
to this report are listed in enclosure IV. 

Signed by: 

Kathleen M. King: 
Director, Health Care: 

Enclosures - 4: 

[End of section] 

Enclosure I: 

Preventive Services Added to Medicare or Expanded Since 1992 That Are 
Paid Under the Medicare FQHC All-inclusive Rate: 

Since the Medicare federally qualified health center (FQHC) payment 
structure was created in 1992, Congress has added or extended Medicare 
coverage to 13 preventive services--such as initial preventive 
physical exams, pelvic exams, and prostate cancer screenings--some 
portion of which are paid under the all-inclusive payment rate. 
[Footnote 16] Two of these preventive services, diabetes self-
management training and medical nutrition therapy for persons with 
renal disease or diabetes, were added as separately billable services 
under the Medicare FQHC all-inclusive payment rate.[Footnote 17] For 
the remaining 11 preventive services added since 1992, FQHCs are paid 
under the all-inclusive payment rate for providing these services to 
Medicare beneficiaries.[Footnote 18] 

Table 5: Preventive Services Added to Medicare or Expanded Since 1992 
That Are Paid Under the Medicare FQHC All-inclusive Rate: 

Legislation: Balanced Budget Act of 1997 (Pub. L. No. 105-33, 4101- 
4106, 111 Stat. 251, 360-68.); 
Medicare added services and revisions[A]: 
* Expansion of annual screening mammography coverage for women over 
the age of 39, regardless of risk.
* Expansion of screening pap smears for high-risk individuals to 
annual screening[B].
* Screening pelvic exams[B].
* Prostate cancer screening.
* Colorectal cancer screening for beneficiaries age 50 and over[C].
* Diabetes self-management training[D].
* Bone mass measurements for certain at-risk individuals. 

Legislation: Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (Pub. L. No. 106-554, App. F, 101-02, 105, 
114 Stat. 2763A-463, 467-68, 471-72.); 
Medicare added services and revisions[A]: 
* Annual glaucoma screening coverage for high-risk individuals.
* Medical nutrition therapy for persons with renal disease or 
diabetes[D].
* Initial preventive physical exams including referrals for other 
preventive services covered by Medicare. 

Legislation: Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (Pub. L. No. 108-173,  611-12, 117 Stat. 
2066, 2303-05.); 
Medicare added services and revisions[A]: 
* Cardiovascular screening blood tests[E].
* Tobacco cessation counseling services. 

Legislation: N/A (National Coverage Determination-2005); 
Medicare added services and revisions[A]: 
* Ultrasound screening for abdominal aortic aneurysms for persons at 
risk, if referred as part of an initial preventive physical 
examination. 

Legislation: Deficit Reduction Act of 2005 (Pub. L. No. 109-171, 
5112, 120 Stat. 4, 43-44 (2006.)); 
Medicare added services and revisions[A]: [Empty]. 

Source: GAO analysis of legislation, Centers for Medicare & Medicaid 
Services guidance, and Health Resources and Services Administration 
documentation. 

Table note: The professional components of these services are paid 
under the all-inclusive payment rate and the technical components are 
billed separately under Medicare Part B, with some exceptions (e.g., 
cardiovascular screening blood tests are laboratory tests and do not 
have professional or technical components). 

[A] Some Medicare services--such as the clarification of the scope of 
nurse midwife services--were originally covered under the Medicare 
FQHC benefit established in 1992. Diabetes screening tests and 
telehealth services were also added to Medicare; we did not include 
these services since they are not paid under the Medicare FQHC all-
inclusive rate, but are billed to Medicare Part B. 

[B] Prior to the Balanced Budget Act of 1997, pap smears were covered 
once every 3 years or a shorter period for high-risk individuals as 
specified by the Department of Health and Human Services. Screening 
pap smear and screening pelvic exam coverage was expanded to biennial 
screening pap smears and biennial screening pelvic exams under the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000. 

[C] Colorectal cancer screening coverage was extended to average risk 
individuals under the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000. Fecal occult blood tests, a 
component of colorectal cancer screening, were included among the list 
of preventive primary services paid under the Medicare FQHC all- 
inclusive payment rate in 1992. 

[D] Diabetes self-management training and medical nutrition therapy 
for persons with diabetes and renal disease were subsequently added as 
separately billable services under the Medicare FQHC benefit after the 
Deficit Reduction Act of 2005. FQHCs are eligible to separately bill 
these services under the all-inclusive payment rate if provided one-on-
one to a beneficiary. 

[E] Cholesterol tests, a component of cardiovascular screening, were 
included among the list of preventive primary services paid under the 
Medicare FQHC all-inclusive payment rate in 1992. 

[End of table] 

[End of enclosure] 

Enclosure II: 

Key Features of the Medicaid Prospective Payment System: 

Under the Medicaid federally qualified health center (FQHC) 
prospective payment system, each FQHC has a specific payment rate 
based on its own costs. The initial per visit base Medicaid payment 
rate was based on the average of 2 years of a FQHC's reasonable cost 
per visit from its fiscal year 1999 and fiscal year 2000 cost report 
data. In subsequent years, an inflation factor--the Medicare Economic 
Index (MEI)--was applied to each FQHC's initial base payment rate to 
account for the increase applied to fees for physician services. 
Finally, the Medicaid FQHC prospective payment system methodology 
requires states to adjust the payment rate to take into account any 
increase or decrease in the scope of services furnished by the health 
center. 

States may choose to use the Medicaid FQHC prospective payment system 
or choose to construct an alternate payment methodology to reimburse 
some or all FQHCs if the alternate methodology would result in 
payments no lower than the prospective payment system payment rate, 
and if the FQHC agrees to it. In a June 2005 report, GAO reviewed 
states' implementation of the new Medicaid FQHC payment structure and 
found that about half of states used the Medicaid FQHC prospective 
payment system exclusively in 2004; other states used an alternate 
payment methodology such as cost-based reimbursement.[Footnote 19] GAO 
also found that the MEI may not be an appropriate inflation index 
because it may increase at a slower rate than FQHCs' costs and does 
not adequately reflect FQHC services. GAO recommended that the Centers 
for Medicare & Medicaid Services explore the development of an 
alternative inflation index that better captures FQHCs' costs of 
services. 

[End of enclosure] 

Enclosure III: 

Agency Comments: 

Department Of Health & Human Services: 
Office Of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

June 25 2010: 

Kathleen King, Director: 
Health Care: 
U.S. Government Accountability Office: 
441 G Street N.W. 
Washington, DC 20548: 

Dear Ms. King: 

Attached are comments on the U.S. Government Accountability Office's 
(GAO) draft correspondence entitled: "Medicare Payments to Federally 
Qualified Health Centers" (GAO-10-576R). 

The Department appreciates the opportunity to review this report 
before its publication. 

Sincerely, 

Signed by: 

Andrea Palm: 
Acting Assistant Secretary for Legislation: 

Attachment: 

General Comments Of The Department Of Health And Human Services (HHS) 
To The Government Accountability Office's (GAO) Draft Correspondence 
Entitled, "Medicare Payments To Federally Qualified Health Centers" 
(GAO-10-576R): 

The Department appreciates the opportunity to review and comment on 
this draft correspondence. Federally Qualified Health Centers (FQHCs) 
play a vital role in the nation's health care system safety net. We 
appreciate the GAO's effort in its analysis of Medicare FQHC cost 
report data. We believe this report provides helpful general 
background information on the Medicare FQHC program and in particular, 
a useful informational history regarding establishment of the Medicare 
FQHC upper payment limits. 

We understand that the rationale for this analysis has to some extent 
been superseded by the requirement in Section 10501 of the Affordable 
Care Act (ACA) for the Department of Health and Human Services (DHHS) 
to develop a prospective payment system (PPS) for FQHCs. 

Nevertheless, we appreciate the presentation of one possible framework 
for analysis of Medicare FQHCs and the present payment system in 
general. While realizing that the focus of this report was an analysis 
of Medicare FQHC costs, we note the existence of a number of 
alternative analyses to evaluate Medicare FQHCs and the present 
payment system. These include comparison of Medicare FQHC payment 
limits to the Medicare Rural Health Clinic payment limit, comparisons 
with Medicare fee-for-service payments under the Medicare physician 
fee schedule, analysis of the growth of Medicare FQHCs, and comparison 
of Medicare payment to Medicaid payments. We believe that interested 
parties should explore a wide range of analyses when evaluating the 
adequacy of the current Medicare FQHC payment system. 

While we note that GAO performed a number of data checks on the 
Medicare FQHC cost report data used in its analysis, the data are not 
derived from comprehensive, full-scope, audited Medicare FQHC cost 
reports. Accordingly, we are concerned about the findings and 
conclusions presented in this report. 

We note that the existence of the Medicare FQHC upper payment limits 
reduces the need for detailed audit of FQHC cost data. Reliance upon 
the FQHC upper payment limits achieves efficiencies in the 
administration of the Medicare program while maintaining adherence to 
statutory requirements. We urge caution on the use and evaluation of 
Medicare FQHC cost data that has not been fully audited. 

We appreciate the fact that any review of the Medicare FQHC program, 
and the upper payment limits in particular, presents difficult and 
decidedly challenging work in a highly complex area. 

We thank the GAO for its hard work on this report and will carefully 
consider elements of the approach in the development of the PPS for 
Medicare FQHCs as required by the ACA. 

[End of enclosure] 

Enclosure IV: 

GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Kathleen M. King, (202) 512-7114 or kingk@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Martin T. Gahart, Assistant 
Director; Seta Hovagimian; Drew Long; Ann Tynan; and Jennifer 
Whitworth made key contributions to this report. 

[End of enclosure] 

Footnotes: 

[1] Medicare is the federal health insurance program for people over 
age 65, individuals under age 65 with certain disabilities, and 
individuals diagnosed with end-stage renal disease. Prior to the 
enactment of OBRA 1990, Medicare paid community health centers for 
services normally covered under Medicare Part B, which covers 
physician and other outpatient services on the basis of the lesser of 
costs or charges. 

[2] Section 330 grants are administered by the Department of Health 
and Human Services' Health Resources and Services Administration 
(HRSA) and provide funding for programs that support primary health 
care services to medically underserved populations. 

[3] The MEI is a medical inflation index designed to estimate the 
increase in the total costs for the average physician to operate a 
medical practice. 

[4] Pub. L. No. 111-148, 10501(i), 124 Stat. 119, 997-99 (2010).The 
Centers for Medicare & Medicaid Services (CMS)--the agency within HHS 
that administers the Medicare and Medicaid programs--defines a PPS as 
a method of reimbursement in which payment is made on a predetermined, 
fixed amount. Congress has established separate prospective payment 
systems for a variety of facilities, including Medicaid payments to 
FQHCs. Medicaid is a federal-state program that finances health 
insurance for certain low-income adults and children. 

[5] Healthcare Common Procedure Coding System (HCPCS) is a standard 
coding system developed to ensure that health care claims are 
processed in an orderly and consistent manner by Medicare and other 
health insurance programs. 

[6] Pub. L. No. 110-275, 151, 122 Stat. 2494, 2550-51. 

[7] FQHCs may submit cost reports for any 12-month reporting period; 
therefore, cost reports submitted in 2007 may include costs and visits 
from 2006 and 2007. 

[8] If a FQHC or a FQHC with multiple sites is located within a 
metropolitan area, then the urban upper payment limit applies. If a 
FQHC is not located within a metropolitan area, then the rural upper 
payment limit applies. If a FQHC has mixed urban-rural sites, the FI 
applies a weighted upper payment limit based on the percentage of 
urban and rural visits as the percentage of total site visits. 

[9] The 2008 Uniform Data System data reported by HRSA include only 
FQHCs that receive Section 330 grants. 

[10] The rules implemented provisions of the Omnibus Budget 
Reconciliation Act of 1990 regarding Medicare coverage and payment for 
services provided by FQHCs. See Medicare Program; Payment for 
Federally Qualified Health Center Services, 57 Fed. Reg. 24,961 (June 
12, 1992) and 61 Fed. Reg. 14,640 (Apr. 3, 1996). 

[11] Freestanding FQHCs are not affiliated with a hospital, skilled 
nursing facility, or home health agency participating in Medicare. 

[12] There are two exceptions: the technical component of fecal occult 
blood tests as part of colorectal cancer screening and cholesterol 
tests as part of cardiovascular disease screening are paid under the 
all-inclusive payment rate. 

[13] Medicare pays FQHCs 80 percent of the all-inclusive payment rate 
for each visit and beneficiary coinsurance is 20 percent. No 
deductible applies to Medicare beneficiaries seeking services at FQHCs. 

[14] In general, FQHCs can only bill for one visit per beneficiary per 
day, regardless of whether the patient receives multiple services 
unless the patient suffers an illness or injury requiring additional 
diagnosis or treatment. FQHCs can bill for a separate medical visit 
and mental health visit provided to a patient on the same day and for 
one-on-one diabetes self-management training and medical nutrition 
therapy visits. Pneumoccoccal and influenza vaccines and their 
administration are not included in the all-inclusive rate and are paid 
at 100 percent of reasonable cost. 

[15] When calculating cost per visit, a FQHC whose actual visits are 
lower than the minimum number of visits from the productivity 
guidelines must use the minimum number of visits as the denominator to 
calculate an adjusted cost per visit on its cost report. This results 
in a lower reported adjusted cost per visit than if the FQHC used the 
actual number of visits. 

[16] Congress also added Medicare coverage for diabetes screening 
tests after the Medicare FQHC payment methodology was established in 
1992; however, we did not include diabetes screening tests in this 
table because according to Centers for Medicare & Medicaid Services 
(CMS) officials, these are laboratory services, which are covered 
under Medicare Part B and are not paid under the Medicare FQHC all-
inclusive rate. Telehealth services were also added to Medicare after 
1992, but they are not a FQHC-covered service and are paid under 
Medicare Part B. 

[17] FQHCs that provide one-on-one diabetes self-management training 
or medical nutrition therapy visits are eligible to bill for these 
services as separately billable visits if provided to a beneficiary on 
the same day as another medical or mental health visit; group sessions 
are not counted as separate visits and are included in the all- 
inclusive rate. 

[18] Technical components--including laboratory tests--of these 
services are generally not paid under the all-inclusive payment rate, 
but are billed separately under Medicare Part B. There are two 
exceptions: the technical components of fecal occult blood tests (a 
component of colorectal cancer screening tests) and cholesterol tests 
(a component of cardiovascular disease screening tests) are paid under 
the Medicare FQHC all-inclusive payment rate. 

[19] See GAO, Health Centers and Rural Clinics: State and Federal 
Implementation Issues for Medicaid's New Payment System, [hyperlink, 
http://www.gao.gov/products/GAO-05-452] (Washington, D.C.: June 17, 
2005). 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAOs actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAOs Web site, 
[hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional 
information. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Ralph Dawn, Managing Director, dawnr@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: