Health Care:

Medicare Payments to Federally Qualified Health Centers

GAO-10-576R: Published: Jul 30, 2010. Publicly Released: Jul 30, 2010.

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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. 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. Currently, Medicare reimburses FQHCs for these services with an all-inclusive payment rate--resulting 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. 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 and the key features of the Medicaid PPS. We did not examine the PPACA prospective payment system or the impact it will have on FQHCs.

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.

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