Community Health Centers:

Challenges in Transitioning to Prepaid Managed Care

HEHS-95-138: Published: May 4, 1995. Publicly Released: May 4, 1995.

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GAO reviewed the effects of managed health care on community health centers, focusing on: (1) whether centers participating in prepaid managed care have been able to provide medical services without jeopardizing their financial position; (2) lessons learned from centers' experiences in prepaid managed care; and (3) whether the Bureau of Primary Health Care (BPHC) prepares community health centers to operate under prepaid managed care systems.

GAO found that by 1993: (1) almost 500,000 community health center patients were covered by prepaid managed care arrangements; (2) the 10 centers surveyed were able to continue to provide full services to their vulnerable clients in part due to other revenue sources; (3) all 10 centers increased their patient load and spending for a variety of services, while 7 centers also increased their spending for uncompensated care; (4) all 10 centers improved their financial condition due to increased revenues from a variety of sources; and (5) 3 centers had losses of up to $124,000, while 6 centers had excess revenues of up to $100,000 from prepaid managed care. GAO also found that: (1) the centers may be financially vulnerable if they depend on Medicaid prepaid managed care for a sizeable portion of their revenues, have inadequate capitation rates, and have financial responsibility for other than primary care services or rely on other federal and state funding sources; (2) lessons learned from centers' experiences with prepaid managed care include the likely loss of patients if the centers fail to participate, low capitation rates, assumption of too much financial risk, and the lack of managed care skills; and (3) to encourage centers' participation in prepaid managed care, BPHC has implemented an initiative to fund centers' efforts to develop delivery networks with other health providers for managed care operations.

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