Hospitals & Health Systems –What’s Your CHC/FQHC Strategy? · Hospitals & Health Systems...

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Hospitals & Health Systems – What’s Your CHC/FQHC Strategy?

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April 15, 2019

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Jeff Allen, [email protected]

Brad Brotherton, [email protected]

Jeffry Adest, EsqPartner / [email protected]

› FQHC sites have grown to more than 10,000 with more than 26 million patients being served

› FQHC revenue has shifted from significant reliance on federal grants to reliance on patient revenue from Medicaid, Medicare & insurance sources

› Ancillary services are increasingly being seen in FQHC setting

› All of this has led to an era of hospital vs. FQHC competition for revenue

Competition Shifting to Collaboration

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› Multiple variances impact the balance of competition in certain markets

• Reimbursement rates & outlook• Drug prices (340B)• Professional liability insurance• Federal grant dollars• Etc.


› These variances have encouraged hospitals in certain markets to shift the thinking from competing to collaborating

› In addition, government programs are increasingly rewarding care coordination with models such as ACOs, bundled payment initiatives & managed care contracts


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› Physician practices can be structured various ways within a hospital or health system

› Understanding differences before discussions start is important

› Based on structure, degree of change will be easier in certain situations

Physician Operations in Hospitals

Physician Operations OptionsProvider/Hospital

BasedRural Health Clinic Freestanding Separate Legal

Entity

Degree of integration with hospital

High High Medium Low

Reimbursement Generally highest Can be highest reimbursement,

especially in rural settings

Lower Lower

Other Act & look like department of

hospital. Status has recently been subject

to Medicare reductions (site-neutral payment

movement)

Seen more in rural hospitals. Mid-level

requirement. Must do lab procedures.

Certification process

Included as part of hospital, but little

integration or enhanced

reimbursement received. Best for truly independent

clinics

Very little integrationpossible (separate payroll, benefits, branding, etc.)

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› Physician operations generally show negative operating results within hospital organizations

› Detailed understanding needed since diversity in practice exists on how overhead & other costs are allocated

• Direct vs. indirect costs

• Space costs

› Cooperation with FQHCs could enable hospitals in certain markets to reduce the cost of its investment in physician & emergency services for the community

Physician Operations in Hospitals

› Rural hospital helps create an independent FQHC organization & transfers certain primary care & other physicians to new FQHC

› Hospital agrees to transfer OB/GYN & certain other physician practices to existing FQHC

› Hospital provides workspace for FQHC outreach case managers in the ER to help place indigent patients with a medical home

› Hospitals & FQHCs work together to launch a residency program for specialty physicians

Real-Life Collaboration Examples

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› Changing health care environment• Population health

• Value-based reimbursement

• ACO or other shared savings program

› These factors & others are also encouraging hospitals & FQHCs to collaborate in transforming the delivery of health care in communities

› How will the following be impacted?• Downstream revenue• Alternative payment models• Care coordination & network development strategies• Information systems & sharing of records• Other hospital competitors

Potential Hospital Concerns

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› 340B Drug Discount Program• If hospital not eligible, could be additional benefit from

collaboration if CHC/FQHC has successful program

› Community Health Needs Assessment• IRS required for tax-exempt hospitals• Could provide insight on hospital needs & potential

opportunities for collaboration

Other Considerations

› Create my own CHC/FQHC

› Transferring hospital clinic to existing CHC/FQHC

› Specialist arrangements

› Resident rotation arrangements

› Referral arrangements

Relationship Opportunities with Hospitals/Health Systems

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› FQHCs are not-for-profit entities that satisfy state licensure requirements (if applicable) & federal FQHC requirements & are awarded a federal 330 grant/FQHC designation by HRSA through a competitive process

› FQHCLAs are not-for-profit entities that satisfy state licensure requirements (if applicable) & federal FQHC requirements & are designated as an FQHCLA by HRSA through a noncompetitive process

› Subgrantees do not have a direct relationship with HRSA & do not receive a direct award of designation from HRSA. Essentially, an existing FQHC (the “parent”) agrees to “sponsor” the subgrantee through the parent applying to HRSA. HRSA holds the parent responsible for the activities & oversight of the subgrantee

Types of CHCs/FQHCs

› Many hospitals operate outpatient clinics

› Hospitals often operate these clinics to satisfy their charitable mission

› Hospital clinics may not be operated as efficiently & cost effectively as CHC/FQHC sites

› Care may be more episodic & not as patient-centered as care offered at a CHC/FQHC

Should I Form My Own CHC/FQHC?

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› Potential benefits to hospital• Ability to limit its losses resulting from operating an outpatient clinic• Can continue to fulfill mission to provide high-quality care • Especially attractive for high-risk activities such as obstetrics

› Hospital can provide grant to CHC/FQHC to help offset losses & help with hospital’s obligation to provide charity care


› Benefits of being a CHC/FQHC (applicable to all FQHC types)• Enhanced Medicaid payments: CHCs/FQHCs are reimbursed under a

Prospective Payment System (methodology is cost-based) from Medicaid fee-for-service & Medicaid managed care. Depending on the state, this could take the form of a direct enhanced rate from the MCO or a standard payment from the MCO with a wraparound payment from the Medicaid program. For example, if a CHC’s/FQHC’s Medicaid fee-for-service rate is $200 & the Medicaid managed care pays $75, the CHCs/FQHCs would get to bill the Medicaid program the other $125

• Enhanced Medicare reimbursement: Medicare pays CHCs/FQHCs enhanced reimbursement (approximately 80% of $170 depending on geographic location). CHCs/FQHCs would receive the same rate for Medicare Advantage patients through a wraparound process similar to the one discussed above


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› Benefits of being a CHC/FQHC (applicable to all FQHC types)• 340B Drug Pricing Program: Each FQHC type can participate in this

program, which permits the purchase of drugs at prices that are significantly below market for the benefit of the FQHC entity & its patients, with the FQHC entity being able to retain (&/or pass along to its patients) the difference between its lower costs & the amount reimbursed by certain payors

› This can be done through an in-house pharmacy or a contract pharmacy


› Benefits of being an CHC/FQHC (applicable only to FQHC)• 330 grant (applicable to FQHCs): Each FQHC receives an annual

grant. These grants typically start at $600,000 or $650,000 per year but can grow to multiples of that, depending on patient volume, community need and other variables

• Other federal grants: In addition to 330 grants, HRSA periodically makes other federal grants available to FQHCs, e.g., related to operations, construction/equipment


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› Benefits of being a CHC/FQHC (applicable to FQHCs & subgrantees)

› FTCA coverage: CHC/FQHC is eligible for Federal Tort Claims Act (FTCA) coverage which replaces the need for malpractice insurance coverage (the plaintiff must sue the federal government instead of the CHC/FQHC) for claims relating to sites & services included in the CHC/FQHC approved scope of services. Subgrantees are eligible for FTCA coverage. This coverage generally applies to the FQHC & its employed providers with limited coverage for independent contractors


› Must be a not-for-profit entity› Must be an independent entity

• Generally, cannot have a corporate or individual member of entity

› Must be located in or provide services to patients of a medically underserved area, a medically underserved population &/or a health professional shortage area

› Must provide or arrange for provision of full range of primary care services to patients

› Must comply with state licensure requirements, where applicable

General Legal Requirements for All CHC/FQHC Types

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› Must have between nine & 25 members of the board of directors

› Composition of board of directors• “User” directors: A majority of the board members are required to be individuals who are

or will be served by the center & who, as a group, represent the individuals being or to be served in terms of demographic factors, e.g., race, ethnicity, sex

• Health professionals: No more than half of the remaining members of the board may be individuals who derive more than 10% of their annual income from the health care industry. (CHC/FQHC has discretion in how to define “health care industry”)

• Nonhealth professionals: The remaining board members must be representative of the community in which the center’s catchment area is located & are to be selected for their expertise in community affairs, local government, finance & banking, legal affairs, trade unions & other commercial & industrial concerns or social service agencies within the community

General Requirements for CHC/FQHC Types

› Board must maintain control of operations of center

› Outside entity cannot have the right to appoint board members or make or control any major decisions

› Senior executives, e.g., CEO, CFO, CMO, must be directly employed by the FQHC entity

› Must offer services on a sliding fee scale

General Requirements of CHC/FQHC Entity for All CHC/FQHC Types

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› Establish new entity for the CHC/FQHC

› Obtain state licensure/certificate of need approvals, as applicable

› Application• NAP application, if available• LAL application

How Does My Hospital Clinic Become a CHC/FQHC?

› New Access Point (NAP) application

• Application for Section 330 grant funds (not always available)• Organizations must apply for Health Center Program grant funding by

submitting an application in response to a competitive opportunity announcement

• Applicants must propose at least one full-time, permanent new access point site whose main purpose is primary medical care

• Site(s) must be operational & fully compliant with the CHC/FQHC requirements within 120 days of receiving the Notice of Award


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› Look-Alike (LAL) application

• No Section 330 grant funding• Can be submitted at any time• Must be operating as a health center that meets CHC/FQHC requirements

prior to submitting application• Once the application is submitted, HRSA has 30 days to complete a

preliminary review & assess the eligibility & completeness of the application• After the application passes the initial review, HRSA & the applicant have

60–90 days to schedule & prepare for a site visit


› If a hospital does not want to form its own CHC/FQHC but wants to transfer to an existing CHC/FQHC, the following are potential benefits to the hospital

• Ability to limit its losses resulting from operating an outpatient clinic› Can continue to fulfill mission to provide high-quality care

› Especially attractive for high-risk activities such as obstetrics

• For example, if the hospital was losing $3 million from its outpatient clinic & can transfer the clinic to a CHC/FQHC, the hospital can “offload” all of the loss or a significant part of the loss as the CHC/FQHC will receive enhanced rates. Although generally much less than their current losses, the hospital may need to provide a grant to the CHC/FQHC to help offset CHC/FQHC operating losses

Transferring Hospital Clinic to Existing CHC/FQHC

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› Potential benefits to CHC/FQHC• New site• Expanded operations• Increased number of patients• Can potentially lead to change of Medicaid rate (state-specific)• Hospital can provide grant to CHC/FQHC to help offset losses

Transferring Hospital Clinic to CHC/FQHC

› Related considerations• Need for state licensure approvals &/or waiver of hospital obligations to

operate outpatient clinic, as applicable• Space leasing considerations• Construction considerations• Potential for specialist arrangements• Potential for residency arrangements

Transferring Hospital Clinic to CHC/FQHC

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› CHCs/FQHCs have historically provided primary care, but not specialty care

› Over the past few years, HRSA has started allowing CHCs/FQHCs to provide specialty care

› CHCs/FQHCs have a hard time finding specialists

› There may be significant benefit to a hospital leasing its specialists to a CHC/FQHC on a “session” or other part-time basis

› Specialist services at the CHC/FQHC would typically be E&M visits rather than more intensive services

What Are Specialist Arrangements?

› Benefit to hospital• While E&M visits at the CHC/FQHC take place at CHC/FQHC, testing & more

intensive services continue to be performed at the hospital. This can help the hospital increase its patient base for higher reimbursed specialists & follow-up services

• Hospital avoids having patients who can be seen at CHC/FQHC show up at hospital on unscheduled basis, e.g., emergency room

• Helps hospital avoid unnecessary/avoidable hospital visits that are much more costly to the hospital & the patient

• Specialists who do not want to take Medicaid in their private offices can avoid doing so by seeing Medicaid patients at CHC/FQHC

Specialist Arrangements

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› Benefit to existing CHC/FQHC• Patients can receive services that they would otherwise be unable to

easily receive• Furthers CHC/FQHC mission of providing care for totality of patient• Ability to bill for E&M type visits at CHC/FQHC rates• Can potentially lead to change of Medicaid rate (state-specific)


› Related considerations• Pricing for these arrangements can be flexible

› Session basis

› Patient basis

• These relationships can fit in FQHC safe harbor• Notification to payors• “Value-based” potential


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› Many hospitals operate residency programs

› The residents need to “rotate” to outpatient clinics

› It is beneficial for residents to have rotations at sites that focus on the totality of patient care

› There can be significant benefits to hospitals having its residents rotate through the CHC/FQHC

Resident Rotation Arrangements

› Benefit to hospital• Hospital can have its residents receive hands-on experience at primary care site

• CHCs/FQHCs focus on totality of patient care which is important for residents

• Higher CHC/FQHC rates can cover extra time residents spend with patients

• Primary care exception – Allows one physician to supervise up to four residents at a time so four patients can be seen simultaneously under supervision of one physician

• Hospital can continue to have its preceptors oversee the residents to ensure compliance with GME requirements under “leased employee” or similar model

• Hospital continues to receive GME funding for time residents spend at CHC/FQHC


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› Benefit to existing CHC/FQHC• Residents can be a good source of “free” labor• Good recruiting tool

› CHC/FQHC can recruit residents to work at CHC/FQHC following completion of residency based on experience at CHC/FQHC

› National Health Services Corps loan forgiveness programs

› Visa candidates


› Related considerations• Parties needs to determine time frame for residency programs, e.g.,

only certain days or sessions• Parties needs to determine specialties for residents• Parties need to determine if CHC/FQHC clinicians will supervise the

residents or if the hospital preceptors will supervise the residents• Need residency rotation agreement• Need agreement relating to supervision of the residents


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› Why does the CHC/FQHC need these agreements?• HRSA requires all CHCs/FQHCs to provide directly or arrange for

referral of services, including ancillary services• If CHCs/FQHCs cannot provide the services directly, they are required

to arrange for another party, e.g., a hospital, to provide the services• These arrangements can also address the CHC’s/FQHC’s obligations

relating to referral tracking & coverage by the hospital’s physicians of CHC/FQHC patients in the hospital

Hospital Referral Arrangements

› The CHC/FQHC agrees to refer patients to hospital

› The hospital bills & collects from patients & third-party payors for the services it provides

› Agreement must specify the services which the CHC/FQHC will be referring to the hospital


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› The hospital must agree to• Apply the CHC’s/FQHC’s sliding fee discount or apply the hospital’s charity care policies

to the CHC’s/FQHC’s patients provided that the hospital’s charity care policies offer a sliding fee discount to patients at or below 200% of the federal poverty level & offer either a full discount or a nominal fee to patients at or below 100% of the federal poverty level

• Report to the CHC/FQHC regarding the condition, care & treatment of the patient, including any applicable lab & diagnostic test results

• Refer patients back to the CHC/FQHC for follow-up care

• The agreement should preferably contain a representation by the hospital that its providers are appropriately licensed & qualified to perform the services


› Potential for CHCs/FQHCs & hospitals to work together• Value-based arrangements• Clinically integrated networks (CIN)• ACOs• IPAs

Population Health: Value-Based Payment Arrangements

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› The health center safe harbor under the federal Anti-Kickback Statute protects the CHC/FQHC from prosecution under the federal Anti-Kickback Statute

› Certain arrangements between a CHC/FQHC & providers/supplies of goods, items, services, donations & loans

• That contributes to the CHC’s/FQHC’s ability to maintain or increase the availability, or enhance the quality, of service provided to the CHC’s/FQHC’s medically underserved patients

› Under the CHC/FQHC safe harbor, the hospital can provide• Community benefit grants

• Services/personnel at below fair market value

CHC/FQHC Safe Harbor

CHC/FQHC Perspective

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› CHCs/FQHCs do primary care really well & can be a great partner in the community

› CHCs/FQHCs are heavily regulated entities & generally must remain independent NFP corporations or public entities

› Financial arrangements must be a win/win to be long-term successfully

› There are many examples nationally of partnerships between entity types that have been home runs for the community

Collaboration Can be a Win/Win

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The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered

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