Background

Recent state Medicaid initiatives have demonstrated that delivery system reforms, when coupled with value-based payment (VBP) methodologies, can reduce costs and increase health care system capacity to provide efficient, high-quality care.[i] Federally qualified health centers (FQHCs), which are critical safety net providers for more than 12 million Medicaid beneficiaries,[ii] often have been excluded from participating in payment reform initiatives due to complexities in federal reimbursement requirements.

Federally Qualified Health Centers

Federally qualified health centers (FQHCs) are safety net providers that deliver a wide range of outpatient services primarily to complex and vulnerable populations, including Medicaid enrollees and the uninsured. Some FQHCs serve specialized populations, such as migrant workers and individuals experiencing homelessness.

Health Center Program grantees and look-alikes are eligible to apply to the Centers for Medicare & Medicaid Services (CMS) for FQHC status after the Health Resources and Services Administration (HRSA) certifies that they meet Health Center Program requirements as authorized under Section 330 of the Public Health Services Act.

FQHCs receive reimbursement from Medicaid through the Prospective Payment System (PPS). PPS and opportunities to develop value-based payment methodologies are explored in the Value-Based Payment Methodology Development section of this toolkit.

Sources: CMS, “Federally Qualified Health Center,” January 2017. https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/Downloads/fqhcfactsheet.pdf; (2) Public Health Service Act, 42 U.S.C. §254b.

Under Section 1902(bb) of the Social Security Act,[iii] Medicaid programs must reimburse FQHCs either through the Prospective Payment System (PPS), which requires states to set cost-based, per-visit payment rates for individual clinics, or through a qualifying alternative payment methodology (APM). APMs must reimburse FQHCs at least as much as they would receive under PPS, and be agreed to by each clinic.[iv],[v] Recently, states have begun to demonstrate that they can effectively engage FQHCs in VBP reform, implementing VBP methodologies through either a qualifying APM under Section 1902(bb), or through another Medicaid authority.

Defining Terms

Value-based Payment Methodology*: a methodology that rewards providers for quality and efficiency over volume of care delivered, and is tied to performance measures. VBP methodologies can be implemented using a number of Medicaid authorities.

Alternative Payment Methodology (APM): a methodology, which can be value-based, specifically implemented for FQHCs under Section 1902(bb) of the Social Security Act. APMs must reimburse FQHCs at least as much as they would receive under PPS, and be agreed to by each clinic.

*As defined by the Health Care Payment Learning and Action Network.

VBP methodologies reward providers for improving both healthcare quality and efficiency. For FQHCs, adoption of a VBP methodology can mean the ability to:

  • •  Support more team-based, integrated care;
  • •  Better leverage scarce resources (such as clinicians’ time);
  • •  Provide interventions (such as care coordination and care transitions) that can improve the health of complex populations and address social determinants of health;[vi] and
  • •  Impact cost and quality of care provided directly by the FQHC, as well as across the health system.

To view additional information about developing a VBP methodology for FQHCs, return to the toolkit home.


[i] Donald Nichols, et al., Evaluation of the Multi-Payer Advanced Primary Care Practice (MAPCP) Demonstration: Final Report (Research Triangle Park, NC: RTI International, 2017).

[ii] Curt Degenfelder Consulting, Inc. The FQHC Alternative Payment Methodology Toolkit: Fundamentals of Developing A Capitated FQHC APM (Bethesda, MD: National Association of Community Health Centers, 2017). http://www.nachc.org/wp-content/uploads/2017/08/NACHC_APMToolkit-1.pdf.

[iii] Social Security Act, 42 U.S.C. § 1902(bb). https://www.ssa.gov/OP_Home/ssact/title19/1902.htm.

[iv] Ibid.

[v] Centers for Medicare & Medicaid Services, guidance letter: SMDL #01-014. January 19, 2011. https://downloads.cms.gov/cmsgov/archived-downloads/SMDL/downloads/smd011901d.pdf.

[vi] Jason Fournier. Engaging Federally Qualified Health Centers (FQHCs) in Payment Reform Initiatives (St. Paul, MN: West Side Community Health Services, 2016). https://custom.cvent.com/024D0492CF3C4ED1AEDC89C0490ECDEE/files/event/02A978D2532C47828E117BD62C4A8468/6253f75d0f6648bcaf5312822ea96210tmp.pdf.