Toolkit: State Strategies to Develop Value-Based Alternative Payment Methodologies for FQHCs

Recent state Medicaid initiatives have demonstrated that delivery system reforms, when aligned with value-based payment models, can reduce cost and increase health care system capacity to provide efficient, high-quality care. Federally qualified health centers (FQHCs) are critical safety net providers for Medicaid populations, providing care to over 12 million Medicaid beneficiaries, many of whom have complex and chronic health care needs. However, FQHCs have often been excluded from participating in payment reform initiatives because of complexities in how they are reimbursement. Under Section 1902(bb) of the Social Security Act, 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), which must reimburse FQHCs at least as much as they would have received under PPS, and be agreed to by each clinic. States have recently begun to demonstrate that they can effectively engage FQHCs in value-based payment reform through APMs while still meeting PPS requirements, benefitting both state Medicaid programs and participating practices.

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Value-based APMs shift FQHC reimbursement away from a focus on the volume of services billed toward a focus on providing high quality, efficient care in efforts to improve health outcomes. Value-based APMs range from supplemental incentive payments to population-based payments, but all value-based models hinge on improving both health care quality and efficiency. For FQHCs, the shift can mean the ability to:

  • •  Support more team-based, integrated care;
  • •  Better leverage scarce resources (such as clinicians’ time); and
  • •  Provide interventions (such as care coordination and care transitions) that can improve the health of complex populations and address social determinants of health.
Federally Qualified Health Centers

Federally qualified health centers (FQHC) are safety net providers that provide 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 worker and the homeless. The Centers for Medicare & Medicaid Services (CMS) oversees FQHC certification.Clinics apply to CMS for FQHC status. Eligible clinics include Health Resources and Services Administration Health Center Program grantees, FQHC look-alikes, and tribal organizations.Health Center Program grantees and FQHC look-alikes must meet specific program requirements as authorized under Section 330 of the Public Health Services Act. FQHCs receive reimbursement from Medicare and Medicaid through the Prospective Payment System (PPS). PPS methodology and policy implications are discussed in the Value-Based APM Design section of this brief.

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.

Oregon FQHC APM Pilot Yields Positive Results

In 2013, Oregon implemented a population-based per member per month (PMPM) APM with three FQHCs. In 2014, Oregon found that emergency department utilization for individuals served by these FQHCs was 34 percent less than the previous trend, and inpatient hospitalization was 42 percent less. The state also found that Medicaid beneficiaries were accessing outpatient care outside their medical homes 43 percent less than in 2014. Anecdotally, participating FQHCs reported positive experiences since switching to the PMPM APM. They reported that because payment was not tied to the volume of patient visits, providers could better address their patients’ needs through care coordination and patient outreach, while also focusing on improving overall population health through targeted quality improvement programs.

Source: Don Ross. “Oregon’s Safety Net: Incorporating Value-Based Payment into System Reform.” PowerPoint, National Academy for State Health Policy 2016 Annual Conference (2016).


This toolkit is designed to support state Medicaid policymakers in implementing value-based APMs for FQHCs and RHCs. Based on lessons learned from states during the National Academy for State Health Policy’s (NASHP) Value-Based Payment Reform Academy, the toolkit provides background information, considerations, and state strategies that address the following topics:

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