FQHC acquiring a rural clinic: Opportunities and challenges

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9/30/2019

Miku Sodhi, MBBS (MD), MHA, PCMH-CCE, FACMPE

With the Affordable Care Act and other government and commercial payer programs slowly shifting care models from volume to value while retaining a focus on keeping patients healthy, resources are being funneled from federal and state government toward health maintenance and safety net clinics known as FQHCs: Federally Qualified Health Centers. As a result, those safety net clinics are in a good financial state.

FQHCs play a crucial role in the U.S. healthcare system, delivering care to more than 28 million people today. In 2018, per National Association of Community Health Centers (NACHC), FQHCs served:

One in 12 people in the United States
One in six people receiving Medicaid
One in three low-income uninsured patients
One in three individuals living in poverty
One in five rural Americans
One in nine children
One in eight people of racial and ethnic minority.

There are more than 1,300 FQHCs operating today, according to Definitive Healthcare clinics data. There also are many independent or provider-based Rural Health Clinics (RHCs) serving rural patient populations.

FQHCs are funded via Section 330 of the Public Health Service (PHS) Act, which make federal grants available. Per the Health Resources Service Administration (HRSA), their mission is to serve every individual who comes to their doors, irrespective of health insurance coverage (or lack thereof) or ability to pay, which leads to a higher percentage of homeless patients, underserved patients, Medicaid and uninsured populations.

FQHCs are governed by a volunteer board of directors, with at least 51% from among the health center’s patients. In comparison, RHCs are usually provider owned, with no requirement by the Centers for Medicare & Medicaid Services (CMS) to have a board of directors or a management team as required for FQHCs.

Many RHCs struggle due to funding streams, as they do not get extra annual funding from the federal government as FQHCs do. This has led in recent years to FQHCs acquiring RHCs to increase their patient base, add physicians and nonphysician providers, and increase the scope and area of services, not to mention the additional revenues. There are opportunities and challenges in such acquisitions.

Shasta Cascade Health Centers (SCHC) is the largest FQHC in Siskiyou County, one of the most rural counties in California. Without a large influx of new patients and a base of older, aging patients, the FQHC started a conversation with a neighboring RHC — Siskiyou Medical Group (SMG), which is doctor-owned with multiple physicians — to acquire them. The medical group’s doctors planned to retire in a decade and were ready to lessen their administrative burdens, making them receptive to the proposed acquisition.

Opportunities

Higher PPS (Prospective Payment System) rate: Almost all FQHCs receive a much higher PPS rate for Medicare and Medicaid patients. This is substantially higher than RHC reimbursement. Therefore, an acquisition can be a win-win situation with both entities from a revenue and financial standpoint.
Increasing patient base of private payers: RHCs cater to privately insured and managed care patients, as compared to Medicaid patients, which are primarily catered by FQHC. SMG has 51% private-pay patients, versus SCHC with 21% private pay and managed care. This boosts the number of privately insured managed care patients to complement the Medicaid patient population of the FQHC, which leads to better commercial payer rate negotiations from the position of strength and patient numbers.
Helps RHC physicians lower their administrative work: In provider-owned RHCs, physicians often spend more time on nonclinical management duties, such as hiring staff, cost reporting and various administrative and accounting tasks, ultimately making those physicians less productive in care delivery. FQHCs usually have a management team, accounting and billing departments, which helps keep physicians more focused on clinical duties. SCHC’s accounting team took on the physicians’ nonclinical work, which helped increase patient access and improve care quality.
Improving patient quality metrics: As HRSA-funded organizations are required to report Uniform Data System (UDS) federal metrics, FQHC providers regularly report on health quality metrics, including diabetes prevention, blood pressure control, mammograms, cervical cancer screenings, colorectal cancer screenings, immunizations, tobacco cessation and obesity prevention; however, RHCs do not have this reporting requirement. Through clinical quality metrics measurement and tracking, FQHCs help prevent chronic care diseases, manage population health and help reduce avoidable ER visits. With the acquisition, SMG became more cognizant on health maintenance, quality metrics, utilization metrics and turned toward proactive care for its patients. An FQHC acquisition of an RHC can eventually lead to higher quality care due to strict clinical work and reporting requirements on quality of care metrics.

Challenges

EHR changes and productivity losses: EHR conversion or adoption is a technological and system challenge that may happen during and post-acquisition. Some rural practices may still use paper records, posing a big challenge for an acquiring FQHC. In the case of SCHC and SMG, they were already on different EHRs. A conversion of the entire practice management and EHR systems was done for SMG. While vital work, this process can lead to physician frustration, staff resistance, burnout and a drop in the daily number of patients seen while training on the new EHR occurs. At SMG, productivity dropped 15% during the conversion but picked up quickly, as the staff and physicians were quick learners, and training was robust. Practice leaders should keep a close eye on productivity during an EHR conversion, as it can take weeks to bring it back to normal or improve. Not returning to the normal baseline can harm a group’s productivity and revenues for the long term.
Accounting system changes: Such changes happen when both groups have different systems. It is crucial to bring one system as an umbrella to reduce redundancies and errors.
Billing systems impediments: Billing plays an important role in such acquisitions and can make or break the acquisition. It is a common cause for failure or loss of revenues post-acquisition. It is important to set strict timelines for billing system conversion if both entities had different ones before (whether outsourced or in-house). This reduces billing errors, duplicative work on billing staff, provider frustration and can prevent burnout; revenue generation is impacted by all of the above. SCHC incurred initial losses due to two separate billing systems for two entities (one SMG had pre-acquisition and another SCHC was used). The system changes were not initially done with a hope of integration and overlap. This led to staff burnout and an initial dip in billing and revenues. Ultimately, it was consolidated to one in-house system. A close eye on billing is crucial during RHC acquisition.
Licensing and rate setting (CMS): It is important to have ample time before full acquisition to make the RHC clinic certified and licensed by Medicare and CMS. For this, the FQHC executive or management team should work diligently with their federal project officer at HRSA to get this acquisition plan scope, so that newer and higher rate setting for reimbursement can also happen in a timely fashion. Delays are common and may negatively impact the FQHC if not done in advance or near the completion of the acquisition.
Staffing and culture: When an FQHC acquires an RHC, the staff at the RHC can feel confused or fearful due to new management and systems. Executives and middle management should address such employee engagement or cultural issues at organizational and floor levels, so that staff feels inclusive to work and learn new systems and adapt to new changes. Turnover rates can be high during the initial phase of acquisition if newly acquired front-level and clinical staff employees aren’t addressed.

Summary

With fiscal strength and federal support, FQHCs are in a good position to acquire smaller, provider-owned RHCs, with the potential for higher reimbursements, more private-payer patients and the ability to leverage more volume for negotiating rates with payers, as well as a better scope for improving quality of care. Challenges should be kept in mind, especially with sudden change of systems and errors or lack of planning in changing operational scope with federal government, clinical, accounting and billing systems. It is crucial that organizational culture of the acquired RHC is given importance, as acquisition always comes with the culture of the parent organization remaining, as leaders work to find ways to build a new culture in the FQHC post-acquisition.

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