Federally Qualified Health Centers Prepare for Challenging Path Ahead

Federally qualified health centers (FQHCs), which provide care for 24 million Americans, face significant financial and competitive pressures, but executives reported in a recent survey that they have identified areas for improvement and are planning a path to success.

Sage Growth Partners conducted an online survey of 175 FQHC CEOs in November 2016 to gauge their perceptions of the challenges facing their business. The findings were summarized in an executive report that highlighted some of the main trends.

FQHCs are intended to provide care for underserved individuals who are often uninsured or cannot afford healthcare, and two-thirds of the FQHCs represented in the survey were located in rural areas. Still, leaders reported feeling the squeeze from competition as new care sites like hospitals enter the market. There has been a resulting shift in the FQHC mindset from acting as a nonprofit organization to becoming a commercial entity that must compete with larger and more profitable organizations.

Executives largely predicted that competition would increase over the next year, but even as these centers endeavor to adapt to the changing and expanding market, many of them are lagging in their capabilities to ensure financial growth. More than half of the FQHCs reported that revenue diversification and financial sustainability were moderately or extremely challenging, and just 61% said they tracked profit metrics to measure growth.

Like other health systems, more FQHCs are moving towards alternative payment and reimbursement models. From 2014 to 2016 to plans for 2018, the rates of centers in fee-for-service arrangements decreased, while bundled payments, episode- or care-based payments, and full capitation became more popular. However, this change will be gradual: a large majority (78%) said that it would take their center 7 to 24 months to move to a value-based payment model in response to a major payer’s change in reimbursement.

There was significant room for growth in the marketing of FQHCs to the community, which may have been due to the prior misconception that paid outreach was prohibited for centers receiving federal grants. As FQHC executives think more like business leaders, better outreach is beginning to be recognized as a crucial component for growth. However, less than one-fourth (23%) reported having a fully implemented marketing plan, while about half had such a plan in progress.

Executives also reported low confidence in their current leadership teams. Around 4 in 10 (38%) said that at least three-fourths of their leadership team would adequately serve their organization’s needs in the coming 3 to 5 years. More than two-thirds (68%) said that finding the right leadership was moderately or extremely challenging.

One area of positivity was in the partnerships formed with nearby health systems. About 3 in 4 described their relationships with their nearest hospital or health system as positive, but these collaborations may not be leveraged to their full potential. They were most commonly used for referrals, but far less frequently used to extend information technology services or training efforts.

The report predicted that the coming 5 years would be “transformational” for FQHCs, as they must take a strategic approach to streamline their business. Meeting the mission of serving their local population cannot be accomplished without business sustainability.

“Leaders are very cognizant of the many pressures that face their unique organizations, including competition, financial uncertainty, and talent shortfalls, and are taking steps to address them,” the report concluded. “By extending relationships with other health systems, making concerted efforts to recruit business-minded executives, and implementing a strong marketing strategy, FQHCs can thrive in the ever-changing healthcare marketplace.”

In Sage’s press release announcing the report, a FQHC executive summarized the findings with advice for other health center leaders.

“The reality is that other health organizations can and will serve your community if you aren’t running your FQHC like a business,” said Katy Caldwell, CEO of Legacy Community Health in Houston. “Mission will always be a part of that. But we can’t serve the mission if we don’t have margin.”

See the infographic below for some takeaways from the report: