Despite HCFA’s help, federally qualified health centers struggling to get cost-based Medicaid reimbursement

Many states include reimbursements in managed care payments, shifting responsibility

Some federally qualified health centers (FQHCs) claim they still are not being paid money owed them by state Medicaid programs, despite the Health Care Financing Administration’s (HCFA’s) attempts to rectify the situation. Seeking millions of dollars in cost-based reimbursement, the FQHCs say they are caught in a limbo in which neither the states nor managed care plans will take responsibility for making the payments.

Under longstanding federal law, state Medicaid programs are required to pay FQHCs their reasonable costs. In an attempt to wean federally qualified health centers from cost-based reimbursement and prepare them for operating in a managed care environment, the requirement begins to ratchet down to 95% of reasonable costs in the fiscal year ending in 2000, 90% in 2001, 85% in 2002, and 70% in 2003.

Some centers have been able to get paid, reflecting the intervention of HCFA in 1998. For example, South Carolina managed care contracts that once explicitly gave health plans the job of cost-based reimbursement assign that role to the state Department of Health and Human Services, effective October 1998.

Key to the successes, say center officials, is a series of arm-twisting letters from HCFA affirming that state Medicaid programs must pay centers the difference between what the providers receive from managed care contracts and their full costs. Importantly, HCFA also outlines how those costs should be paid.

But just because a state says it pays doesn’t mean the FQHCs see the money. For example, FQHC officials in Ohio say their state is one of those in which the Medicaid program pays their costs in such a way that the center never sees the money.

"We’re still living in the desert of finances here," says Katherine Kunk, deputy director of the Ohio Primary Care Association. "Ohio doesn’t care about its federally qualified health centers."

In the same vein, Kathy Wood-Dobbins, the executive director of the association representing Tennessee’s primary care centers, reports that efforts to get the state to supplement the centers’ payments have stalled. "We are paid whatever the managed care organization wants to pay us. [Our] position is that the payments are in no way cost-related," says Ms. Wood-Dobbins.

Under HCFA’s model reimbursement scheme, states make up the difference between an FQHC’s managed care revenues and the center’s costs through quarterly supplements and an annual reconciliation. In order to prevent the possibility of "sweetheart" deals between HMOs and health centers, the FQHCs must be paid no less than what other community providers receive for similar services.

Standing hat in hand

But there’s still uncertainty over who is going to decide what that payment will be and how it will be made. Some states apparently continue to include the payment in their reimbursements to managed care plans, despite warnings not to do so from federal regulators. Balanced Budget Act (BBA) provisions that became effective in October 1997 took away states’ latitude to delegate to their managed care contractors the responsibility for meeting a health center’s costs. Moreover, there’s no question of the legitimacy of the FQHC claims to cost-based reimbursement, as the BBA also removed the freedom of FQHCs to waive their right to recover their full costs.

For now, FQHCs are standing hat in hand at the door of state Medicaid programs, trying to secure the difference between their managed care payments and the costs of providing Medicaid care. The claims range from hundreds of thousands to millions of dollars.

Some Medicaid programs say FQHCs should recover their costs from the managed care organizations because the additional amount already is figured into managed care capitation rates. Apparently, some states have been slow to comply with the federal prohibition against this methodology, leaving the FQHCs with little or no leverage with the MCOs.

"The managed care companies told us to pound sand," says Patti Deitch, executive director of Philadelphia Health Services. "It was a nightmare."

Ms. Deitch says the so-called "wraparound" payment for her organization represented about $100,000 per month in unmet costs in an annual budget of about $7.4 million. When it appeared in October 1998 that negotiations between state officials and the state association of community health centers were sputtering, Ms. Deitch’s center and four other organizations in Philadelphia sued Pennsylvania’s Department of Public Welfare for Medicaid costs not covered in their Medicaid managed care payments. The centers and state officials settled in November on a reimbursement process modeled after one suggested by federal officials.

"We were in a critical situation here. No one else in the state was affected like we were," says Ms. Deitch, referring to Pennsylvania’s mandatory Medicaid managed care rollout that started in the Philadelphia area. The centers received half of the disputed amount in late 1998 and will receive the remainder after a reconciliation in early 1999, Ms. Deitch says.

Officials at the Pennsylvania Department of Public Welfare will not comment on the reason for the delay in the payment. "It just took a while for us to figure this out," department spokesman Jay Pagni says.

An Oct. 23, 1998, letter from Sally Richardson, director of HCFA’s Center for Medicaid and State Operations, explicitly prohibits states from folding the FQHC’s additional payment into the capitation rate and then requiring managed care organizations to turn over the payment to the centers.

"This clarification is intended to ensure that MCOs do not perceive or incur any undue burdens when contracting with FQHCs . . . versus other providers of care thus creating unintended barriers or disincentives to contract," Ms. Richardson wrote.

That letter, and earlier ones in April, tilted the issue in favor of the FQHCs. "I thought it was great," says Ms. Deitch. "It couldn’t have been better if I wrote it myself."

The conflict seems to be most acute among the 14 states with Section 1115 waivers, which allow implementation of Medicaid managed care. While HCFA recognizes that some 1115 states explicitly have waived the FQHC reimbursement requirement, the federal government is holding other states to the letter of the law and demanding details on how the Medicaid program will comply.

Ohio’s first explanation didn’t pass federal muster, says Ms. Kunk, and a more detailed explanation was due to HCFA in late January.

Florida eyes HMO payments

Officials in Florida, another waiver state, say they have built the supplemental payments into the capitation rate they pay to all HMOs but have allowed the marketplace to determine whether that additional payment ever reached the federally qualified health centers. The amount varies by county and averages about $2.50 per member per month (PMPM).

"A lot of the HMOs have contracted with the federally qualified health centers," says Bruce Middlebrooks, spokesman for the Florida Agency for Health Care Administration. "That’s just something we included in the cap rate."

The executive director of the association representing Florida’s 26 community health centers estimates that about half have HMO contracts, and that a "very rough" estimate of costs due to community health centers is $500,000.

"We’re making progress. I wouldn’t say we’re delighted," says Greg Glass, executive director of the Florida Association of Community Health Centers.

Mr. Glass’ association is negotiating the mechanics of the reimbursement with the state and is hopeful the issue will be resolved quickly. At the same time, association members are assessing themselves to build a war chest for a possible legal fight over the issue.

Florida’s Medicaid program requested permission from HCFA in early January to eliminate the additional amount it pays PMPM to HMOs to cover the centers’ higher costs, effective Feb. 1.

"I’m not saying they’re happy about it," observes Mr. Middlebrooks.

The Florida Association of Managed Care Organizations, an association of Medicaid HMOs, estimates that removing the FQHC line item from the Medicaid capitation rate will have a $9 million impact on Medicaid HMOs in the state.

"The HMOs, not surprisingly, are in an uproar," says association counsel Gary Clarke. Association and state officials are meeting to work out a resolution to the issue.

HCFA is negotiating with several states to ensure the level and mechanism of the payments is consistent with federal policy.

"Actually, I’m optimistic that HCFA’s taking a closer look," says Tennessee’s Ms. Wood-Dobbins.

Contact Ms. Deitch at (215) 684-5344, Ms. Kunk at (614) 224-1440, Mr. Glass at (850) 942-1822, and Mr. Clarke at (850) 577-6557.