Community Health Centers

As states move to prepaid managed care to control costs and improve access for their Medicaid clients, the number of participating community health centers continues to grow. Medicaid prepaid managed care is not incompatible with health centers' mission of delivering health care to medically underserved populations. However, health centers face substantial risks and challenges as they move into these arrangements. Such challenges require new knowledge, skills, and information systems. Centers lacking expertise and systems face an uncertain future, and those in a vulnerable financial position are at even greater risk. Today's debate over possible changes in federal and state health programs heightens the concern over the financial vulnerability of centers participating in prepaid managed care. If this funding source continues to grow as a percentage of total health center revenues, centers must face building larger cash reserves while not compromising services to vulnerable populations. GAO summarized this report in testimony before Congress; see: Community Health Centers: Challenges in Transitioning to Prepaid Managed Care, by Mark V. Nadel, Associate Director for Health Financing and Policy Issues, before the Senate Committee on Labor and Human Resources. GAO/T-HEHS-95-143, May 4, 1995 (8 pages).

GAO found that by 1993: (1) almost 500,000 community health center patients were covered by prepaid managed care arrangements; (2) the 10 centers surveyed were able to continue to provide full services to their vulnerable clients in part due to other revenue sources; (3) all 10 centers increased their patient load and spending for a variety of services, while 7 centers also increased their spending for uncompensated care; (4) all 10 centers improved their financial condition due to increased revenues from a variety of sources; and (5) 3 centers had losses of up to $124,000, while 6 centers had excess revenues of up to $100,000 from prepaid managed care. GAO also found that: (1) the centers may be financially vulnerable if they depend on Medicaid prepaid managed care for a sizeable portion of their revenues, have inadequate capitation rates, and have financial responsibility for other than primary care services or rely on other federal and state funding sources; (2) lessons learned from centers' experiences with prepaid managed care include the likely loss of patients if the centers fail to participate, low capitation rates, assumption of too much financial risk, and the lack of managed care skills; and (3) to encourage centers' participation in prepaid managed care, BPHC has implemented an initiative to fund centers' efforts to develop delivery networks with other health providers for managed care operations.