Financial Performance and Managed Care Trends of Health Centers
Financial Performance and Managed Care Trends of Health Centers
Brian C. Martin, Leiyu Shi, and Ryan D. Ward
Data were analyzed from the 1998–2004 Uniform Data System (UDS) to identify trends and predic- tors of fi nancial performance (costs, productivity, and overall fi nancial health) for health centers (HCs). Several differences were noted regarding revenues, self-suffi ciency, service offerings, and urban/rural setting. Urban centers with larger numbers of clients, centers that treated high numbers of patients with chronic diseases, and centers with large numbers of prenatal care users were the most fi scally sound. Positive fi nancial performance can be targeted through strategies that generate positive revenue, strive to decrease costs, and target services that are in demand. Key words: health centers (HCs), safety net providers, fi nancial performance, managed care, practice administration.
ince their inception in the 1960s, com- In 2004, health centers consisted of munity health centers have served as a approximately 1,000 organizations deliver- primary care safety net for the nation’s ing services at one or more sites to an esti-
medically vulnerable populations in both inner S mated 13.1 million people. 3 In 2000, the
city and rural areas. 1 HCs have been called var- Institute of Medicine (IOM) reported that the ious names over the years—including neigh- ability of HCs to meet their mission of serv- borhood health centers, community health ing all patients is threatened by: centers, family health centers, migrant health centers, and rural health initiatives—and since
1. Increased uninsured; 1996 all have received Section 300 grant funds
2. Proliferation of Medicaid managed through the Public Health Service Act. More
care; and
recently, such provisions have been referred to
3. Decreased subsidies for charity care. 4 as health centers (HCs).
HCs provide a myriad of comprehensive, While decreasing federal and state assist- coordinated, and integrated health care serv- ance and increasing Medicaid managed care
contracting pose a signifi cant fi nancial chal- ices. Most notable are the primary care and lenge, health centers have increased their preventive care services for individuals resid- Medicaid populations (both in number and ing in areas scant in health professionals, percent) virtually every year since Uniform low in income, or otherwise underserved. Data System (UDS) data have been collected. Their central mission is to increase access to
community-based primary health care services and to improve the health status of medically
Brian C. Martin, PhD, MBA, Department of Health
vulnerable populations, treating patients with- Services Administration, College of Public Health,
East Tennessee State University, Johnson City, TN.
out regard to insurance or ability to pay. Many
He can be reached at martinb@etsu.edu.
centers offer expanded services, such as trans-
Leiyu Shi, DrPH, MBA, MPA, Department of Health
portation, health education and prevention, Policy and Management. interpreter services, nutrition, mental health,
Johns Hopkins Bloomberg School of Public Health,
and pharmacy. 2 To ensure that the centers do
Baltimore, MD.
not lose sight of their established missions,
Ryan D. Ward, MPH, Department of Public Health,
federal regulations require that the majority East Tennessee State University, Johnson City, TN. of each HC’s Board be community members
J Health Care Finance who are active patients of the center. 2009;35(3):1–21
© 2009 Aspen Publishers, Inc.
2 J OURNAL OF H EALTH C ARE F INANCE /S PRING 2009
Fundamental to the mission of HCs is the non-grant source to help stabilize health center commitment to treat the uninsured; however,
revenue. This has allowed HCs to provide inte- this number is variable for several reasons.
grated care to the medically indigent in their During economic downturns there is a corre-
communities and to provide continuity of care sponding increase in the unemployed, causing
to patients who routinely gain and lose Med- the number of uninsured persons to increase.
icaid eligibility. Centers have been concerned In addition, the rising cost of health care has
that Medicaid managed care programs will caused insurance premiums to increase, leav-
reduce Medicaid enrollees and operational ing employers less willing to provide health
revenues. 10 Nationally, Medicaid managed care insurance as a benefi t. When employers
care enrollment grew from 9.5 percent of total do offer health insurance benefi ts, the trend
Medicaid patients in 1991 to 55.8 percent in toward increased employee cost- sharing
2000, and increased to 63.0 percent in 2004. 11 may lead to insured employees who can-
In 2003, the number of uninsured HC patients not access health care services. Employees had decreased to 39 percent, and the number whose employers do not offer a discounted
of Medicaid patients had increased to 36 per- group health insurance plan are often unwill-
cent, refl ecting the shift from traditional Med- ing or unable to afford private insurance pre-
icaid to Medicaid managed care. 12 As state miums, and join the ranks of the uninsured.
Medicaid programs moved quickly to man- In addition, some employees who are offered
aged care, the ability of safety net providers, health insurance through their employer opt
including HCs, to provide care to vulnerable
populations was increasingly jeopardized. 13 federal and state revenues to offset spending
not to take this coverage. 5 While HCs rely on
Medicaid managed care fosters a competitive on the uninsured, revenue shortfalls from environment for these patients. As network these sources may also decrease public cov-
providers open access to Medicaid managed erage and threaten safety net subsidies. 6 care patients, HCs either become participants
The fi nancial well-being of health cent- in the system or face losing Medicaid rev- ers is also threatened when states face fi scal
enue. 14 Additionally, Medicaid managed care downturns ( i.e ., Medicaid eligibility restric-
organizations require additional administra- tions). 7 While there is documentation that
tive components ( e.g ., reporting, marketing) non-managed care centers see fewer unin-
of HCs that were not previously required. 15 sured patients after becoming involved in
With Medicaid managed care comes a managed care, regardless of urban or rural reduction in center revenues, which reduces setting, there is evidence that centers are resources used to provide services to the typically able to refocus this portion of their
uninsured and has the potential to affect mission after an initial year of adjustment. 8 access to care. 16 Reasonable cost payments However, the impact of large increases in the
for Medicaid services, required by the 1989 uninsured, coupled with declines in federal
FQHC legislation, assists HCs in their efforts grants and state subsidies, is that centers face
to provide care to vulnerable populations. 17 greater likelihood of fi nancial defi cits. 9 In 1989, Medicaid benefi ciaries accounted Medicaid revenues, particularly Feder- for 26 percent of HC patients but only 12
ally Qualifi ed Health Center (FQHC) reim- percent of HC revenue. 18 In 2002, Medicaid bursement, have been important to HCs as a
patients accounted for 36 percent of total
Financial Performance and Managed Care Trends of HCs
patients and 35 percent of total revenues. an attempt to identify characteristics that However, there remains a general concern
could be replicated by other centers.
about the fi nancial viability of HCs. 19
HCs have become increasingly challenged,
Methods
as the fulfi llment of their mission is directly
dependent on external funding. 20 External
Study Design and Data Sources
funding sources include Section 330 grants, This article presents the results of analy- State Children’s Health Insurance Program ses of nationally representative secondary (SCHIP), Medicaid (managed and non-
data from the 1998–2004 Uniform Data Sys- managed), Medicare, and private payers. From
tem (UDS), not including homeless only or 1996–1999, the patient mix for HCs included
migrant voucher only grantees. The UDS an increase in the proportion of uninsured contains information reported by the Bureau and a decrease in the proportion of Medicaid-
of Primary Health Care (BPHC)-funded covered patients, 21 During this period, more
center grantees, and is maintained by the than one half of HCs reported an operating
BPHC, Health Resources Services Adminis- defi cit, fueled largely by the increase in unin-
tration, US Department of Health and Human sured patients. Community Access Program
Services. The UDS collects the following (CAP) grants were established by the Clinton
information from health centers: patient administration in 2000 to increase the effec-
demographics ( e.g ., age, race/ethnicity, lan- tiveness and capacity of the nation’s health
guage spoken, income, insurance status), care safety net at the community level, and HC
selected diagnoses and services (health and expansion grants aimed at increasing preven-
enabling), staffi ng and utilization, fi nancing, tive and primary care services were launched
and managed care enrollment and utilization.
by the Bush administration in 2002. 22 After a
Details on UDS methodology and data col-
13 percent drop in 1997, grant revenues rose to lection protocol can be found online from the
25 percent of total operating revenues in 2002. BPHC at http://www.bphc.hrsa.gov/uds/. While the spike in grant revenue from 1997 to 2002 is signifi cant, HCs have experienced
Measures
overall declines in federal grant dollars since For the purpose of this study, we included 1985. 23 This trend is particularly challenging
measures of fi nancial performance and to centers in rural areas, which receive lesser
selected center characteristics (as control). amounts of federal grants, have a smaller tax
Measures of fi nancial characteristics are base, and have less funding resources than
shown in Figure 1.
their urban counterparts. 24 Measures of health center characteristics There is an abundance of research from
include:
the 1990s indicating the precarious fi nancial future of HCs. 25 On the other hand, there 1. Rural versus urban, number of center are some reports of improvement. Thus, the
patients (measure of size); purpose of this study was to identify trends
2. Managed care versus non-managed care and predictors of fi nancial performance for
(based on managed care enrollees); HCs. Specifi cally, this study examined costs,
3. Large center versus small center; productivity, and overall fi nancial health in
4. Old versus new health centers; and
4 J OURNAL OF H EALTH C ARE F INANCE /S PRING 2009
Figure 1. Measures of Financial Characteristics
Measure
Source
Defi nition
Revenue • Grant revenue
• % revenue from grants
source (cash • Service revenue • % revenue from medical services receipts)
• Medicaid revenue • % revenue from Medicaid reimbursement Revenue share
• Medicaid collection • Total Medicaid collections / Total Medicaid patients (collection
• Medicare collection • Total Medicare collections / Total Medicare patients per revenue
• Private collection • Total private collections / Total private patients source)
• Self-pay revenue • Total self-pay revenue / Total self-pay patients Cost
• Encounter cost
• Mean cost per offi ce visit
• Medical encounter cost • Mean cost per medical offi ce visit • Personnel cost
• Mean annual salary per center personnel • Medical personnel cost
• Mean annual salary per center medical personnel Productivity
• MD productivity • Mean number patients seen per medical doctor
• MLP 1 productivity
• Mean number patients seen per non-physician provider
• Mean number patients seen per primary care physician Performance
• PCP 2 productivity
• Self-suffi ciency • Ratio of payments for services to total costs • Net revenue
• Total patient service revenue and other receipts less accrued costs before donations
1 MLP includes nurse practitioners, nurse midwives, and physician assistants. 2 PCP includes general practice, family practice, general internal medicine, and pediatrics.
5. Measures of predictive health center Medicare, private HMOs, and other managed characteristics.
care plans. All grantees participating in man- aged care report data that includes:
Measures of predictive health center char- acteristics include:
1. Information on revenue received and expenses for prepaid plans; and
1. Rural versus urban;
2. Information on the number of enroll-
2. Managed care versus non-managed ees in different managed care plans. care (based on managed care revenue
and enrollees); Based on this information data on center
3. Center status (old versus new); and revenue and patients, we defi ne HCs’ involve-
4. Measures of selected health care ser- ment in managed care based on two indicators: vices (enabling services full-time managed care revenues and managed care equivalents (FTEs), chronic disease enrollees. These two indicators were also used encounters, and prenatal care patients).
in the site selection process of a case study of managed care HCs. 26 Many studies have used
Managed Care
enrollees as a measure to capture managed For the purpose of this study and based on
care experience at the national, regional, state, the UDS document, managed care was defi ned
local, and organizational levels. 27 Research as any arrangement health centers have also has used revenue to measure product line made with a third party including Medicaid,
within a plan or organization. 28
Financial Performance and Managed Care Trends of HCs
Specifi cally for the purpose of this paper, measures were directly available from the HCs’ involvement in managed care was UDS. The fi nancial measures of stability, defi ned as a continuum as described in effi ciency, and productivity were created
Figure 2. based on industry standards, prior research, We divided centers into these categories
and our experience. 29
so that we not only can compare centers The variables representing self-suffi ciency, involved in managed care with those that did
grant revenue, service revenue, and net income not, but among centers with different levels
were used to measure fi nancial stability. Self- of involvement. The choice of 10 percent cut-
suffi ciency was expressed as a percentage and off for enrollees and 5 percent for revenue
as an estimate of a program’s subsidy gap. The was based on the distribution of these two
subsidy gap is the difference between what a measures among HCs. Sensitivity analysis
program can pay for its health care, whether was performed based on slightly different by insurance (including both public and pri- cut-off points and yielded similar results. vate) or patients themselves, and what it costs
Further, we performed an analysis with a for a program to provide primary health care. 30 less restrictive defi nition of managed care Programs with self-suffi ciency ratios less revenue—total (rather than just primary care)
than one required federal and other grants to prepaid managed care revenue. Total prepaid
cover their costs. This measure was based on managed care revenue includes specialty and
a similar ratio developed by and modifi ed by inpatient referral expenses and is not reported
others studying primary care projects. 31 Grant as part of the centers’ scope of services in
revenue was the percentage of total revenues other revenue tables. Since the two methods
that came from public ( e.g ., federal, state, or produced almost identical results, we present
local) and private ( e.g ., Robert Wood Johnson only those based on the more restrictive defi -
and Kellogg Foundations) sources as subsi- nition of managed care revenue.
dies for services. 32 Service revenue was the percentage of total revenues that came from
direct payments for services either by patients Center characteristics examined include themselves or through third-party payers. 33 those related to patients, providers, serv-
Center Characteristics
Net revenue was used to refl ect the program’s ices, and fi nancial performance. Most of the
fi nancial status. 34
Figure 2. HC Continuum of Involvement in Managed Care
High volume high revenue (HVHR)
> 5% of total revenue High volume low
> 10% of total patients
revenue (HVLR)
> 0 and < 5% of total revenue Low volume low
> 10% of total patients
revenue (HVHR)
> 0 and < 5% of total revenue Non-managed care
> 0 and < 5% of total patients
< 10 managed care enrollees
<$100 in managed care revenue
6 J OURNAL OF H EALTH C ARE F INANCE /S PRING 2009
Effi ciency was measured by average pro- insignifi cant penetration in rural areas due to gram costs defi ned as the total program costs
a relatively sparse population, rural provid- divided by total number of medical encoun-
ers are more suspicious about managed care, ters or visits. 35 Average cost per encounter has
an urban-based phenomenon. 41 been used as a measure of effi ciency related
Analysis
to ambulatory care as well as other health care settings. 36 Average personnel costs were
Descriptive analysis provides trends on also included to measure the average costs of
the fi nancial performance measures of HCs. employing medical and support staff includ-
Bivariate comparative analysis examines dif- ing physicians, mid-level practitioners (MLP),
ferences in fi nancial and performance meas- nurses, administrators, and others. MLPs ures of HCs between rural versus urban, include physician assistants, nurse practition-
and managed care versus non-managed care ers, and certifi ed nurse midwives. Average centers. Multivariate longitudinal analysis medical costs were the average costs of phy-
identifi es center attributes signifi cantly asso- sicians and average administrative costs were
ciated with center fi nancial performance. the average costs of administrators. Provider productivity was measured by the
Results
number of encounters or visits per MD or MLP. HCs are staffed by primary care physicians
Financial Trends
( e.g ., general and family practitioners, in - Descriptive analysis revealed fi nancial
trends over the seven-year period. Each varia- re questing federal funds authorized by the ble is analyzed specifi cally in Figure 3, and fur- Community or Migrant Health Center Pro -
ternists, and pediatricians) and MLPs. 37 HCs
ther elaborated in Figures 4 through 9 below. grams were formerly required to maintain a
minimum number of patient encounters per pro- Revenue vider as a condition of approval for funding. 38 Grant (including all federal, state, and local
With respect to economic factors, exter- sources) revenue has typically accounted nal funding sources ( e.g ., grant funding) and
for 40 percent of all revenues, with service payer mix could infl uence choice of strat-
revenue constituting the 60 percent balance. egy. 39 Thus, HCs receiving less funding from
However, grant revenue decreased 3 percent grants may have to reduce their services to
from 1998 to 1999, and dropped an additional the uninsured. HCs with relatively large
2 percent from 2003 to 2004. When compar- Medicaid revenue are expected to be more
ing 2004 with 1998, grant revenues declined motivated to get involved in Medicaid man-
11.63 percent and service revenues increased aged care to retain and expand their patient
8.77 percent. Medicaid revenue has been base. However, it is also possible that HCs
volatile during the seven-year period, and currently with fewer Medicaid patients may
decreased 7.69 percent in 2004 compared get involved in Medicaid managed care to to 1998. As a percentage of total revenues, attract more Medicaid enrollees. In addition,
grant revenues were lower for rural (versus population density, as measured by rural urban) HCs. However, the decline in grant versus urban location, is expected to have an
revenue for rural centers was signifi cantly important impact on feasibility of managed
less than the decline for urban centers over
Figure 3. Descriptive Variables and Trends
7-Year MEAN STD ERR
Grant Revenue (%)
Service Revenue (%) 0.57 0.60 0.60 0.60 0.58 0.60 0.62 8.77 0.5957
Medicaid Revenue (%)
0.26 0.22 0.22 0.23 0.22 0.23 0.24 -7.69
0.01 0.01 0.01 0.01 0.01 0.01 0.01 F inancial P
Medicaid Collection ($)
Medicare Collection ($)
erformance and Mana
Private Collection ($)
Self-Pay Collection ($) 71.81 75.58 79.50 87.19 90.32 90.42 99.07 37.96 84.84
Encounter Cost ($)
1.56 1.46 1.90 1.49 2.38 3.22 2.06 g ed Car
Medical Encounter Cost ($)
Personnel Cost ($)
T rends of HCs
Medical Personnel Cost ($) 118,101.58 122,375.88 129,884.28
Continued
8 OURN J
Figure 3. Continued ...
C ARE
MEAN STD ERR IN 1998 1999 2000 2001 2002 2003 2004 (% Δ) Average
7-Year
ANCE Total MD Productivity
46.81 53.39 41.16 62.92 PRING Total MLP Productivity
Total PCP Productivity 4,252.98
Self-Suffi ciency Ratio 0.71 0.80 0.80 0.81 0.79 0.81 0.85 19.72 0.7957
Net Revenue ($) 869,889.61 1,653,801.78 1,834,552.75 2,044,645.08 2,127,980.46 2,413,327.65 2,809,096.21 222.93 1,964,756.22 84,618.12
Source: 1998–2004 BPHC UDS data.
Figure 4. Characteristics Associated with Financial Performance at CHCs: General Estimation Results
Productivity Productivity
Suffi ciency
Revenue
Urban Location
453163.3** (Ref: Rural)
Managed Care Enrollees
(Ref: No MC)
inancial P
erformance and Mana
(190514.5) Center Status
0.01 567135.5* (Ref: Old)
(238944.8) Enabling Services FTEs
Chronic Disease Encounters
rends of HCs
Prenatal Care Users
(481.6) Grant Revenue
26.66 -7469.85
(883709.5) Continued
J OURN
AL
OF H
Figure 4. Continued ...
IN Encounter Cost
Productivity Productivity
Suffi ciency
Medical Encounter Cost PRING 0.0002 453.9
Personnel Cost
(7.85) Medical Personnel Cost
(1.44) MD Productivity
(37.96) MLP Productivity
(0.0001) (57.27) Note: * p<0.05,** p<0.01,*** p<0.001, based on Z-statistics.
Source: 1998–2004 BPHC UDS data.
Financial Performance and Managed Care Trends of HCs
Collections Per Patient
seven-year period. Total encounter costs and While the percentage of Medicaid revenue
medical encounter costs increased in 2004 (2004 vs. 1998) declined, collections from vs. 1998 by 44.45 percent and 42.20 percent, Medicaid increased steadily across the seven-
respectively. Similarly, total personnel costs year period (41.62 percent increase 1998 to
and medical personnel costs increased (2004 2004). The same positive trend is seen for vs. 1998) by 25.29 percent and 30.38 per- Medicare, private-pay, and self-pay collections,
cent, respectively. Average total and medical with 2004 vs. 1998 changes of 34.06 percent,
costs were lower for rural HCs, but shared
46.75 percent, and 37.96 percent, respectively. an increasing trend with urban HCs in both Collection trends for rural HCs mirror those of
categories. See Figure 6. urban HCs, albeit at a lower average rate, with
the exception of private pay and self-pay. Rural
Provider Productivity
private pay collections increased steadily over While medical personnel costs increased the seven-year period and passed urban collec-
during the study period, physician pro- tions in 2004. Rural center self-pay collections
ductivity showed a declining trend. All continued at an average rate higher than urban
physician productivity (primary and spe- HCs. See Figure 5.
cialty care) decreased 13.10 percent in 2004 vs. 1998. Primary care provider productivity
Encounter Costs
decreased 13.06 percent in the same compar- Encounter costs, total and medical, ison. Mid-level practitioner productivity, by
increased steadily each year during the contrast, remained relatively stable. Average
Figure 5. Revenue Source
Grant Revenue_Urban
Service Revenue_Urban
Service Revenue_Rural Source : 1998–2004 BPHC UDS data.
Grant Revenue_Rural
12 J OURNAL OF H EALTH C ARE F INANCE /S PRING 2009
Figure 6. Collections per Patient
Medicaid Collection_Urban
Private Collection_Urban
Medicaid Collection_Rural
Private Collection_Rural
Medicare Collection_Urban
Self-pay Collection_Urban
Medicare Collection_Rural
Self-pay Collection_Rural
Source: 1998–2004 BPHC UDS data.
productivity for both physicians and mid- Characteristics Associated
level providers was generally higher for rural
with Financial Performance
HCs than for urban HCs. See Figure 7. Eight general estimation models were run using annualized data to determine charac- teristics associated with fi nancial perform-
Self-Suffi ciency and Net Revenue
ance ( see Figure 9). P-values are based on Third-party payments increased 19.72 per-
z statistics.
cent relative to total costs (2004 vs. 1998), to
A center located in an urban (versus
a ratio of third-party payments to total costs rural) setting was likely to have higher of 0.85. Prior to 2004, this ratio held relatively
personnel costs (p<0.05), greater self- stable at 0.80. Self-suffi ciency is evident in the
suffi ciency (p<0.001), and higher net rev- increasing net revenue trend seen in each year
enue (p<0.01). Large centers (defi ned by the of the seven-year period. The percent change
number of patients) had greater personnel from 2004 vs. 1998 was 222.93 percent. costs (p<0.05), greater physician productiv- While self-suffi ciency was greater for rural ity (p<0.001), greater mid-level practitioner HCs than for urban HCs from 1998 to 2003,
productivity (p<0.01), and greater net rev- self-suffi ciency for urban centers increased enues (p<0.001). at a greater rate and passed rural center self-
Centers were divided into groups based suffi ciency in 2004. See Figure 8.
on number of managed care enrollees in
Financial Performance and Managed Care Trends of HCs
Figure 7. Encounter Costs
Encounter Cost_Urban
Medical Encounter Cost_Urban
Encounter Cost_Rural
Medical Encounter Cost_Rural
Source: 1998–2004 BPHC UDS data.
Figure 8. Provider Productivity
MD Productivity_Urban
MLP Productivity_Urban
MD Productivity_Rural
MLP Productivity_Rural
Source: 1998–2004 BPHC UDS data.
14 J OURNAL OF H EALTH C ARE F INANCE /S PRING 2009
order to determine the affect of managed study year or participation had occurred for care enrollment on fi nancial performance.
two or more years. Centers in their fi rst year HVHR (high volume high revenue) centers
of managed care participation had greater were classifi ed as “Large,” HVLR (high vol-
encounter costs (p<.001), greater medical ume low revenue) centers were classifi ed as
encounter costs (p<.001), greater person- “Medium,” and LVLR (low volume low rev-
nel costs (p<.001), greater medical person- enue) centers were classifi ed as “Small,” and
nel costs (p<.001), lesser MD productivity comparisons were made to centers having no
(p<.05), lesser MLP productivity (p<.001), managed care enrollees. Large centers had and greater net revenues (p<.05). higher encounter costs (p<0.05), lesser MD
Enabling services—case management, productivity (p<0.05), lesser self-suffi ciency
child care, discharge planning, eligibility (p<0.001), and lesser net revenues (p<0.001).
assistance, employment/educational coun- Medium centers had lesser MD productivity
seling, environmental health risk reduction, (p<0.05), lesser self-suffi ciency (p<0.05),
food bank/delivered meals, health educa- and lesser net revenues (p<0.05). Small cent-
tion, housing assistance, interpretation/ ers had lesser net revenues (p<.01).
translation services, nursing home/ assisted- Centers were also analyzed based on living placement services, and outreach—
participation in managed care—whether were provided to varying degrees by centers participation occurred for the fi rst time in the
through FTEs. Centers that provided
Figure 9. Self-Suffi ciency
Self-Sufficiency_Urban Self-Sufficiency_Rural
Source: 1998–2004 BPHC UDS data.
Financial Performance and Managed Care Trends of HCs
enabling services had greater encounter pay encounters passed urban rates for the costs (p<.001), greater medical encounter fi rst time in 2004. Urban center administra- costs (p<.05), lesser personnel costs (p<.05),
tors facing declining grant and private payer and lesser self-suffi ciency (p<.01).
revenues are challenged by an inability to Centers that had more chronic disease maintain fi nancial solvency.
encounters 42 had lesser encounter costs (p<.05) When considering self-suffi ciency, urban and higher net revenues (p<.01). Centers with
centers’ self-suffi ciency lagged behind more prenatal care patients had greater encoun-
rural centers’ self-suffi ciency during the ter costs (p<.001), greater medical encounter
1998 to 2003 time periods; however, urban costs (p<.001), greater self-suffi ciency (p<.01),
HCs saw a positive trend over the entire and greater net revenues (p<.01).
study period while rural HCs experi- Centers receiving grant revenues had enced volatility. Average total and medical
greater encounter costs (p<.05), lesser MLP costs increased and provider productivity productivity (p<.001), lesser self-suffi ciency
decreased for both rural and urban cent- (p<.001), and lesser net revenues (p<.05).
ers during each year of the study period, MD productivity was associated with lesser
posing a two-edged challenge to center medical encounter costs (p<.05), greater per-
self-suffi ciency. However, as average sonnel costs (p<.05), and greater medical
encounter costs for rural HCs approached personnel costs (p<.01). MLP productivity
those of urban HCs in 2002, and as rural was associated with lesser encounter costs
average provider productivity decreased to (p<.001), lesser medical encounter costs
a rate closer to that of urban, urban center (p<.001), greater medical personnel costs self-suffi ciency passed rural center self- (p<.001), and lesser net revenues (p<.05).
suffi ciency in 2004. Rural center adminis- trators and policy-makers should explore
Discussion
reasons for declines in self-suffi ciency as well as reasons why urban HCs appear to From 1998 to 2004, grant revenues have been more successful in maintaining
(from all sources) decreased, Medicaid rev- and growing self-suffi ciency. enues decreased (although Medicaid rev-
While the increases in net revenue and enue increased to 36 percent in 2005), costs
general improvements in self-suffi ciency (encounter costs and medical personnel are encouraging, not all health centers fared costs) increased, and physician productiv-
well. Of particular note are HCs that received ity decreased for HCs. However, increases
grant revenues. As the percentage of grant in Medicaid collections and non-grant rev-
revenues from federal, state, local, or private enue sources allowed net revenue to increase
sources increased, encounter costs increased, in each of the seven years. The decline in
mid-level provider productivity decreased, grant revenues was particularly striking for
and net revenues declined. Self-suffi ciency urban HCs, whose decreases occurred at a
for these centers also decreased. more drastic rate than rural HCs. In addition,
One possible explanation for the fi nancial while average collection rates were typically
distress of some HCs is that service inten- lower for rural centers (with the exception
sity and delivery increased with more grant of self-pay), average rates for rural private
revenues. Centers could expand their scope
16 J OURNAL OF H EALTH C ARE F INANCE /S PRING 2009
of work, taking more time with patients and strategy. Policy makers are likely to be partic- thereby decreasing productivity and increas-
ularly interested in the comparison between ing encounter costs (fewer patients per hour
HVHR centers and HVLR centers to assess divided into more expensive scope of serv-
the potential impact of low managed care rev- ices). Mid-level providers, for example, may
enue on fi nancial and clinical performance.
be providing more comprehensive services. As one might expect, HCs that offered
A second explanation may be that health enabling services had correspondingly centers use a signifi cant portion of these grant
higher costs. Interestingly, personnel costs revenues to provide enabling services for were lower for these centers. Finding the their patients. A third explanation may be that
balance between enabling services and fi scal these funds are used to support non-clinical
sustainability is a constant challenge for HC activities provided by support staff. If these
administrators.
explanations are true, then center administra- When considering provider productivity, tors and policy-makers should not overlook
results were mixed. Physician productiv- the importance of operating revenues to the
ity was associated with decreased medical center’s overall fi nancial health. After all, encounter costs, but also with increased per- grants often don’t pay full costs, consume sonnel costs (general and medical). Mid-level valuable time of clinical and other staff in provider productivity was associated with program design and implementation, have decreased costs (overall encounter and medi- limited lives, and, if funds aren’t advanced,
cal); however, this variable was also associ- will consume cash needed to carry the grant
ated with increased medical personnel costs receivable. Centers should prioritize devel-
and decreased net income. Apparently, the opment and new business opportunities.
cost benefi ts of mid-level provider salaries Centers participating in managed care were not realized in terms of net income. Pro-
contracts on any of the three levels of vol- ductivity, while an important goal for medical ume/revenues (HVHR, HVLR, and LVLR) personnel, must be tempered with the fi nan- showed decreased net revenues. The only net
cial ability of the center to provide services. revenue exceptions to this fi nding are centers
Given these fi ndings and associated fi nan- that were in their fi rst year of managed care
cial results, what factors infl uenced positive participation—although these centers also fi nancial performance of HCs? Three center showed increased costs and decreased pro-
characteristics were signifi cant and pointed ductivity across the board. While continuing
to better overall fi nancial performance. First, to serve as a provider to Medicaid enrollees
urban centers and centers with larger num- in a managed care environment is important,
bers of patients had higher net revenues and administrators should give full consideration
increased self-suffi ciency, even though they to the impact of decreased reimbursements also had higher personnel costs. Second, cent- and increased administrative costs, and to ers that saw higher numbers of patients with the ability to offset these losses with other chronic diseases had lower encounter costs, sources of revenue. Centers have little choice
and higher net revenues. Finally, centers with but to play or lose Medicaid share. Acting larger numbers of prenatal care patients had collectively to infl uence the state Medicaid higher overall and medical encounter costs, managed care environment may be their best
but saw increased net revenues and greater
Financial Performance and Managed Care Trends of HCs
self-suffi ciency. These three characteristics participation and reimbursements are chang- highlight the importance of having an ade-
ing and should be monitored. As states face quate number of clients with ample revenue
increasing numbers of uninsured and move streams. Administrators should seek to offer
to implement coverage strategies, the effect services that generate positive revenue, are
on the fi nancial health of HCs will change. low in cost, and high in demand. While cent-
Second, changes to the collection and cat- ers operating in their fi rst year of a managed
egorization of data points can confuse fi nd- care contract also had positive fi nancial out-
ings. For example, dollars that are classifi ed comes (increased net revenues), the poten-
as service revenues in one time period may tial for declining net revenues in consecutive
be accounted for as grant revenues in another years must be carefully considered.
time period. Third, this study is limited by This study appears to support the concerns
the application of secondary data. HCs’ serv- stated by the IOM in 2000. The increasing
ices to vulnerable populations are likely to number of uninsured continues to overwhelm
be infl uenced by other external and internal the ability of HCs, and the safety net in gen-
factors such as community characteristics, eral, to manage scarce resources while meet-
features of managed care, management char- ing need. Medicaid managed care contributes
acteristics, infl uence of the board, practice to the fi nancial diffi culties by cutting non-
characteristics, and the culture of the center. grant revenue sources—an affect that is mag-
Future attention to these other variables nifi ed by the decrease in available subsidies
could enlighten this analysis and amplify its for charity care. While administrators and interpretation. Fourth, the negative fi nancial policy makers should continue to seek new
fi ndings related to managed care participa- grant alternatives to offset operating losses
tion do not suggest that HCs are abdicating and administrative expenses, the goal should
their mission; rather, it is a warning to health
be to maintain or expand services within the centers that their mission could be jeopard- constraint of fi nancial self-suffi ciency.
ized when trying to protect Medicaid market share in a managed environment. Finally,
Limitations
those centers that were operating during Administrators and policy-makers should
some portion of the seven-year period and keep in mind the limitations of this study
were fi nancially stressed may not have been prior to implementing interventions based on
present for the entire study period due to a these results. First, the level of managed care
lack of fi nancial viability.
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