69. Community Health Centers Making the Move to Value-Based Payment

February 9, 2023

Policy Brief

Geiger Gibson Program in Community Health
Policy Issue Brief #69
February 2023

Peter Shin, PhD, MPH
Jessica Sharac, PhD, MSc, MPH
Colleen Bedenbaugh
Sara Rosenbaum, JD
Feygele Jacobs, DrPH, MS, MPH


Executive Summary

This policy brief provides in-depth findings from our qualitative study to understand and document community health centers’ experiences with Medicaid alternative payment models (APM) and move to value-based payment (VBP). Based on interviews with Primary Care Associations and community health centers in twelve states, we found that the primary motivations to pursue VBP included financial stability, need for flexibility, and better patient care. Key factors facilitating the move to VBP were strong relationships with state Medicaid agencies and health centers’ collaborations within larger organizations such as clinically integrated networks and health center-controlled networks. Ongoing challenges include addressing changes in scope of services, how attribution is determined, and data-sharing and care coordination efforts with health plans. Participants noted that successful VBP reforms necessitate states’ recognition of the unique role and mission of health centers, the availability of robust data and analytics to understand potential financial impacts, and emphasizing the potential opportunity of VBP models to transform care delivery for patients.


This policy brief supplements our recent Health Affairs Frontline publication, “Community Health Centers and Medicaid Reform: A Deeper Dive Behind Alternative Payment Reforms” (January 27, 2023),[1] with expanded findings from a study conducted by the Geiger Gibson Program in Community Health and funded by the Episcopal Health Foundation.

The purpose of the study was to analyze the relationship between community health centers and Medicaid, focusing especially on the opportunity Medicaid affords to move community health centers away from the prospective payment system (PPS) payment model that has been part of Medicaid policy since 2000 and toward alternative payment models that can promote efficiency while allowing community health centers to address transformative “whole-person” health needs. Interviews were conducted from April to October 2022 with Primary Care Associations (PCAs) and community health centers (CHCs) in twelve states. The PCAs and health centers were asked about the Medicaid PPS reconciliation payment or “wrap around” process as well as moving to value-based payment models.

Over the last two decades, community health centers have negotiated some modification of the basic PPS payment model with their states.[2] As noted in our Frontline article, the PPS formula requires a reconciliation between the interim rates paid by managed care organizations and the actual amount owed under the formula. As shown in Table 1, the share of Medicaid health center revenue from PPS reconciliation payments in the case study states ranged from one percent to nearly half (47 percent) in 2021. For example, in five of the states represented in our study, the share of revenue derived from reconciled payments exceeded one-third of all Medicaid revenue. This makes alternative payment negotiations challenging since in many states, the actual baseline amount owed was uncertain. Where estimates of amounts owed are accurate, this split approach to payment may not have an impact on structuring APMs. But if reconciliation is delayed, the difference can be considerable. In some states, APM negotiations may be starting from a significantly lower baseline that does not fully reflect what CHCs are owed.

The information collected from twelve case study states was supplemented with literature and other supporting documents. Table 2 shows three core APM components utilized in the twelve states. Five states include or have the option to include global payments or total cost of care arrangements within their APM (CA, CO, MI, MO, and OR). While California has a global payment program, this is available only to hospitals, not to federally qualified health centers. Six states have some sort of rate rebase process built in to their APM (CO, IA, MN, MO, NM, and WA).


[1] Community Health Centers and Medicaid Reform: A Deeper Dive Behind Alternative Payment Reforms, https://www.healthaffairs.org/content/forefront/community-health-center…

[2] Health Centers and Rural Clinics: State and Federal Implementation Issues for Medicaid's New Payment System' https://www.gao.gov/assets/a246759.html



Key Findings

Interviews were conducted with PCAs representing twelve states and nine health centers in eight of these states.

1. Health centers are actively engaged in a range of VBP arrangements that largely reward performance and provide financial protections.

The twelve state PCAs interviewed report that their health centers are involved in a range of VBP arrangements that focus on value (see Tables 3 and 4). The most common VBP approach involves quality incentives. Ten PCAs (CA, CO, IA, KY, MI, MO, NM, OR, VT, and WA) report that their states provide quality incentives to participating health centers. The quality measures used in each state tend to vary based on the preferences of the state Medicaid agency, managed care organizations (MCOs), and other regulatory or payor entities. For example, Missouri uses HEDIS measures to quantify quality and performance, while the California PCA has created a set of six quality domains within which each health center is tasked with meeting at least two measures in order to avoid risk. Six PCAs (CO, MI, MN, MO, OR, and WA) reported that health centers have the option to receive PMPM payments to support, most notably, greater care coordination.

Four PCAs reported that some of their members are included in arrangements involving downside risk (CA, CO, IA, UT), upside risk (NM, OR, WA), or both (MI, MO). CHCs that participate in only upside risk are able to capture additional revenue which they would have to pay back as overpayment under PPS.

There is no downside in [payment], with an upside opportunity to recoup what would otherwise be considered an overpayment.” Washington PCA

The PCAs noted that the COVID-19 pandemic revealed the vulnerability of the PPS system. Several PCAs noted that CHCs that received capitation or substantial PMPM revenue fared better than those that continued with PPS.

And I think the pandemic also sort of helped raise the level of interest because I think folks who understood the APM understood that, if they had been in a value-based system versus volume-based that they wouldn't have had the financial issues that they had with the pandemic. And so, I think that also has sort of helped bolster, you know, the interest in moving forward and definitely from the state's perspective, they didn't like the idea that any safety net could crumble because of the financial instability with the PPS system.” California PCA

The shift to telehealth during the COVID pandemic also revealed limitations of the PPS methodology.

“…how does the prospective payment system work in relation to electronic communication through a portal, or remote patient monitoring, or asynchronous telemedicine? The PPS system was just never designed for that.” Michigan PCA

It is unclear if a move to capitation would have helped stabilize finances during the pandemic; one interviewee noted that federal health center emergency COVID-19 funds helped to sustain operations. However, the interviewee acknowledged that more predictable and secure funds are preferable to one-time, temporary funding grants.

The key financial advantage in their move to value-based approaches is the ability to maintain the objective of PPS legislation to protect their operational viability. In most arrangements, performance bonuses, savings, and incentives are considered at-risk, but CHCs generally reported them as real financial gains that could be used to recoup investments made to improve care delivery.  

2. Interviewees noted that moves to VBP are driven by the needs for financial stability, flexibility, and better patient care.

Seven PCAs (CA, CO, IA, MI, MO, NM, and OR) report that some of their health centers participate in a capitation payment model. The primary reasons for the move to capitation are financial predictability and flexibility in care delivery.

What we want to do is make it more flexible and predictable and up front to power the care team redesign that we want to see happen. So, this isn't about making more money. It's not about changing the PPS rate because it's bad here…It's like, we just want to make it more flexible, predictable, and upfrontLiterally our driver is, predictability, upfront payments, the flexibility to not be on the volume hamster wheel. It's here's our attributed lives, here's the money you have to work with them over the course of a year in monthly payments. Go do the things you need to do to keep them healthy. That's what we're trying to move to.” Iowa PCA

Lack of adequate payments and delayed reconciliation (“wrap”) payments also played in a role in generating interest in a more prospective, reasonable, and predictable payment model. The Utah PCA noted that their PPS rate increasingly fell behind their actual costs due to lower Medicare Economic Index (MEI) adjustments, and sought an APM model that would at least provide a financial bonus for quality and help to sustain their performance. The New Mexico PCA stated that their move to capitation, which incorporated wrap-around payments as well as both up- and down-side risk, strengthened their financial predictability and stability.

PCAs also reported on the need and incentive for greater innovations, which often require significant investment. For example, PCAs stated that health centers were able to move quickly to telehealth during the COVID-19 pandemic because many health centers had long recognized the need to provide remote care, particularly in rural areas, and had invested part of their revenue to build that capacity. Several PCA and health center interviewees further emphasized the need for VBP to support their efforts to continually improve the care delivery model for their patients. They noted the need for greater flexibility in value-based payment structures that allowed for more diverse care teams, including care coordinators, community health workers, and social determinants of health (SDoH) screeners who were not covered under PPS reimbursement.

What we're really trying to evolve towards is a model of care where the Licensed Independent Practitioners, they're still leading the team, but then the other team members, our nurses, our care coordinators, our Community Health Workers, our Health Educators, they're playing a bigger role in caring for someone, and you can't get there if a lot of those encounters don’t generate revenue...” Michigan PCA

Interviewees saw VBP as a “reinvestment” opportunity to not only retain and promote staff - particularly at a time of high turnover and staff shortages - but also to expand the types of staffing that result in delivering care more effectively (e.g., by adding care coordinators, SDoH screeners).

3. Strong Relationships with Medicaid Agencies are Critical to Support Moves to VBP

PCAs noted that their states provided supportive strategies for CHCs to adapt new payment methodologies while recognizing the PPS rate as the floor. In the selected states, CHCs were recognized by state Medicaid agencies as playing a critical role in the delivery of care to Medicaid recipients and in addressing health care inequity. PCAs noted that having well-established relationships with state Medicaid agencies that understood their role and impact helped in negotiating and establishing reasonable payment guidelines. States also recognize that CHCs serve a significant proportion of Medicaid patients and help to mitigate health care disparities. The Minnesota PCA, for example, noted that the state continues to look to health centers to “solve a lot of their equity issues.”

Oregon’s PCA stressed that building and maintaining relationships with the state Medicaid agency was one of the main factors facilitating progression of their APM. Oregon PCA representatives noted the importance of the State Department of Health advocating on behalf of the health centers to “get the state to really buy into that vision at the time.”

States play a critical role in guaranteeing that health center payments comply with federal law under any value-based arrangements. To protect health centers’ viability and their ability to provide cost-saving care, states need to ensure that the full scope of FQHC benefits are adequately reflected and protected in their alternative payment models.

4. PCAs noted that working together as a larger organization minimizes financial risk.

How health centers organize themselves to take on risk varies state-to-state. In each state, PCAs, Health Center Controlled Networks (HCCNs), and other CHC-led care delivery arrangements (e.g., Accountable Care Organizations [ACOs]) have a range of experiences and various strengths in leading and facilitating APM adoption and spread. In Missouri, the PCA led the way in the transition toward an APM with the creation of a Clinically Integrated Network (CIN), Missouri Health Plus, and their considerable ability to foster strong relationships with state-level agencies (i.e., state Medicaid Agency, Governor’s Office, etc.). In Michigan, the HCCN, in which every health center participates, is able to track and assess various performance and quality measures. In Minnesota, many CHCs are currently involved in Medicaid ACOs or CHC-led Integrated Health Partnerships (IHPs) that help less experienced but interested CHCs transition toward a per-member per-month arrangement. In other states, larger CHCs may lead a broader organizing effort to raise reserve capital, to set up the necessary network arrangements, or to help to cover potential losses which can occur in the early stages of payment changes.

We can aggregate performance information, not only for an individual health center to fuel their quality improvement process, but as a network, so we now share that system and invest in it in a shared way to build out functionalities to support things like value-based payment.” Michigan PCA

One Missouri Medicaid managed care plan has downside risk, so Missouri’s CIN developed a reserve account “so none of the health centers would ever feel the downside [risk].” However, few larger health centers can take on significant risk alone, as one California CHC stated: “So, if I can't pass on my reasonable increase of costs, we're going to see health centers go under. We just have zero margins. I mean zero. And so, any disruption is so destructive for us that we lay off staff, we can't hire reliable work.”

5. All CHCs have the option to participate.

The PCAs indicated that while the goal is to have all CHCs participate in VBP models, no CHC is required to do so. CHCs that tend to participate were those that understand the benefits and risks and have significant (attributable) Medicaid patient volume, enough financial reserves to offset potential losses either as part of larger organized entity or on their own, and agreements with their states to reset rates if payment is less than adequate. In Oregon, the PCA also worked with CHCs to provide technical assistance to those potentially interested in implementing new payment models. However, in the end, health centers self-select to participate in VBP only when ready.

PCA and Health Center Recommendations

PCAs and CHCs provided the following considerations and recommendations for moving to a value-based payment methodology:

First, all interviewees emphasized the need to better advance understanding of the unique strengths and challenges CHCs face because of their obligations to uninsured patients and the community at large. As the Michigan PCA noted: “Working in an FQHC, the ways that FQHCs perform, their quality improvement process, they’re different than other providers in meaningful ways.”

Some PCAs noted that changes in Medicaid agency leadership and staffing can disrupt relationship building. However, PCAs and CHCs indicated that they have historically been able to overcome or overlook some of these challenges and have worked together to improve quality. One CHC noted that having a greater shared understanding of VBP can lead to greater improvements in patient and community health.

Second, VBP presents an opportunity to positively transform care for patients rather than to sustain their ongoing work. PCAs and participating CHCs noted the new payment arrangements offer greater potential of fulfilling their mission to address patient whole health and to enable greater use of team-based care.

Third, federal Medicaid payment policy is sufficiently flexible to enable health centers to move slowly through various pathways to VBP to gain experience and better understand the opportunities and challenges they present. The most simple and easiest first step to start with is quality incentives. This step would also allow for CHCs to better gather and understand their data and staffing needs. For example, CHCs may realize significant reinvestment gains from the quality bonuses or PMPM payments such that they are able to hire SDoH screeners to collect social risk data, develop data analytics capabilities, or work with local community-based partners to address particular social determinants of health. With greater understanding, CHCs can then consider moving toward more risk-based options, including capitation and shared saving arrangements. However, these are often more difficult to calculate given attribution and scope of service challenges. It may be possible to negotiate with the state on the ability to reset rates should payments be less than PPS, or to cap expenses. With more detailed data, it may be possible to negotiate for risk-adjusted payments.

Fourth, interviewees noted the need for good data and analytics to understand their risks, particularly compared with current payment arrangements, and needs. Five state PCAs (KY, MI, NM, UT, and VT) were able to identify payment gaps in the current PPS or APM arrangements. Five PCAs (NM, OR, UT, VT, and WA) noted that where state and CHC data conflict, the state will tend to rely on their own data or the health plan claims data. The PCAs noted that having such data provides significant leverage in negotiating reasonable rates and understanding what health centers are risking.

I think part of it was having good data to back us up. We really did go to [the state Medicaid agency] with the data that said ‘we're serving, you know, 40% of the population seen at our FQHCs are Medicaid patients. And that 40% of our patient population is X% of the state.’ It was pretty significant… we're big players… But having those data, that was critical. Here's what you're paying, here's how many people we’re seeing, here's all the services we're providing, here's where we've been in terms of the metrics of quality improvement.” New Mexico PCA

And so we were able to finally get them to understand that we're not being paid appropriately….” Utah PCA

The participants emphasized that in the end, VBP should result in improvements in patient care, patient experience, and health care outcomes. However, the impact may be limited given that most capitation models focus on medical care and largely exclude behavioral health and oral health services, which remain reimbursed on a per-encounter basis.

Finally, interviewees stated that substantial lead time is needed for negotiating, adopting, and adapting payment structures critical to transforming the care delivery model. It may also be burdensome for CHCs to collect and analyze data to assess their risks more accurately, undertake readiness or stress tests to better manage preparations, prepare for implementation, including raising capital reserves, and plan and respond to other potential changes. Several discussants cited the need for infrastructure investment. Other challenges included retraining personnel, assessing different staffing and team models, modifying EHR templates, and adapting workflows and processes.

Time is also needed to build up capital reserves to offset potential risk. However, such early efforts to move funds may mean losing opportunity to fund other health center priorities.

Some PCAs indicate that their states and CHCs are still in “learning modes” and may be evolving along with state aims. For example, the Oregon PCA noted that the state is looking to add a social risk adjustment to the payment model: “…as we look at the evolution of the program and our state, you know, is very invested in around health equity and how we can show that this supports social determinants…and looking at equity and care because their goal is to achieve health equity by 2030.”

Even for CHCs and PCAs that have strong relationships with the state, the interviewees noted that they still need time to work through ongoing challenges including addressing change in scope issues, tackling how attribution is determined, and streamlining data sharing and care coordination efforts with health plans.

Among those CHCs that do not participate in VBP arrangements, the most common reasons include not having enough Medicaid patient volume to realize significant benefits, lack of understanding of their financial risks, and perceived fear of change. Despite assurances that PPS is the base, which helps to minimize risk, many CHCs remain reluctant to move away from predominantly encounter-driven payment models. A number of PCA and CHC interviewees referenced the Oregon PCA’s work to minimize these barriers and fears by providing technical assistance and consultation to help CHCs better prepare and assess their risks and benefits. Other PCAs indicated that they also hope to rely on the experience and evidence of participating CHCs in their states to provide greater insights and guidance. How much more time and evidence will be needed is yet to be determined


Interviews with PCAs and CHCs in twelve case study states revealed that health centers participate in a variety of VBP models. Participation in these models is spurred by substantial Medicaid patient volume, the need for more predictable and stable financing, and the desire to move away from an encounter-based care delivery system to models that allow for greater care coordination and team-based care. States can encourage the move to VBP models by recognizing the important role that health centers play as safety-net providers and fostering strong relationships between their Medicaid agencies and health centers. PCAs and health centers’ efforts to move to VBP models can be facilitated by both good data and analytics that can prepare them for changes to payment and staffing structures, and by organizing within larger organizations such as HCCNs or CINs to allow for shared resources and financial risks. These efforts should be supported given the potential for VBP models to alleviate financial pressures on health centers, allow health center providers to offer more efficient and coordinated care, and transform care delivery for their patients


[1] Community Health Centers and Medicaid Reform: A Deeper Dive Behind Alternative Payment Reforms, https://www.healthaffairs.org/content/forefront/community-health-centers-and-medicaid-deeper-dive-into-fqhc-alternative-payment-reform

 [2]Health Centers and Rural Clinics: State and Federal Implementation Issues for Medicaid's New Payment System' https://www.gao.gov/assets/a246759.html