Community Health Centers in Financial Jeopardy Without Sufficient Federal Funding

 

Table 1 shows the distribution of health centers by federal funding levels, patient volume, and margin. Federal funding includes mandatory and discretionary health center grants and temporary COVID-19 funding reported in the 2022 Uniform Data System (UDS)5 , a comprehensive national CHC reporting system administered by the Health Resources and Services Administration. Health center margins were calculated using revenue and expense data reported in the 2022 UDS.6 Because health centers vary markedly in size and payor mix, federal funding may account for as little as three percent of their revenue or as much as 100 percent in CHCS that depend entirely on grant funding, such as those located in the US Territories. However, as shown below, federal funding at any level is critical to both CHC revenue and operating margins. Nationally, median health center margins are 3.5 percent. Further, irrespective of the extent to which they rely on federal funding, median margins are relatively thin across all CHCs, at less than 5 percent. Healthy operating margins are necessary to sustain health center programs and services, and strong margins allow health centers to invest in strengthening and expanding care. Table 2 highlights the number of health centers operating with negative margins or margins of up to 5% for each of the 50 states, District of Columbia, Puerto Rico and the US Territories. Notably, 750 health centers – more than half of all community health centers nationwide – operate with margins below 5%. These health centers served 16.5 million low-income patients in 2022. The majority of these patients (11 million) were served by health centers with negative margins. In every state, distressed margins threaten continued CHC viability and access to care. California has the greatest number of health centers at financial risk, followed by New York and Texas. States where the majority of health centers operate on thin margins, such as Connecticut (94%), Massachusetts (84%), Maine (82%), Hawaii (77%), Maryland (76%), North Dakota (75%), and South Dakota (75%) appear to be at substantial risk of losing the core of the health care safety net. While other health centers may report margins exceeding 5%, their financial viability is nonetheless highly vulnerable to changes in federal funding.7

 

Even as the number of health center patients increased, and in a period of mounting inflation, the mandatory Community Health Center Fund and base discretionary appropriations combined have remained flat at approximately $5.6 billion annually for the past several years.8 Supplemental pandemic-era funding of $3.2 billion in 2022 helped bridge the gap, but this temporary funding has ended. With FY 2024 health center funding unresolved, CHCs are at risk of losing funding that is critical to maintaining staffing, services, and access to care.9

This analysis suggests that health centers will require a substantial boost in federal funding to strengthen access to care that, for example, helps to reduce the risk of pregnancy-related deaths,10 prevent onset and spread of vaccine-preventable diseases,11 and reduce overdose deaths.12 We estimate that at minimum, $10 billion in annual funding would be required just to maintain current service levels (based on historic $5.6 billion federal FY funding levels and $3.2 billion in temporary COVID-19 funding reported in the 2022 data, plus estimated revenue shortfalls) but additional funding increases will be needed to account for inflation, cost trends, and workforce and operational growth.13 With the substantial uncertainty surrounding federal funding, health centers are highly unlikely to be able to expand to serve the estimated 100 million people who lack access to primary care.14 In fact, should Congress continue to delay, or to cut federal health center funding, more than half of the nation’s health centers are in immediate financial jeopardy and at imminent risk of reducing operations or potentially, closing altogether. Even health centers with relatively higher margins are financially vulnerable and will likely face significant challenges to supporting current services and maintaining access. This analysis underscores the importance of stable, long-term federal community health center funding and the urgency of immediate and increased funding to support essential community health services.

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