Geiger Gibson Program in Community Health
Policy Issue Brief #72
September 2024
Kristine Namhee Kwon, MPH
Leticia Nketiah
Feygele Jacobs, DrPH, MS, MPH
Sara Rosenbaum, JD
Leighton Ku, PhD, MPH
- Executive Summary
This brief examines the experiences of community health centers from 2019 to 2023, the five-year period preceding and following the COVID-19 pandemic, using data from the Uniform Data System (UDS) administered by the Health Resources and Services Administration (HRSA). Despite disruptions that occurred when the COVID-19 pandemic first struck in 2020, health centers continued to provide high-quality ambulatory health services to a growing number of patients in medically underserved communities, reaching more than 31 million patients by 2023, the most recent year for which data are available. Health centers’ successes during this critical period were possible, in part, because Congress stabilized and protected access to health care, such as by providing supplemental COVID-related funding for health centers (and for other health providers) and requiring continuous Medicaid eligibility during the public health emergency.
These policies helped health centers improve their financial margins (the difference between revenues and costs). As seen in Figure ES-1, by 2021, health centers nationally had a net margin of 5.3%. But as the supplemental funding fell, costs outpaced revenue, and margins fell to 1.6% by 2023. After adjusting for inflation, while costs and insurance-related revenue continued to grow, grant-related revenue fell by 6% between 2021 and 2023, causing margins to plummet. But Medicaid continuous eligibility has now expired, and COVID-related funding is depleted. Thus, we expect that in 2024, health centers will have negative margins overall – or “go into the red” – which we conservatively estimate could exceed a 2% loss. A large majority of the almost 1,400 non-profit health centers across the nation are likely to experience losses in 2024.
Just as the number of uninsured Americans is rising, health centers face serious problems paying their staff and providing vital health and related services for their patients. The situation could deteriorate further in 2025. The federal government and states could take steps to help health centers continue to meet the needs of their communities, such as by increasing mandatory and other grant funding for community health centers and by strengthening Medicaid revenue paid to health centers.
- Introduction
In 2023, community health centers (also sometimes called “federally qualified health centers” or FQHCs) delivered affordable, high-quality ambulatory health care services to over 31 million patients – almost one in ten Americans – through nearly 1,400 centers operating more than 15,500 service sites across all 50 states, the District of Columbia and U.S. territories. Supported by grants from the Health Resources and Services Administration (HRSA), as well as revenue from Medicaid, the Children’s Health Insurance Program (CHIP), Medicare, and private insurance, health centers furnish care to diverse medically underserved communities and populations that disproportionately face elevated health risks and lack sufficient resources to meet health and health care needs. Organized as nonprofit entities governed by boards whose members reflect the communities they serve, health centers must, by both statute and mission, offer comprehensive health care to all patients regardless of their ability to pay and adjust their charges based on patients’ income. Research indicates that cost-effective primary and preventive care delivered by health centers helps lower overall medical expenditures by both preventing more serious health problems and reducing the need for more expensive emergency and inpatient hospital care.
This brief highlights key health center achievements and trends over a five-year period spanning calendar years 2019 to 2023. This period represents a unique chapter in the life of community health centers as they and their communities endured the greatest pandemic in a century. Our analysis uses data from the Uniform Data System (UDS), which is based on annual reports submitted by health centers to the Health Resources and Services Administration (HRSA); 2023 is the latest year for which data is available. We focus on community health centers that receive federal funds through Section 330 grants and do not include the small number of similar “look-alike” health centers that do not receive those grants. A new HRSA data brief highlights key health center measures and trends. In addition, a recent Commonwealth Fund survey examines recent changes, particularly centers’ challenges in hiring health professionals. This analysis examines changes in the number and characteristics of patients from 2019 to 2023, as well as trends in services, staffing, and financial metrics.
- Findings
Number and Characteristics of Health Center Patients
Figure 1 illustrates changes in the number and insurance coverage of patients receiving care at health centers from 2019 to 2023. After many years of growth, the sudden onset of the COVID-19 pandemic in 2020 caused a pause in visit volume. At the beginning of the pandemic, many health centers, like other health facilities, were forced to shutter temporarily because of concerns about the spreading virus. However, to meet their communities’ immediate health needs, most health centers added telehealth capacity as well as COVID-19 testing and later, vaccination services, and gradually restored in-person services. Thus, while the number of patients dipped slightly between 2019 and 2020, health centers recovered quickly and growth resumed in 2021, reaching 31.3 million patients in 2023, 1.5 million more (5%) than in 2019. Overall, health centers served almost one out of every ten Americans in 2023.
The major source of patient growth was attributable to an increase in the number of Medicaid/CHIP patients served, which increased by 1.5 million (11%) between 2019 and 2023. In response to the COVID-19 pandemic, in 2020 Congress required states to maintain continuous Medicaid eligibility (i.e., not terminate Medicaid coverage) during the public health emergency. The continuous eligibility policy, as well as state Medicaid eligibility expansions, helped fuel increases in both overall Medicaid enrollment and health centers’ Medicaid growth. Additionally, health centers saw an increase in Medicare (0.5 million more) and privately insured patients (0.8 million more), including those covered by the health insurance marketplaces created by the Affordable Care Act. With the increase in insurance coverage of all types among health center patients, the number of uninsured patients commensurately declined, falling by 1.2 million patients (-18%) between 2019 and 2023. Nonetheless, the 5.6 million uninsured patients represent more than one-fifth of the nation’s total 26 million uninsured, based on Census data for 2023. The reduction in uninsured health center patients occurred because so many gained coverage, not because health centers turned them away. Health centers must serve all patients regardless of their insurance coverage.
These changes parallel the broader growth of insurance coverage for Americans and the reduction in the number of uninsured nationally through 2023. However, after March 2023, the Medicaid continuous eligibility period expired and states began the process of Medicaid eligibility redeterminations for all Medicaid enrollees, also known as Medicaid “unwinding,” terminating coverage for those who no longer qualified or who were otherwise unable to get their coverage renewed. As of late August 2024, about 25 million people had lost Medicaid coverage. Accordingly, preliminary data from the Centers for Disease Control and Prevention indicate that the number of uninsured Americans began to rise again in late 2023. The Congressional Budget Office projects that the percentage of the population that is uninsured will rise in 2024 and continue to grow for several years. In an earlier report, we demonstrated how Medicaid unwinding could cause the number of Medicaid beneficiaries at health centers to fall in 2024 and increase the number of uninsured patients.
UDS data also show that health centers serve diverse and vulnerable patients. About 90% of patients have incomes below 200% of the poverty line (after excluding those whose incomes were not reported in the UDS data). Of the 31 million patients served in 2023, 9 million (almost one-third) were children under 18 while over two-thirds (22 million) were adults. Nationally, about three-fifths of health center patients are classified as people of color. Health centers reported that about one-quarter of patients (8 million) were best served using a language other than English.
Changes in Health Center Services
Figure 2 presents the changes in the number of health center visits from 2019 to 2023. Similar to the trend in patient numbers, the number of visits declined from 122.8 million in 2019 to 114.2 million in 2020, primarily due to the COVID-19 pandemic. However, from 2021 onward, the number of visits rebounded, reaching 132.5 million (8% more) in 2023.
As the COVID pandemic struck, many health centers, like other health care providers, were forced to temporarily discontinue or reduce in-person visits, but they quickly expanded their use of virtual telehealth services as an alternative way to care for patients. Indeed in 2020, about one-quarter of all visits were provided through telehealth. In subsequent years, the level of in-person care has rebounded and while telehealth was still important, it represented only 13% of all patient visits in 2023.
Telehealth has been particularly important in providing access to mental health care. Figure 3 illustrates that a majority of mental health visits took place virtually in 2020 and 2021. Although less than half of all mental health visits were provided virtually in 2022 and 2023, telehealth still represents a crucial mode of expanding access to mental health care for high-need patients.
Changes in Service Categories and Diagnoses
Table 1 shows the types of health services delivered by health centers. Overall, the number of visits rose from 123 million in 2019 to 133 million in 2023 (8% more). About two-thirds of all visits are classified as medical visits. By 2023, the second-largest visit category was mental health, reflecting an essential response to the growth of mental health challenges during and after the COVID-19 pandemic. Visit patterns over this period show that the number of dental and substance use disorder visits declined in 2020 but have grown again more recently. Health centers also provide care to address many social drivers of health. For example, “other professional services” includes nutrition and dietary counseling, and “enabling services” includes transportation and interpretation services as well as counseling for services such as housing.
Table 2 presents changes in health center visits for selected diagnoses and services. Health centers have played a key role in providing diagnostic services and preventive care to medically underserved populations. A large share of medical care is related to common chronic diseases such as hypertension and diabetes. Additionally, health centers provide care that is fundamental to reproductive health care and women’s health, such as contraceptive management, screening and treatment for sexually transmitted infections, and early cancer screening and diagnosis, such as the use of mammography and Pap tests for breast and cervical cancer detection. Health centers have also been important in addressing the risk of communicable diseases, such as through HIV testing and counseling. Beginning in 2021, health centers were pivotal in providing COVID-19 vaccines, although that has diminished in more recent years, just as COVID-19 vaccination rates nationally have declined.
Changes in Health Center Staffing
Community health centers employed about 300 thousand staff (measured as full-time equivalents or FTEs) in 2023. Table 3 shows that the number of staff rose by 19% over five years. About one-third (almost 100 thousand FTEs) were medical staff, including physicians, advanced practice clinicians, nurses, and other medical personnel. An additional one-third were other health professionals, including mental health and substance use personnel, dental staff, and other staff. This reflects particularly rapid growth in the number of mental health staff, whose numbers grew by 31% in five years. The remaining third are facility and other non-clinical staff, including administrators, clerical, and IT staff.
Despite these gains, a 2024 survey found that about 70% of health centers reported problems hiring a sufficient number of physicians, nurses, or mental health professionals. An important adjunct to facilitate staffing at community health centers is the National Health Service Corps, a federally funded program that offers scholarships and loan repayment to health professionals who practice in underserved communities, such as at community health centers. Still, health centers must compete with other health clinics and hospitals for staff, and face increasing pressure on health professional salaries and benefits.
Health Centers’ Costs, Revenues, and Net Margins
The finances of community health centers are complicated and reflect the fact that unlike private practices, which have a significant source of cash revenue to supplement insurance payments, health centers depend on grants to supplement health insurance payments and finance services that insurance does not cover, such as nutrition, care support, and social services. Health centers provide medical, mental health, substance use disorder, dental, and other health care services, as well as other services such as HIV care, family planning, and WIC nutrition services. They also offer other social and enabling services to address the needs of their patients, such as transportation, eligibility assistance, and interpretation which are essential to addressing access to care. They serve populations with unique challenges accessing care, such as people experiencing homelessness, or migratory and seasonal agricultural workers. A typical health center thus depends not only on Medicare, Medicaid, and private insurance but also relies on grants for a substantial portion of its operations. Principally, grant support comes from the health center grant program, Section 330 of the Public Health Service Act. Other federal grants include Title X family planning, Ryan White HIV, and Women, Infants and Children (WIC) nutrition.
Table 4 presents an overview of community health center finances from 2019 to 2023, drawn from the UDS reports. We note that UDS financial data are unaudited reports submitted to HRSA; they do not constitute a comprehensive financial picture. For example, they do not include items that might be included in more complete financial ledgers, such as assets, debts, cash on hand, or other earnings. Furthermore, these data do not show expenditures or revenues associated with the 340B Drug Pricing Program. Nonetheless, UDS data indicate the primary health-related costs, revenues, and financial margins of the nation’s community health centers.
The top part of Table 4 shows health centers’ costs and revenue sources, shown as nominal dollars (billions of $). The bottom panel summarizes these data adjusted for inflation, presenting them as constant 2023 dollars, adjusted using the average Consumer Price Index (CPI-U). Between 2019 and 2023, both total costs and revenue rose at a similar pace, roughly 48% to 49% in nominal dollars or 24% to 25%, after adjusting for inflation.
However, during the post-COVID period, between 2021 and 2023, health center revenues did not keep pace with costs. Core Section 330 funds were close to flat and COVID-related funding has been depleted. After adjusting for inflation, costs rose 11% in the past three years, while revenue rose just 7%. The net effect is that overall net margins have fallen by about two-thirds, from 5.3% in 2021 to 1.6% in 2023, or from $2.3 billion nationwide in 2021 to $740 million in 2023 in inflation-adjusted terms, as seen in Figure 4. As discussed below, we believe that overall margins for health centers will be negative in 2024. That is, health centers’ costs will exceed their revenues, creating serious problems that will cause staffing shortages to become even more severe and limit the capacity of health centers to provide care to their patients. Of course, these are national averages, and many health centers, such as those which were more reliant on Section 330 grant funding, could have experienced more severe difficulties. As described later, even in 2023 almost half the health centers in the nation experienced financial losses.
On the cost side of the equation, health centers’ costs rose at a relatively steady pace over the five-year period, as they increased the number of patients served, the number and range of services, and the number of staff. During this time, health centers also had to bear the costs of rising salaries for health care professionals, increased capital expenditures related to telehealth, electronic health records, and other facility improvements, and increased service demands related to COVID-19, HIV, and mental health needs. Despite their efforts, a recent survey indicated that 70% of health centers had staffing shortages, with difficulties hiring or retaining physicians, nurses, and other medical staff.
During this time, the main source of revenue growth was Medicaid funding, which rose by over $6 billion from 2019 to 2023, spurred by increases in Medicaid enrollment, which in turn was related to Medicaid eligibility expansions and Medicaid continuous eligibility policies. Medicare and private insurance revenues also grew, but they represent smaller sources of revenue for health centers.
Core community health center funding is provided by the Section 330 federal grants administered by HRSA’s Bureau of Primary Health Care (BPHC) which is supported through a combination of mandatory (i.e., entitlement-like) funding, first authorized under the Affordable Care Act and renewed in later years, and supplemented by annually appropriated funds. But core BPHC grant funds received were flat at around $5 billion in each year from 2019 to 2023; because of inflation the value of the core grants actually declined. On the other hand, beginning in 2020, the federal government initiated a number of special grants to strengthen services as well as infrastructure during the COVID pandemic, including funds authorized under the CARES and American Rescue Plan legislation. A recent analysis by Megan Cole, et al., has described the importance of COVID-related funding but noted that the expiration of these funds is creating financial gaps. These funds rose from around $70 million in 2019 to $2.2 billion in 2020, then to $3.5 billion in 2022, but have declined to $2.1 billion in 2023 and will fall even further in 2024 and beyond, as those funds are exhausted.
The net impact is that while inflation-adjusted costs at health centers rose by 11% from 2021 to 2023 and insurance-related patient revenue rose 12%, grants and non-patient revenue fell by 6% in three years. Thus, total inflation-adjusted revenues rose only 7%, much less than the increase in total costs. Figure 4 shows that, since costs outpaced revenue, net margins for health centers (revenues minus costs) fell sharply, declining from 5.3% in 2021 to 1.6% in 2023. Although 2024 is not yet complete and 2024 UDS data will not be available for another year, we believe that overall health center margins in 2024 will be negative; and health centers will be operating in the red.
Figure 5 presents the percentage of health centers that experienced negative financial margins in each of the past five years, that is, the share which were “in the red.” In 2019, slightly less than half (47%) had negative margins, but this level fell in 2020 and 2021, during which only a third were in the red. The share with negative margins began to climb again in 2022 and reached a high point (48% or 652 centers) in 2023. Even among health centers with positive margins in 2023, 138 (more than 10%) have margins below 3%, potentially placing them at substantial risk of costs surpassing revenue in the near future.
As non-profit organizations, health centers may be able to withstand a year or two of negative margins if they can make up for the losses in subsequent years. But sustained losses create more serious problems, and we anticipate that health center losses will grow in 2024, with many more operating in the red.
It is worth noting that the margins experienced by health centers in 2023 are already low compared to other parts of the health sector. Recent analyses by New York University indicate that typical profit margins for health facilities, including hospitals, averaged about 5.1%, while margins for pharmaceutical companies averaged over 15%.
- citations
- Looking Ahead
Potential Shortages in 2024 and Beyond
The confluence of continued flat Section 330 funding for health centers in 2024, further reductions in COVID-related grants, the expected downturn in Medicaid revenue due to Medicaid unwinding, and the related increase in the number of uninsured patients requiring care means that margins can be expected to shrink further in 2024 and the number of health centers that experience financial losses will grow. A November 2023 analysis projected that Medicaid unwinding could lower Medicaid revenue by $2.8 billion. Assuming some gain in private revenue to replace those losses, it projected a net $1.8 billion reduction in overall health center revenue. If health center revenue fell by that much in 2023 and costs were the same as shown above, then health centers nationwide would sustain an overall loss of $1 billion, a net margin of -2.2%. This would mean that a substantial majority of health centers are likely to have negative margins in 2024. Some could be forced to close.
In fact, the financial picture could be even darker. In addition to the loss of Medicaid revenue due to unwinding, temporary COVID-related grants have largely been exhausted, creating another large financial gap and further undercutting health center revenue in 2024 and beyond. Additionally, many health centers cite losses that have occurred due to changes in the 340B discounted drug program that further limit their ability to provide safety-net care.
At the same time, demand for care by uninsured patients is growing. The Congressional Budget Office projects that the proportion of uninsured Americans nationally will be higher in 2024 and will continue to increase in 2025 and beyond. Since health centers are required to serve all patients regardless of their insurance coverage, they would have more uninsured patients and fewer Medicaid patients. The excess demand for care would mean health centers would find it necessary to limit the overall number of patients served, reducing capacity even for insured patients. While there are already warning signs from health centers across the nation, we will not have complete national data until the summer of 2025, when UDS data for 2024 are reported.
While many health centers, but not all, have the capacity to carry short-term debt, financial losses mean that they will not be able to hire staff or provide services necessary to meet the growing demand for primary and preventive care in medically underserved areas across the nation. In addition, losses (or even low positive margins) can force health centers to cut back on efforts to modernize facilities and enhance services and may threaten their ability to stock important medications or supplies, such as vaccines or contraceptives, including intrauterine devices.
Strategies to Sustain Health Centers
Health centers have been a crucial and cost-effective component of America’s health care safety net for decades and have been fortunate to experience a combination of effective management and bipartisan support. But, as discussed in this report, the finances of health centers weakened in 2023 and have almost certainly eroded further in 2024. If more – or most health centers – have insufficient revenue, this will sharply limit their ability to provide care for at-risk patients in medically underserved communities, just as the number without health insurance coverage is rising again.
Three key strategies that could help strengthen health centers in the near future include:
• Reauthorize and increase mandatory, multi-year funding for health centers. The Affordable Care Act created a Community Health Center Fund that provides mandatory (i.e., entitlement-like) funding for health center grants based in authorizing legislation, although a component of funding is also provided through the annual appropriations process. Increases in the mandatory fund, such as those that had been proposed in a bipartisan Senate bill, could increase core federal health center grants for multiple years, both increasing funding and lowering uncertainties related to the annual appropriations process and continuing resolutions.
• Increase Medicaid payments to health centers. The prospective payment system for federally qualified health centers undergirds the Medicaid payment system, but many states have not updated their cost basis for many years, nor have states updated their formulas to reflect the expanded scope of services or new ways of delivering certain services, such as telehealth for mental health needs. The failure to recognize these changes means payment rates do not reflect the new reality, leading to gaps between the cost of services provided by health centers to Medicaid patients and the amount states pay. Many states and health centers are transitioning to value-based payment systems that could improve quality and efficiency, but implementation can be challenging. Finally, ten states (Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin and Wyoming) have not yet expanded Medicaid eligibility; expansion would also substantially increase Medicaid revenues at little or no cost to the states.
• Clarify the availability of the discounted 340B Drug Pricing Program for Health Centers and their patients. This program provides drugs at discounted prices to health centers and other safety-net providers, enabling them to ensure access to crucial outpatient prescription drugs for patients. Policy uncertainties, disparate court rulings and changing participation by pharmaceutical companies have created instability in this program used by most health centers. While the bulk of 340B activity is related to safety-net hospitals, restrictions in this program are also deeply affecting health centers.
- Conclusion
The need to confirm community health center funding for 2025 is quickly approaching. Federal FY 2024 appropriations for community health centers will expire at the end of September. While both the House and Senate developed draft Labor-HHS appropriations bills for federal fiscal year 2025, the two versions differ sharply, and continuing resolutions seem likely. Authorization for mandatory health center funding will expire in December 2024. There is an urgent need to bolster and stabilize funding for community health centers so that they can continue to deliver cost-effective, high-quality health care to vulnerable communities across the nation. Since the number of uninsured Americans appears to be rising again, addressing this need is critical.
- Footnotes
Note: Most of the national data shown in this report is available at https://data.hrsa.gov/tools/data-reporting/program-data/national. HRSA also provided access to more detailed UDS data used to estimate the share of centers with negative margins. All opinions expressed are the authors’ and should not be interpreted as those of George Washington University or HRSA.