Financial Performance and Managed Care Trends of [Community] Health Centers Brian C. Martin, Ph.D., MBA East Tennessee State University College of Public Health

Central Mission To increase access to community-based primary health care services and to improve the health status of medically vulnerable populations, treating patients without regard to insurance or ability to pay.

Overview of Health Centers (HCs) Since 1960s Medically vulnerable populations Inner city & rural areas Commitment to treat uninsured/underinsured Provide: Comprehensive, coordinated, and integrated health care services Many centers provide expanded services

Overview of Health Centers In 2004 HCs included 1000 organizations nationwide Delivering services to approximately 13.1 million patients (2004) Governed by community Safety Net providers

Financial Challenges HCs face have been challenged by their dependence on external funding According to 2000 IOM report, Health Center’s missions are threatened by: Increased uninsured clientele Proliferation of Medicaid managed care Decreased subsidies for charity care

Funding Trends 1996-1999: Increase in proportion of uninsured patients and decrease in Medicaid patients Half of HCs report operating deficits 2000: Clinton administration establishes Community Access Program (CAP) grants 2003: Bush Administration provided expansion grants (prevention and primary care)

The good news … The bad news … After 13% drop in 1997, grant revenues rise to 25% of operating revenues by 2002 The bad news … Impact of state fiscal downturns Overall declines in federal grant dollars since 1985 Particularly challenging for HCs in rural areas

National Medicaid managed care enrollment: 9.5% 1991 55.8% 2000 63.0% 2004 HCs less able to fund uninsured on their own Affect on mission?

Purpose of Study Examine costs, productivity, and overall financial health of HCs Identify trends and predictors of financial performance of HCs

Data Source Nationally represented secondary data from 1998-2004 Uniform Data System (UDS) http://www.bphc.hrsa.gov/uds/ Measures: Financial characteristics Center characteristics Predictive center characteristics

Financial Measures Revenue sources Revenue share Cost Productivity Grant revenue Service revenue Medicaid revenue Revenue share Medicaid collection Medicare collection Self-pay collection Private pay collection Cost Encounter cost Personnel cost Medical personnel cost Productivity MD productivity ( MD – physician) MLP productivity ( MLP – mid level practitioner) PCP productivity ( PCP – primary care physician) Performance Self sufficiency Net income

Center Characteristics Rural vs urban Managed vs non-managed Old vs new Measures of selected health care services: Enabling services FTEs Chronic disease encounters Prenatal care patients

Results: Managed Care We used 2 indicators (revenues and enrollees) to define HCs on a continuum of managed care involvement: Type Volume Revenue HVHR >10 % > 5 % HVLR > 10 % 0-5% LVLR 0-10 %

Results: Center Characteristics Financial stability Self-sufficiency Grant revenue Service revenue – direct/ third party payments Net income Financial efficiency Average cost per encounters Average personnel costs Average medical costs Average administrative costs Provider productivity Number of encounters per MD or MLP or PCP

Descriptive Variables and Trends Mean Std Err 98 99 00 01 02 03 04 04-98 % ∆ Grant Revenue 0.43 0.01 0.40 0.42 0.38 -11.63 Service 0.57 0.60 0.58 0.62 8.77 Medicaid 0.26 0.22 0.23 0.24 -7.69

Revenue – Rural vs. Urban

Descriptive Variables and Trends Mean Std Err 98 99 00 01 02 03 04 04-98 % ∆ Medicaid Collection 330.84 12.55 345.14 12.81 360.97 9.57 388.57 15.83 403.13 22.66 422.42 17.21 468.53 16.85 41.62 Medicare 251.64 9.53 274.78 9.66 280.90 9.62 324.50 15.26 324.35 12.57 310.24 8.40 337.36 9.02 34.06 Private 133.64 5.46 154.50 156.44 6.82 163.70 6.19 189.48 19.19 189.02 9.20 196.12 7.22 46.75 Self-Pay 71.81 3.18 75.58 4.28 79.50 4.57 87.19 4.70 90.32 5.15 90.42 3.75 99.07 3.90 37.96

Collections – Rural vs. Urban

Descriptive Variables and Trends Mean Std Err 98 99 00 01 02 03 04 04-98 % ∆ Encounter Cost 91.97 1.56 94.41 1.46 105.70 1.90 110.77 1.49 120.97 2.38 130.11 3.22 132.85 2.06 44.45 Medical 81.49 1.25 84.21 91.56 1.63 96.70 1.26 105.44 1.93 113.43 2.92 115.88 1.58 42.20 Personnel 63,781.51 1,541.76 66,887.61 1,578.26 72,218.29 2,136.63 72,881.12 1,136.84 74,736.63 1,541.41 77,029.48 1,195.98 79,910.96 1,025.21 25.29 118,101.58 2,139.85 122,375.88 2,261.34 129,884.28 2,436.52 134,096.32 1,824.61 139,309.87 2,534.47 147,914.91 2,320.96 153,986.51 2,346.53 30.38

Encounter Cost – Rural vs. Urban

Descriptive Variables and Trends Mean Std Err 98 99 00 01 02 03 04 04-98 % ∆ MD Productivity 4,277.26 192.21 4,103.19 131.52 4,262.69 231.16 3,804.12 46.81 3,691.03 53.39 3,645.06 41.16 3,716.75 62.92 -13.10 MLP 2,569.85 49.60 2,643.83 51.23 2,555.63 2,565.81 41.40 2,540.14 38.40 2,565.54 36.74 2,595.36 35.69 1.00 PCP 4,252.98 174.38 4,059.07 114.32 4,053.87 155.06 3,805.58 45.67 3,688.22 52.72 3,642.16 41.11 3,697.64 60.16 -13.06

Productivity – Rural vs. Urban

Descriptive Variables and Trends Mean Std Err 98 99 00 01 02 03 04 04-98 % ∆ Self- Sufficiency 0.71 0.01 0.80 0.81 0.79 0.85 19.72 Net Revenue 869,889.61 84,618.12 1,653,801.78 126,999.97 1,834,552.75 128,350.51 2,044,645.08 126,571.12 2,127,980.46 138,513.37 2,413,327.65 154,624.53 2,809,096.21 189,507.17 222.93

Sufficiency – Rural vs. Urban

Eight general estimation models were run using annualized data: Predictors of Financial Performance Eight general estimation models were run using annualized data: Encounter cost Medical encounter cost Personnel cost Medical personnel cost MD productivity MLP Productivity Self-Sufficiency Net Revenue

Location Predictors Urban location Larger center Higher personnel cost ( p<0.05) Greater self-sufficiency ( p<0.001) Higher net revenue ( p<0.01) Larger center Greater personnel costs ( p<0.05) Greater MD Productivity (p<0.001) Greater MLP productivity (p<0.01) Greater Net revenue (p<0.001)

Managed Care Predictors Large centers (HVHR) Higher Encounter costs (p<0.05) Lesser MD productivity (p<0.05) Lesser self sufficiency (p<0.001) Lesser Net revenues (p<0.001) Medium centers (HVLR) Lesser self-sufficiency (p<0.05) Lesser net revenues (p<0.05) Small centers (LVLR) Lesser net revenues (p<0.01)

Managed Care Experience Predictors Centers in their first year of managed care experienced greater costs: encounter (p<0.001) medical encounter (p<0.001) Personnel (p<0.001) Medical personnel (p<0.001) Net revenues (p<0.05) They also experienced lesser: MD productivity (p<0.05) MLP productivity (p<0.001)

Enabling Services Predictors Centers providing enabling services experienced greater: Encounter costs (p<0.001) Medical encounter costs (p<0.05) They also experienced lesser: Personnel costs (p<0.05) Self-sufficiency (p<0.01)

Service Use Predictors Centers that had more chronic disease encounters experienced: Greater net revenues (p<0.01) Lesser encounter costs ( p<0.05) Centers that had more chronic disease encounters had greater: Encounter costs (p<0.001) Medical encounter costs (p<0.001) Self-sufficiency (p<0.01) Net revenues (p<0.01)

Grant Revenue Predictors Centers receiving grant revenues had greater: Encounter costs ( p<0.05) They also had lesser: MLP productivity ( p<0.001) Self-sufficiency ( p<0.001) Net revenues ( p<0.01)

Provider Productivity Predictors MD productivity was associated with lesser: Medical encounter costs ( p<0.05) It was also associated with greater: Personnel costs ( p<0.05) Medical personnel costs ( p<0.05) MLP productivity was associated with lesser: Encounter costs ( p<0.001) Medical encounter costs ( p<0.001) Net revenues ( p<0.05) Medical personnel costs ( p<0.001)

Discussion: Grant Revenues Grant revenues from all sources decreased Medicaid revenues decreased Costs increased Physician productivity decreased Net revenue increased

Discussion: Grant Revenues As the percentage of grant revenues increased: Encounter costs increased MLP productivity decreased Net revenues decreased Self sufficiency decreased

Discussion: Effects of Grants With more grant revenues: Service intensity and delivery may have increased (e.g., MLP provided more comprehensive services) Enabling services may have increased Funds may have been used for non-clinical activities If these effects are true, they highlight the importance of operating revenues to overall financial health of HCs

Discussion: Managed Care Play or lose Medicaid market share Decreased net revenues In all HCs except those in 1st year of managed care experience Decreased reimbursement Increased administrative costs Collective efforts by HCs may make policy changes in their favor

Discussion: Enabling Services Increased costs Decreased personnel costs Finding a balance between offering enabling services and financial sustainability is important

Discussion: Provider Productivity Physician productivity associated with decreased medical encounter costs, but also with increased personnel costs MLP productivity associated with decreased costs, but also with increased medical personnel and decreased net income Productivity must be tempered with financial ability of centers to provide services

Discussion: Positive Financial Performance Center characteristics: Urban Larger number of enrollees Patient types: More chronic disease patients More prenatal care users Importance of having an adequate number of clients with ample revenue streams

Conclusion Study appears to support the concerns stated by IOM in 2000 Increasing uninsured population continues to overwhelm that ability of HCs to manage scarce resources Medicaid managed care contributes to financial problems in HCs by: Decreasing charity care subsidies

Limitations Managed care reimbursement and participation levels are changing and should be monitored This study is based on secondary data, and HCs to vulnerable populations are likely to be influenced by other factors Negative financial findings related to managed care participation do not suggest HCs are abdicating their missions Some centers may dropped out during the study period

Questions?