Health Centers Participating in Managed Care Continue to Provide Medical and Enabling Services to Their Communities

Changes in the health care delivery environment are impacting community health centers as more and more health centers participate in prepaid managed care arrangements. This is due to revenue increases from a variety of sources, such as federal funding other than health center grants. Using another measure to determine financial vulnerability—cash balances—all 10 centers had limited cash balances. For centers with more than 15 percent of their total revenue from prepaid managed care, low cash balances could be a problem if they encounter significant unexpected expenses resulting from inadequate capitation rates or assumption of risk for nonprimary care services. 1.) 2). In addition to agreeing to provide primary care services, four health centers have assumed financial responsibility for referrals, hospitalization, or both in return for a higher capitation rate. 4). Between 1989 and 1993, 7 of the 10 health centers increased their spending on subsidized low-income care; that is, the amount of spending for free care and the remaining portion of care that uninsured low-income patients are unable to cover (see fig. 5). 6). Medicaid prepaid managed care income also contributed modestly to fund balance increases. In 1993, three centers reported losses of up to $124,000 from prepaid managed care. During the same year, six centers reported excess prepaid managed care revenues of up to $100,000 after paying the cost of care for medical services and administrative expenses. Lessons Learned From Health Center Experience With Prepaid Managed Care

While the health centers we visited are now providing medical and enabling services to their communities, some initially faced several problems that are likely to confront other health centers as states expand Medicaid managed care. Today’s debate over possible changes in federal and state health programs—including Medicaid and other health grant programs, important funding streams for health centers, and the lack of available cash at all 10 centers—heightens the concern over the financial vulnerability of centers participating in prepaid managed care. To determine whether health centers were encountering financial difficulties while engaged in prepaid managed care operations, we compiled data on their financial positions.
Why GAO Did This Study

GAO reviewed the effects of managed health care on community health centers, focusing on: (1) whether centers participating in prepaid managed care have been able to provide medical services without jeopardizing their financial position; (2) lessons learned from centers' experiences in prepaid managed care; and (3) whether the Bureau of Primary Health Care (BPHC) prepares community health centers to operate under prepaid managed care systems.

What GAO Found

GAO found that by 1993: (1) almost 500,000 community health center patients were covered by prepaid managed care arrangements; (2) the 10 centers surveyed were able to continue to provide full services to their vulnerable clients in part due to other revenue sources; (3) all 10 centers increased their patient load and spending for a variety of services, while 7 centers also increased their spending for uncompensated care; (4) all 10 centers improved their financial condition due to increased revenues from a variety of sources; and (5) 3 centers had losses of up to $124,000, while 6 centers had excess revenues of up to $100,000 from prepaid managed care. GAO also found that: (1) the centers may be financially vulnerable if they depend on Medicaid prepaid managed care for a sizeable portion of their revenues, have inadequate capitation rates, and have financial responsibility for other than primary care services or rely on other federal and state funding sources; (2) lessons learned from centers' experiences with prepaid managed care include the likely loss of patients if the centers fail to participate, low capitation rates, assumption of too much financial risk, and the lack of managed care skills; and (3) to encourage centers' participation in prepaid managed care, BPHC has implemented an initiative to fund centers' efforts to develop delivery networks with other health providers for managed care operations.