February 7, 2023

Volume XIII, Number 38


February 06, 2023

Subscribe to Latest Legal News and Analysis

Five Tips for Contracting with Federally Qualified Health Centers

This is the first article in a series covering subjects of interest to federally qualified health centers and the providers who work with them.  

Partnerships with federally qualified health centers (FQHCs) are essential to serve patients in high-need areas and strengthen the social safety net.  For health care providers, collaborating with FQHCs can also open the door to operational efficiencies, enhanced community presence, deeper patient relationships, and improved business models.  However, such collaborations come with their own regulatory challenges because of the federal and state rules that govern such relationships.  In particular, providers should be aware of key requirements enforced by the Federal Health Resources & Services Administration (HRSA), a component of the Department of Health and Human Services.  

1.  Understand the Different Models for Partnering With an FQHC

HRSA recognizes that FQHCs may work with third parties to provide health care services under different delivery models. Depending on which model is used, HRSA has different expectations about how the arrangement will be established, documented, and implemented.

Formal Written Contracts

On one end of the spectrum are formal written contracts through which FQHCs rely on third parties to furnish services to health center patients. Formal written contracts allow a health center to expand its reach by offering services that it may not be able to deliver in the main clinic at alternative sites operated by third-party providers.  Like “under arrangements” services in Medicare, these contracts require the FQHC to pay for the services and to maintain oversight and control; they also allow the health center to count the services toward its scope of project and to bill Medicare, Medicaid, and other payers for the services at FQHC rates. 

While formal written contracts allow for the deepest partnership—fully opening the door to the benefits of clinical integration, community engagement, and FQHC reimbursement—they also mean complying with FQHC policies and procedures, charging patients based on an FQHC sliding fee scale, and meeting the FQHC’s credentialing and privileging standards.  

Informal and Formal Referral Arrangements

On the other end of the spectrum are informal referral arrangements, in which the FQHC directs patients to a third-party provider for services that are not within the health center’s scope of project. Characterized by the lack of any written arrangement or formal oversight, informal referral arrangements are recognized by HRSA as an acceptable practice, but do not count toward the FQHC’s obligations to provide a set of covered services. FQHCs do not bill for services furnished based on an informal referral.  

In between the above extremes are formal referral arrangements, which are characterized by a written agreement that imposes certain obligations on the contracting provider, including the return of the patient back to the FQHC for regular primary care once the referral is complete. FQHCs receive recognition from HRSA for maintaining the formal arrangement, but the referred services are not considered to be within the FQHC’s scope of project, and the FQHC is not permitted to bill for them.

2.  Be Ready to Implement a Sliding Fee Scale

A fundamental attribute of FQHCs is that they provide services regardless of a patient’s ability to pay, charging based on a board-approved sliding fee scale. HRSA requires that a sliding fee scale is available both for services provided directly by the health center and for services provided through formal written contracts or formal referral arrangements with other providers. 

The basic rule is that FQHCs must provide a total discount to patients with annual incomes below 100% of the federal poverty guidelines (although a nominal charge may be allowed), and a partial discount to patients with annual incomes between 100% and 200% of the federal poverty guidelines. There is some additional flexibility for third-party providers delivering out-of-scope services under a formal referral arrangement, although the resulting discount for the patient must be equal to or greater than the discount that would be offered by the referring FQHC.

3. Be Prepared for Credentialing, Monitoring, and Other FQHC Oversight

One reason FQHCs enter into arrangements with third-party health care providers is to meet the HRSA requirement to employ or contract with sufficient clinical staff to carry out the services within the health center’s scope of project. 

All clinical staff, including those providing services on behalf of the FQHC through formal written contracts, must be credentialed and privileged by the FQHC, which may include a formal peer review process. All clinical staff must also be subject to ongoing monitoring and health center oversight. 

For third-party providers, HRSA requires the formal written contract with the FQHC to have provisions that address contractor performance. The contract must also include certain other terms, such as a requirement that the contractor provide all information necessary for the FQHC to meet its federal reporting obligations.   

4. Take Advantage of Anti-Kickback Statute Safe Harbor for FQHCs

Arrangements between FQHCs and other health care providers are subject to federal fraud and abuse laws, including the Anti-Kickback Statute. This can seem perplexing given that federal law requires FQHCs to maintain collaborative relationships and develop ongoing referral relationships with hospitals to meet the obligations associated with their grants. Although these requirements provide a legitimate reason for pursuing such arrangements, they do not preempt the federal prohibition on paying for patient referrals. 

There are, however, exceptions and safe harbors to the Anti-Kickback Statute designed specifically for FQHCs. For example, contributions of goods, donations, loans, and services to an FQHC that would otherwise implicate Anti-Kickback Statute may be statutorily excepted when they further a core purpose of the FQHC to provide increased availability or enhanced quality of health care to underserved communities. 

The regulations implementing this statutory exception set forth nine elements the arrangement must satisfy to fall within the safe harbor, including the requirement that the FQHC regularly evaluate and document whether the arrangement is expected to “contribute meaningfully” to the health center’s project goals. Bringing arrangements with FQHCs into compliance with the elements of the safe harbor can minimize the risks of liability under fraud and abuse laws.

5. Know When HRSA Approval is Needed

An unusual feature of contracting with an FQHC is that it may need to seek prior approval from HRSA before executing the agreement. Arrangements require prior approval when they make significant changes to the FQHC’s approved budget or program objectives, including changes such as adding or deleting services or locations. 

HRSA approval is also required for the health center to contract for “substantive programmatic work,” which includes contracting with a single entity for the majority of health care providers. In evaluating prior-approval requests, HRSA considers how the proposed change would impact patient access to services and quality of care.  HRSA will deny changes that it believes would shift resources away from the target population or require additional grant funding.   

Stay tuned for upcoming articles on Medicaid reimbursement, FQHC governance, and the 340B drug pricing program. 

© 2023 Foley & Lardner LLPNational Law Review, Volume IX, Number 311

About this Author

Adam Hepworth,  Health Care Attorney, Foley Law Firm

Adam J. Hepworth is an associate and health care business lawyer with Foley & Lardner LLP. He is a member of the firm’s Health Care Industry Team.

Prior to joining Foley, Mr. Hepworth was a law clerk for Judge Harris L. Hartz on the United States Court of Appeals for the Tenth Circuit. He also interned in the San Francisco City Attorney’s health group and externed in the Civil Division of the United States Attorney’s Office in San Jose. Before he attended law school he was a policy intern for Sierra Health Foundation, where he worked on...

Kristin Jenkins, Health Care Attorney, Foley Lardner Law Firm, Los Angeles, California

Kristin Jenkins is an associate with Foley & Lardner LLP. She is a member of the firm’s Health Care Practice.

Ms. Jenkins was a summer associate with Foley, where she gained experience in the area of health care law. She also worked as a research assistant for Professor Jill Horwitz, M.P.P., J.D., Ph.D., at the University of California, Los Angeles School of Law and as a judicial extern to The Honorable Nathanael Cousins of U.S. District Court for the Northern District of California.