February 5, 2023

Volume XIII, Number 36

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February 03, 2023

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February 02, 2023

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FQHCs: Practical Impacts of Governance Requirements

This is the fourth article in our series addressing important topics for federally qualified health centers (FQHCs) and the providers who work with them. The first post in the series offered five tips for contracting with FQHCs, the second post covered the nuts and bolts of Medicaid FQHC reimbursement, and the third post addressed state policy variations impacting payment for Medicaid FQHC services.

Federal regulations and guidance from the Health Resources and Services Administration (HRSA), the component of the U.S. Department of Health & Human Services that oversees FQHCs, impose unique corporate governance requirements on FQHCs, which impact not only how centers structure their internal operations, but also the available opportunities for centers to affiliate with other health care providers.  

1. Community Board of Directors 

One of the distinguishing characteristics of an FQHC is the composition of the board of directors. The FQHC regulations require a majority of the members of the board of directors of an FQHC be individuals who receive services from the center, and are representative of the individuals served by the center in terms of demographic factors, such as race, ethnicity, and sex.  The remaining members of the board must be representative of the community in which the center is located and selected for their expertise in community affairs, local government, finance and banking, legal affairs, trade unions, commercial and industrial concerns, or social service agencies within the community. Additionally, no more than half of the non-patient board members may derive more than ten percent of their annual income from the health care industry.

Outside of the FQHC context, a health care provider is usually not required to ensure that the demographics of its board of directors reflect its patient population. As a result of HRSA’s board governance requirements, FQHC boards are often especially attuned to the needs of the community served by the center, which can result in more patient-centered care. Governance is particularly effective when boards are structured so that the professional expertise of the non-community board members complements the patient-centered experience of the community members.

While governance requirements are intended to ensure that FQHCs are responsive to the needs of their communities, they can pose challenges for affiliations, and may at times make it more complicated for FQHCs to participate in transactions that appear to be in the strategic interest of the centers and their community partners. Most notably, health systems or outside investors accustomed to simple acquisitions may be hesitant to deal with FQHCs when the governance requirements preclude them from exercising total control. These challenges are not insurmountable, however, and potential partners should consider alternative structures that promote more collaborative affiliations.

2.  Key Authorities Reserved to Board 

The FQHC regulations reserve certain key functions and responsibilities for the governing board of the center. Some of these reserved powers relate to personnel issues such as approving the selection and dismissal of the Chief Executive Officer or Project Director of the FQHC, and establishing policies and procedures relating to the center’s employment practices. The governing board is also responsible for the financial management of the center, must approve the center’s annual budget and center priorities, and establish eligibility for services including criteria for payment schedules. The governing board is tasked with monitoring the operations of the center, including evaluating service utilization patterns, the productivity of the center, patient satisfaction, the process for resolution of patient grievances, and the achievement of project objectives. In addition, the governing board must adopt health care policies for the center, including scope and availability of services, location and hours of services, and quality-of-care audit procedures.

HRSA’s treatment of the key authorities reserved to the board is more nuanced for public agencies, which have special dispensation to operate FQHCs under a co-applicant structure in which responsibilities are shared between an FQHC board of directors and the governing body of the public agency. In these circumstances, HRSA recognizes that the FQHC board of directors may not be able to retain control over all the authorities listed above, and permits the public agency to establish and retain authority over policies that support financial management and accounting systems, and over personnel policies.

In all cases, the governing body of the FQHC should expect to become intimately involved in the operations of the center when it exercises the powers reserved to it. The level of involvement can be higher than what would be expected of governing boards of similar non-FQHC health care providers, which may delegate some of the authorities HRSA requires the boards of FQHCs to retain. An FQHC’s bylaws should clearly spell out the reserved powers of the board, and the board may want to designate one or more subcommittees responsible for certain activities.    

3.  HRSA Approval of the Chief Executive Officer

HRSA requires FQHCs to directly employ the Chief Executive Officer (CEO) of the center. The CEO is responsible for overseeing other key management staff in carrying out the day-to-day activities necessary to fulfill the HRSA-approved scope of project. The CEO must report to the FQHC’s governing board, and the governing board is responsible for the selection and dismissal of the CEO. If an FQHC intends to make a post-award change in the CEO position, the center must request and receive prior approval from HRSA.

While it is typical for the CEO of a health care provider to directly report to the board of directors, it is less common for a governmental agency to need to approve of a change to the CEO position. Such changes include situations where the current CEO will be disengaged from involvement in the health center project for any continuous period for more than three months, or will reduce time devoted to the health center project by twenty-five percent or more from the level that was approved at the time of HRSA’s grant award to the center.  

One practical implication of this HRSA approval requirement is that FQHCs are sometimes less able to quickly change leadership. As a result, the selection of the appropriate CEO becomes particularly important for an FQHC, and centers should look for a leader who is deeply committed to the organization to avoid the need to come back to HRSA to seek permission for a change.

© 2023 Foley & Lardner LLPNational Law Review, Volume X, Number 8

About this Author

Claire Marblestone, health care lawyer, Foley and Lardner, Law firm

Claire Marblestone is a Partner and health care lawyer with Foley & Lardner LLP. Her practice focuses on transactional and health care regulatory matters, with an emphasis on HIPAA compliance, the Anti-Kickback Statute, Stark law, provider enrollment, and licensure and certification. She advises a number of clients, including hospitals, health systems and physician groups on regulatory and compliance issues presented by telemedicine and telehealth.

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...