Executive Summary

On May 2, 2014, the Centers for Medicare & Medicaid Services ("CMS") published a final rule ("Final Rule") establishing a prospective payment system ("PPS") for Federally Qualified Health Centers ("FQHCs").  As a result of this rule, PPS reimbursement will be mandated for both FQHC "look-alikes" and Section 330 grant recipients effective for Medicare cost reporting periods beginning on or after October 1, 2014. 

The Final Rule confirms various provisions and clarifies certain other aspects of a proposed FQHC PPS rule published on September 23, 2013 ("Proposed Rule").  A summary of the Proposed Rule can be found here.  Though many key components of the Proposed Rule remain unchanged, the Final Rule addresses certain outstanding questions and provides additional clarity regarding PPS implementation details. 

As expected, the Final Rule implements a bundled encounter-based (per diem) payment methodology designed to approximate national aggregate FQHC per diem reasonable costs.  Notably, this payment methodology does not adopt current FQHC upper payment limits.  As a result, aggregate Medicare payments to FQHCs are expected to increase by approximately 32%.  While it is true that Medicare accounts for only about 9% of overall FQHC claims, the Final Rule confirms that "wrap-around" or "make up" payments will be available from CMS when negotiated Medicare Advantage contract rates are less than the new FQHC PPS rates.  With respect to Medicare Advantage, the new FQHC PPS rates establish an increased payment floor.

Additionally, FQHC Medicaid fee-for-service reimbursement (which is similarly based on allowable costs, not subject to an upper payment limit and typically implemented on a PPS basis) remains unaffected.  As such, when considered together with various grant funding increases provided for in the Patient Protection and Affordable Care Act of 2010 ("ACA"), FQHCs should be in a much more sustainable position than they were prior to 2000.

Some components of the Final Rule remain open for comment as noted below.  Interested FQHCs will need to submit comments on or before July 1, 2014.

Summary of Modifications

  1. Updates to Initial Base Rate Per Patient Visit   Consistent with the Proposed Rule, FQHCs will be paid at the lesser of actual charges or a predetermined national per diem PPS rate of $158.85.  For each allowable encounter, this baseline PPS rate will be multiplied by a localized geographic adjustment factor ("GAF") (accessible here ), which is similar to (and based on) what is provided for under the Medicare Physician Fee Schedule.  If applicable, the PPS will then be increased by a 34.16% high-intensity multiplier for initial preventive physical exams and annual wellness visits.  The initial PPS rate in the Proposed Rule was $155.90, but subsequent cost report data indicated than an increased initial PPS rate was necessary.

The baseline PPS rate will be updated annually by either the Medicare Physician Fee Schedule Medicare Economic Index (MEI) or, possibly, through an FQHC-specific market basket value to be published in subsequent CMS guidance.

  1. New Exceptions to the Proposed One Visit Per Day Rule   Under the Proposed Rule, FQHCs would have only been allowed to bill one visit per patient per day.  After receiving comments, CMS implemented the two following exceptions in the Final Rule. 
    1. Subsequent Illness/Injury. FQHCs will be able to bill for more than one patient visit per day when a patient suffers an illness or injury subsequent to the first visit that requires additional diagnosis or treatment on the same day.  For example, if a patient visited an FQHC for flu-like symptoms and later that same day visited the same FQHC for a sprained or broken wrist, both visits would be reimbursed under the new PPS. 
    2. Mental Health Visits. FQHCs will be able to bill separately for one medical visit and one mental health visit for the same patient occurring on the same day. With respect to this exception, CMS agreed with commenters that separate payment for mental health services furnished on the same day as a medical visit has the potential to increase access to mental health services in underserved areas.
  2. Waivers of Beneficiary Coinsurance  In the Proposed Rule, CMS discussed several proposed approaches to implementing Medicare-required beneficiary coinsurance waivers available for certain preventative services when both preventative services and non-preventative services are provided during a single FQHC visit and billed for under the PPS rate.  The options considered by CMS in the Proposed Rule included unbundling of services and coinsurance payments based on proportionality of preventative services to aggregate encounter services.

After considering comments received in response to the Proposed Rule, CMS has adopted an approach in which the waiver of coinsurance for preventive services is based on the dollar value of the FQHC's reported line-item charge for the preventive service.  Specifically, this coinsurance amount will be subtracted from the full payment amount, regardless of whether total payment is based on the FQHC's charge or the allowable PPS rate. CMS indicated that it will issue further guidance on beneficiary coinsurance waiver billing procedures.    CMS has requested that additional comments be submitted regarding this provision.

  1. Lesser of PPS Amount and Actual Charges - New HCPCS Codes  The Final Rule makes clear that FQHC payments will be based on the lesser of actual charges or the PPS rate.  Due to concerns raised about understating charges by reporting detailed Healthcare Common Procedure Coding System ("HCPCS") codes on applicable claims, CMS indicated that it will publish subsequent guidance establishing HCPCS "G-codes" that FQHCs can use to establish charges (consistent with applicable law) for the bundled services provided.  Note that specific HCPCS codes for ancillary services must still be reported on claims.
  2. Medicare Advantage Organizations  As discussed in the Proposed Rule, the ACA requires that FQHCs contracting with Medicare Advantage organizations be paid at least the same amount they would have received for the same service under the FQHC PPS.  In the Final Rule, CMS confirmed that FQHCs receiving a lower contract rate with a Medicare Advantage organization will receive "wrap-around" payments from Medicare to cover the difference. 
  3. Transition Period  All FQHCs will transition to the FQHC PPS for cost reporting periods beginning on or after October 1, 2014, which is consistent with the Proposed Rule.  The current reasonable cost methodology will apply until all FQHCs have transitioned to the PPS.  Additionally, the Final Rule provides that the FQHC PPS will transition to a calendar-year basis as of January 1, 2016.

Practical Takeaways

Your organization's transition to the FQHC PPS will become effective as of its next cost reporting period beginning on or after October 1, 2014. Organizations will want to study the Final Rule to determine necessary transition and implementation actions, especially as they relate to billing obligations in light of CMS's finding that over 90% of historical FQHC claims have included just one HCPCS code.

Additionally, CMS has requested further comments be submitted on or before July 1, 2014 on the following Final Rule items:

  • Implementation of subsequent, same-day payments for subsequent injury/illness and mental health services.
  • The establishment of HCPCS G-codes for FQHCs to report and bill FQHC visits to Medicare under the FQHC PPS.
  • CMS's adoption of an approach to waiving coinsurance for preventive services based on the dollar value of the FQHC's reported line-item charge for preventive services.

We recommend that FQHCs take advantage of this comment period to address these issues to ensure that the FQHC PPS is implemented in final form after consideration of all applicable stakeholder input.