FQHCs, Community Health Centers, Revenue Cycle Management, FQHC Financial Planning, Healthcare Finance, Financial Planning FQHC, Healthcare Reimbursement, FQHC Sustainability, Healthcare Administration, Community Health, Federal Funding, 340B Programs, Financial Health Assessment
The Importance of Understanding Your Health Center's Financial Position
In today's complex financial environment, the sustainability of Community Health Centers is increasingly uncertain. Proposed cuts to federal funding, increased supply costs, and likely increases in demand for services all have the potential to pose unprecedented threats to the solvency of many health centers.
Now, more than ever, it is important that health centers understand their financial trajectories. Recognizing key signs of decline—and areas of strength—are essential first steps to identifying hidden revenue opportunities and areas for improvement through strategic FQHC financial planning.
What Are the Financial Challenges Facing Health Centers?
Coming into 2025, CHCs across the country were already experiencing a challenging funding environment. The sunset of COVID funding, coupled with inflation, labor challenges, and level 330 funding in a time of growing patient numbers contributed to increased costs per visit, negative margins, and cashflow challenges for many.
Today, that funding environment is even more complex, with CHCs navigating an increasingly uncertain funding environment. Actual and potential funding threats include:
• Cuts to 330 base funding
• Medicaid cuts
• 340B program reductions
• The loss of supplementary federal funding for key programs
• Higher supply costs
• Increased patient demand, especially should a recession occur
• Increased levels of unreimbursed care
It is vital that health centers take the time now to understand their financial health. Revenue cycle management (RCM), 3rd party payer collections, billing operations, and funding diversity are all areas that can be tuned up now to strengthen a health center's financial position through comprehensive FQHC financial planning.
What Are Key Indicators of Financial Decline?
Some of the key indicators that your health center is heading in the wrong direction include:
High Accounts Receivable — If your AR aging over 90-day is high or increasing, this may be a red flag that Revenue Cycle Management (RCM) performance improvements are needed. Common issues leading to high AR are failure to address claim denials, payer credentialing challenges, and poor patient collections performance.
Declining Cash Flow — Cash flow that is consistently decreasing month over month (and not attributed to planned capital purchases) impacts a health center's ability to provide consistent and high-quality care to patients. Financial constraints can lead to staff turnover and increased debt.
High Staff Turnover — If your CHC is seeing higher rates of turnover, you are at risk for disruptions in continuity of care, loss of institutional knowledge, decreased patient satisfaction and quality of care, and increased costs for recruiting and training.
Increased Debt — High debt levels can exacerbate financial challenges, leading to cash flow issues and making it difficult to cover operational costs.
Negative Financial Margins — Increased operational costs and/or decreased revenue can quickly tip the balance, leading to a risk of financial instability. It is important to track trends in revenues per visit and cost per visit. If either of these are heading in the wrong direction, uncovering the root cause is important.
Declining Funding Streams — A decrease in federal and/or state funding will have a greater impact on health centers who have not adequately diversified their revenue streams.
Increased Levels of Unreimbursed Care — Even a small change in your payer mix can make a significant difference in overall revenues.
What Can FQHCs Do to Identify These Concerns?
The most important thing for FQHCs is to closely monitor financial trends, especially in times of uncertainty. Effective FQHC financial planning requires systematic approaches to identifying potential problems. Key practices include:
Trending KPIs
A surprising number of health centers are not tracking Key Performance Indicators (KPIs) on a regular basis. Applying data analysis tools helps leaders more effectively track performance and understand key drivers, especially when evaluating trends and benchmarks against state or national comparisons. Ideally, evaluate 13 months of data as this provides a bigger picture, especially with a slow decline.
Key financial and operational metrics to monitor include:
• Operating margin
• Revenue per patient
• Cost per visit
• Clean claim rate
• Denial rate
• Days in net patient accounts receivable
• Days cash on hand
• Provider productivity
Revenue Cycle Management
Optimal Revenue Cycle Management improves financial performance by minimizing claim denials, reducing days in AR, and increasing collections. Understanding payment trends and reasons for denials is essential. It is important to dig deeper than the surface level of the data. AR may look good, for example, if too much is being written off.
Revenue Cycle Analysis
Revenue cycle assessment is a comprehensive review of a healthcare organization's revenue cycle process, from patient registration to billing and collections. In many cases, a thorough revenue cycle analysis identifies missed opportunities that can be leveraged to significantly improve collections. Key areas of focus are typically:
• Payer contract analysis
• Evaluation and Management (E&M) coding optimization
• Capturing all billable services
Break-Even Analysis
Identifying the number of visits that are needed to break even based on average payer mix, payment structure and service offering mix is an effective way to assess risk and establish a benchmark for setting goals. Re-doing this analysis with updated data (most recent 3-6 months, for example) is particularly helpful in spotting a decline, especially when evaluating individual service lines both as direct costs and with an allocation of indirect/administrative costs.
Cash Flow Forecasting
Cash flow forecasting is helpful for estimating the amount of cash expected to flow in and out of a business over a specific period. It will demonstrate whether cash is being used but will not be replenished by operations over the next 3-6 months.
Identification of Loss Leaders
Knowing which programs and services are not sustainable allows health centers to make informed decisions about resource allocation, service optimization, and cost-cutting measures.
What Can You Do If Your CHC's Financial Health Is Declining?
If your health center's financial health is at risk, build on what you know to identify options. Some opportunities to improve revenues through strategic FQHC financial planning include:
Diversify Funding Sources
Consider grant prospecting services to help you identify additional opportunities to replace lost revenue. Creating a strategic approach to securing grants can significantly strengthen your financial position and reduce reliance on any single funding stream.
Assess Community Connections
Evaluate whether there are untapped partner organizations and/or donors that can step up to support your agency, partner on key programs or services, and advocate on your behalf. By broadening your circle of support, you can better leverage community resources.
Optimize Managed Care Contracts
Prior to the implementation of any major federal funding changes is an optimal time to renegotiate managed care contracts to make sure they provide adequate reimbursement. This will help to ensure that you are not leaving available funding on the table.
Explore Cost-Effective Care Delivery Models
Determine whether key services can be provided in a different manner. Examples might include shifting to a higher percentage of telehealth services or maximizing patient communications via the Electronic Health Record.
Re-evaluate Workforce Allocation
As you streamline service delivery, identify whether there are options for streamlining your workforce to maximize productivity. Modernizing operations through automation and data analytics, for example, can improve efficiency and reduce staff burnout, leading to a more resilient workforce.
Utilize Pharmacy Programs
340B programs are often underutilized as a revenue source. Consider an assessment to determine the extent to which you are capturing all available revenue sources including contract pharmacy arrangements and specialty referrals.
Essential Tools for Financial Health Assessment
Health centers facing financial challenges should consider implementing several key analytical tools to better understand their position and identify improvement opportunities:
Financial Analysis Tools
Break-even Analysis helps identify the number of visits needed to cover costs based on your current payer mix and service offerings. Regular updates to this analysis (quarterly or semi-annually) can help spot declining trends early, particularly when evaluating individual service lines.
Cash Flow Forecasting provides insight into expected cash movements over the next 3-6 months, helping leadership understand whether current operations will generate sufficient cash to sustain operations or if intervention is needed.
Revenue Cycle Assessment involves a comprehensive review of processes from patient registration through collections, often revealing missed opportunities that can significantly improve financial performance.
Performance Monitoring Systems
Dashboard Creation and KPI Tracking enables consistent monitoring of key metrics. Health centers should prioritize developing reporting systems that track the financial indicators mentioned earlier, ensuring leadership has real-time visibility into organizational health.
Service Line Profitability Analysis helps identify which programs generate positive margins and which may be draining resources. This analysis should include both direct costs and allocated overhead to provide a complete picture.
Revenue Enhancement Assessments
340B Program Evaluation can identify underutilized opportunities in pharmacy programs, including contract pharmacy arrangements and specialty referrals that may be generating less revenue than possible.
Accounts Receivable Analysis should examine aging patterns, identify consistent payers versus problem accounts, review clearinghouse rejection patterns, and analyze denial trends to improve collections performance.
The key to successful financial health management is implementing these tools systematically and using the insights they provide to make informed decisions about operations, staffing, and strategic direction.
Financial Challenges Exist. Be Proactive About Identifying and Addressing Them.
Every health center is different. Payer mix, cash reserves, funding diversity, efficiency of operations and other factors contribute to relative resiliency in times of stress. With increased financial pressure, even those organizations with a historically strong financial position may see unprecedented changes in an era of decreased federal funding and Medicaid cuts.
Effective FQHC financial planning requires proactive monitoring, strategic assessment, and decisive action when warning signs appear. The key is implementing systematic approaches to identify problems early and having the tools and expertise to address them effectively.
With over 25 years of experience working with health centers across the country, the CLC team can help you with all aspects of your financial assessment, help you find underutilized opportunities, and guide you in improving your health center's financial trajectory.
Please do not hesitate to contact us for more information about monitoring your financial and operational success or to discuss specific needs.
Phone: 509-226-1393
Email: info@communitylinkconsulting.com
Cindy Pratt, Lead Consultant
Community Link Consulting