Community Developments Investments (June 2016)
A Look Inside…
Barry Wides, Deputy Comptroller, OCC
Unity Health Care, Inc. offers primary health care services in Washington, D.C. to the homeless, working poor, and families, as well as to those who are uninsured, living with HIV/AIDS and hepatitis, regardless of their ability to pay. (Source: Unity)
Federally qualified health centers (FQHC or health centers) provide life-sustaining services to residents in economically challenged neighborhoods. National banks and federal savings associations (collectively, banks), serving these neighborhoods are increasingly helping to provide the financing that sustains these health centers so they can do their good work.
This issue of the Office of the Comptroller's (OCC) Community Developments Investments examines how banks are taking advantage of new and expanding opportunities to finance the approximately 1,300 federally funded health centers nationwide that serve economically disadvantaged communities.
The opportunities for banks are growing, thanks in part to the increased demand health centers face from millions of formerly uninsured individuals who now have health insurance under the Affordable Care Act (ACA). The partnership is mutually beneficial. Because demand for health centers has doubled since 2002 and is predicted to double again by 2020 to more than 32 million patients, the industry needs bank financing to expand. Banks looking to expand their lending and fulfill Community Reinvestment Act (CRA) commitments may achieve both objectives by helping finance the more than $8.5 billion needed by 2020 to finance the necessary expansion.
They were called neighborhood health centers when established by President Lyndon Johnson's War on Poverty and the Economic Opportunity Act of 1964. Today, they go by many names—FQHC, health center, community health center, health clinic, and more—and are essential to the nation's health care safety net as providers of primary health care and social services to residents in low-income and medically underserved communities.
FQHCs receive federal grant funds under section 330 of the Public Health Service Act (PHSA), codified at 42 USC 254(b), and enjoy preferential, cost-based reimbursement under Medicaid and Medicare programs. Because of insufficient federal funds, not all health centers receive section 330 grant funds. Health centers that do not receive section 330 grant funds are referred to as FQHC look-alikes. Thanks to the section 330 grants they receive, FQHCs have an unusual business model.
Federal funding, however, fulfills only part of the financing equation, and this is where banks can play a critical role.
Inside this Community Developments Investments, you will find informative articles, written by bankers and other industry experts, that explain the FQHC financing landscape and the tools banks need to support health centers. I am grateful to our external contributors for their insights, which represent the author's own views and not necessarily the views of the OCC.
I know you will find the following articles helpful:
- Peg Underhill of Capital Link explains the growing demand for health centers and that financing has been secured for only 25 percent of $8.5 billion in planned projects in "Investing in Expanding Health Centers." Annie Donovan of the Community Development Financial Institutions (CDFI) Fund and Pam Porter of Opportunity Finance Network explain in "Health Care Financing and CDFIs" the compelling financing opportunity banks and CDFIs have in health center expansions.
- Scott Sporte of Capital Impact Partners explains in "Financing Health Centers" that well-managed health centers operate profitably and have a very low rate of loan default. He discusses plans for 1,000 new health center projects—investments in excess of $7 billion in the next five years—and spotlights a Hagerstown, Md., and a central California coast health center.
- Local Initiatives Support Corporation's (LISC) Kevin Boes discusses in "Leveraging Nontraditional Alliances" how LISC teamed with Morgan Stanley and the Kresge Foundation to launch the Healthy Futures Fund, an investment providing health services to affordable housing residents. Kresge's Kimberlee Cornett explains the benefits of partnership in "Catalyzing the Investment."
- Lindy Hahn of Morgan Stanley notes the link between poverty and health and explains the benefits of partnership to improve well-being in "Collaboratively Financing Healthy Futures."
- Kevin Goldsmith of JP Morgan Chase Bank, N.A. explains in "Beneficial Partnerships, Missions, and Values" how his bank, working with CDFIs and New Markets Tax Credits, is helping health centers expand and deliver primary care to more than 20 million low-income and uninsured patients.
- In "Federal Government Support: Guaranteed Loan Funds," the OCC's Letty Shapiro highlights loan and grant programs by the U.S. Department of Health and Human Services and the U.S. Department of Agriculture that support health centers. The USDA's Terence McGhee explains the agency's program in "USDA's Community Facilities Guaranteed Loan Program."
- For other helpful information, read "Community Reinvestment Act and Health Center Financing" by the OCC's Vonda Eanes, "What are Federally Qualified Health Centers?," the Health Center Resource List, and Health Center Terminology.
Vonda Eanes, Community Affairs, OCC
Federally qualified health centers (FQHC) are valuable community resources. Are bank activities that support health centers considered to meet the definition of community development under the Community Reinvestment Act (CRA)? To answer this question, we need to ask and answer several underlying questions.
Banks have an obligation under the CRA to help meet the credit and deposit service needs of the communities where they are chartered to do business. In general, such communities are where a bank has at least one deposit-taking automated teller machine or branch. To help meet community needs, banks that meet certain asset thresholds must also provide community development loans, qualified investments, or community development services, or some combination thereof. The OCC is required to evaluate whether each bank is meeting its obligation, consistent with the safe and sound operation of the institution.1
The CRA definition of community development includes community services targeted to low- and moderate-income (LMI) individuals.
The Interagency Questions and Answers Regarding Community Reinvestment (Q&A) clarifies how bank loans, investments, and services that support organizations or activities that have a primary purpose of community development may be considered during the course of a CRA performance evaluation.
Defining Community Services
While the term "community services" is not defined in the CRA or its implementing regulations, one of the examples of community services in the Q&A includes health care facilities that provide services for LMI individuals.2 Health centers provide primary and supportive health care services to designated populations.
Determining Whether Services Are Provided to LMI Individuals
The Q&A explains how a bank may determine whether a community service is provided to LMI individuals.3 For example, the community service may be provided by an organization with a defined mission of serving LMI individuals. Alternatively, the organization may have a clearly defined community service program that benefits primarily LMI persons even if the service is provided by an entity offering other programs that serve individuals of all income levels. The service may be conducted in an LMI area and targeted to residents of the area or offered by a nonprofit organization that is located in and serves an LMI geography. The Q&A notes that a community service can be considered to serve LMI individuals if it is targeted to individuals who receive or are eligible to receive Medicaid.
Meeting the Definition of Community Development
Health centers do not limit services to individuals defined as LMI under the CRA but instead serve areas or populations defined as medically underserved. Although the CRA and health centers define their target populations differently, statistics show the primary beneficiaries of health centers would generally meet the definition of an LMI individual under the CRA.4 Not all health centers, however, are federally qualified to be Health Resources and Services Administration funded. Banks should be prepared to provide evidence that activity supports a health center that primarily serves LMI individuals.
For more information, email Vonda Eanes.
Wendy Takahisa, Executive Director, Community Reinvestment Act, Morgan Stanley
Federally qualified health centers (FQHC or health center) are community-based organizations that provide comprehensive primary care and preventive health care to underserved, underinsured, and uninsured Americans, including migrant workers and non-U.S. citizens. FQHCs provide their services to all persons regardless of ability to pay, and they charge for services on a community board-approved sliding fee scale. The alternative for those who cannot otherwise afford or easily access health and dental care is to use hospital emergency rooms, care that does not focus on prevention or provide the continuum of care that is especially essential for children and seniors.
FQHCs operate under a consumer board of directors governance structure and function under the supervision of the U.S. Department of Health and Human Services. According to Capital Link, a nationally recognized authority in this field, FQHCs "also help patients gain access to social services and legal aid."
For more information, email Wendy Takahisa.
Articles by non-OCC authors represent the authors' own views and not necessarily the views of the OCC.
- A Bipartisan Rx for Patient-Centered Care and System-Wide Cost Containment, Executive Summary, Bipartisan Policy Center, April 2013.
- Capital Plans and Needs of Health Centers: A National Perspective, Capital Link, 2012.
- Community Development's Role in Disease Prevention, S. Leonard Syme, PhD, Professor Emeritus, Epidemiology and Community, University of California, Berkeley; Federal Reserve Bank of San Francisco, March 10, 2014.
- Community Health Center Perspectives: Identifying the Risks of Health Center Lending: A Guide for Lenders, Capital Link, October 2014.
- Community Health Centers in an Era of Health Reform: An Overview and Key Challenges to Health Center Growth, Executive Summary, Kaiser Commission on Medicaid and the Uninsured, the Henry J. Kaiser Family Foundation, March 2013.
- Connecting Housing and Health Care Through Community Development, Kevin Boes, Local Initiatives Support Corporation, Community Investments, spring 2013, volume 25, number 1.
- "Federally Qualified Health Centers," Chapter 6 of the Report to the Congress: Medicare and the Health Care Delivery System, June 2011.
- Financial and Operational Ratios and Trends of Community Health Centers, 2008–2011, Capital Link and Community Health Center Capital Fund, Federal Reserve Bank of San Francisco, Community Development Investment Center, March 2014.
- Financing Community Health Centers Resource Bank: Training Curriculum, Financing Community Health Centers Resource Bank, CDFI Fund, U.S. Department of the Treasury.
- Health Center Program Terms and Definitions, Health Resources and Services Administration.
- Collaboration to Build Healthier Communities, A Report for the Robert Wood Johnson Foundation, Commission to Build a Healthier America, June 19, 2013, publisher: Wilder Research/Federal Reserve Bank of Minneapolis, Mattessich, P.W., and Rausch, E.J.
- The Converging Visions of Public Health and Community Development, Conference Summary, Susan Longworth, ProfitWise News and Views, December 2013.
- The Impact of the Affordable Care Act on New Jobs, J. Spetz, B. K. Frogner, L. Lucia, and K. Jacobs, Big Ideas for Job Creation, a Project of the Institute for Research on Labor and Employment at the University of California, Berkeley, 2014.
- The Impacts of Affordable Housing on Health: A Research Summary, Nabihah Maqbool, Janet Viverios, and Mindy Ault, Center For Housing Policy, Insights From Housing Policy Research, April 2015.
Affordable Care Act (ACA)
The ACA provides Americans with better health security by putting in place comprehensive health insurance reforms that
- expand coverage,
- hold insurance companies accountable,
- lower health care costs,
- guarantee more choice, and
- enhance the quality of care for all Americans.
The ACA actually refers to two separate pieces of legislation—the Patient Protection and Affordable Care Act (PL 111-148) and the Health Care and Education Reconciliation Act of 2010 (PL 111-152)—that together expand Medicaid coverage to millions of low-income Americans and makes numerous improvements to both Medicaid and the Children's Health Insurance Program (CHIP).
Children's Health Insurance Program (CHIP)
CHIP provides health coverage to eligible children through both Medicaid and separate Children's Health Insurance programs. CHIP is administered by states, according to federal requirements. The program is funded jointly by states and the federal government.
Community development financial institutions (CDFI)
CDFIs are private financial institutions dedicated to delivering responsible, affordable lending to low-income and underserved communities so that these communities can join the economic mainstream. CDFIs are mission-driven, meaning that they measure their success through nonfinancial as well as financial returns. The mission may be revitalizing a neighborhood; helping a specific population, such as immigrant women in poverty, become economically self-sufficient; or building certain assets, such as affordable housing, charter schools, or health care centers, to serve low-income and underserved communities.
Community Health Center Fund
The ACA established the Community Health Center Fund, which provided $11 billion over a five-year period for the operation, expansion, and construction of health centers.
The provider is reimbursed according to actual allowable costs. Health centers that meet federal requirements are a class of Medicaid and Medicare providers entitled to 100 percent of reasonable costs.
Under section 330(b)(1)(A)(iv) of the Public Health Service Act (PHSA), enabling services are non-clinical services, not including direct patient services, that enable individuals to access health care and improve health outcomes. Enabling services include case management, referrals, translation/interpretation, transportation, eligibility assistance, health education, environmental health risk reduction, health literacy, and outreach.
All organizations receiving grants under section 330 of the PHSA qualify for enhanced reimbursement from Medicare and Medicaid, as well as other benefits. Certain tribal organizations and health center look-alikes, organizations that meet PHSA section 330 eligibility requirements but do not receive grant funding, also may receive special Medicare and Medicaid reimbursement. These enhanced reimbursements reflect that health centers serve underserved areas or populations (as do some tribal organizations and look-alikes), including people who cannot pay.
Essential community facility
The U.S. Department of Agriculture community facility loan programs provide affordable funding to develop essential community facilities in rural areas. An essential community facility is a facility that provides an essential service to the local community for the orderly development of the community in a primarily rural area, and does not include private, commercial, or business undertakings.
Examples of essential community facilities include the following:
- Health care facilities, such as hospitals, medical clinics, dental clinics, nursing homes, or assisted living facilities.
- Public facilities, such as town halls, courthouses, airport hangars, or street improvements.
- Community support services, such as childcare centers, community centers, fairgrounds, or transitional housing.
- Public safety facilities and equipment, such as fire departments, police stations, prisons, police vehicles, fire trucks, public works vehicles, or equipment.
- Educational services, such as museums, libraries, or private schools.
- Utility services, such as telemedicine or distance learning equipment.
- Local food systems such as community gardens, food pantries, community kitchens, food banks, food hubs, or greenhouses.
Federally qualified health centers (FQHC or health center)
Under section 1905(l)(2)(B) of the Social Security Act (42 USC 1396[d]), an FQHC means an entity that
(i) is receiving a grant under section 330 of the PHSA, or
(ii) (I) is receiving funding from such a grant under a contract with the recipient of such a grant, and
(II) meets the requirements to receive a grant under section 330 of the PHSA;
(iii) based on the recommendation of the Health Resources and Services Administration (HRSA) within the Public Health Service, is determined by the Secretary to meet the requirements for receiving such a grant, including requirements of the Secretary that an entity may not be owned, controlled, or operated by another entity, or
(iv) was treated by the Secretary, for purposes of part B of subchapter XVIII of this chapter, as a comprehensive Federally funded health center as of January 1, 1990; and includes an outpatient health program or facility operated by a tribe or tribal organization under the Indian Self-Determination Act (Public Law 93-638) [25 USC 450(f) et seq.] or by an urban Indian organization receiving funds under title V of the Indian Health Care Improvement Act [25 USC 1651 et seq.] for the provision of primary health services. In applying clause (ii), the Secretary may waive any requirement referred to in such clause for up to 2 years for good cause shown.
FQHCs include all organizations receiving grants under section 330 of the PHSA. Health centers qualify for enhanced reimbursement from Medicare and Medicaid, as well as other benefits, including
- An annual federal operating grant from HRSA.
- Malpractice protection under the Federal Tort Claims Act (FTCA).
- Access to discounted pharmaceuticals for patients through the 340B Drug Pricing Program.
- HRSA loan guarantee (when appropriated funds are available).
Health centers must serve an underserved area or population, offer a sliding fee scale, provide comprehensive services, have an ongoing quality assurance program, and have a governing board of directors.
Certain tribal organizations and health center look-alikes (see definition below) also may receive special Medicare and Medicaid reimbursement.
Federal Tort Claims Act
The Federally Supported Health Centers Assistance Act of 1992 and 1995 (FSHCA Act) granted medical malpractice liability protection through the Federal Tort Claims Act (FTCA) to HRSA-supported health centers. Under section 224 of the PHSA, as amended by the FSHCA Act of 1992 and 1995, employees of eligible health centers may be deemed to be federal employees qualified for protection under the FTCA. As employees of eligible health centers, they are considered federal employees and are immune from lawsuits, with the federal government acting as their primary insurer.
Health center look-alikes
A look-alike is an organization that meets all of the eligibility requirements of an organization that receives a PHSA section 330 grant, but does not receive grant funding. A look-alike receives many of the same benefits as FQHCs, including the following:
- Cost-based reimbursement for services provided under Medicare.
- Reimbursement under the Prospective Payment System or other state-approved alternative payment methodology for services provided under Medicaid.
- Eligibility to purchase prescription and non-prescription medications for outpatients at reduced cost through the 340B Drug Pricing Program.
- Automatic designation as a Health Professional Shortage Area (HPSA). The HPSA designation provides eligibility to apply to receive National Health Service Corps personnel and eligibility to be a site where a J-1 Visa physician can serve.
Under section 330(a), of the PHSA, codified at 42 USC 254(b), a health center is "an entity that serves a population in a medically underserved area, or a special medically underserved population comprised of migratory and seasonal agricultural workers, the homeless, and residents of public housing by providing either directly through the staff and supporting resources of the center or through contracts or cooperative agreements required primary health services (as defined in section 330(b)(1)) and, as may be appropriate for particular centers, additional health services (as defined in section 330(b)(2)) necessary for the adequate support of the primary health services …; for all residents of the area serviced by the center."
Health centers provide high quality preventive and primary health care to patients regardless of their ability to pay. Approximately one in 15 people in the United States relies on a HRSA-funded health center for medical care. Over 1,300 health centers operate 9,000 service delivery sites in every U.S. state; Washington, D.C.; Puerto Rico; the Virgin Islands; and the Pacific Basin. Combined; these centers care for nearly 23 million patients. For millions of Americans, including some of the most vulnerable individuals and families, health centers are the essential medical home where they find services that promote health, diagnose and treat disease and disability, and help them cope with environmental challenges that put them at risk.
Since 2010, health centers have become even more important to the nation's health care system. As the centers have increased and expanded, the number of patients served has increased and the centers have added new full‐time staff nationwide. For more information, visit the Health Resources and Services Administration Health Center Program website.
Health Resources and Services Administration (HRSA)
HRSA, an agency of the U.S. Department of Health and Human Services, is the primary federal agency for improving access to health care by strengthening the health care workforce, building healthy communities, and achieving health equity. HRSA's programs provide health care to people who are geographically isolated or economically or medically vulnerable.
Low-Income Housing Tax Credit (LIHTC) Program
The LIHTC Program is the federal government's primary program for encouraging the investment of private equity in the development of affordable rental housing for low-income households. Since its creation in 1986, the LIHTC Program has helped to finance more than 2.4 million affordable rental-housing units for low-income households. For more information, see the OCC's Community Developments Insights issue on LIHTCs.
Medically underserved areas or populations:
These are areas or populations designated by HRSA as having too few primary care providers, high infant mortality, high poverty, or a large elderly population. Also called health professional shortage areas, these areas are designated because they have shortages of primary medical care, dental care, or mental health providers and may be geographic areas (a county or service area), populations (e.g., low income or Medicaid eligible) or facilities (e.g., FQHCs or state or federal prisons).
New Markets Tax Credit (NMTC) Program
The NMTC Program was designed to increase the flow of capital to businesses and low-income communities by providing a modest tax incentive to private investors. Over the last 15 years, the NMTC has proven to be an effective, targeted, and cost-efficient financing tool valued by businesses, communities, and investors across the country. For more information, see the New Markets Tax Credit Coalition's fact sheet.
Pay-for-performance and patient outcomes
"Pay-for-performance" is an umbrella term for initiatives aimed at improving the quality, efficiency, and overall value of health care. These arrangements provide financial incentives to hospitals, physicians, and other health care providers to carry out such improvements and achieve optimal outcomes for patients. In the traditional "fee for service" model, doctors are paid a set amount regardless of patient outcomes. Pay-for-performance has become popular among policymakers and private and public payers, including Medicare and Medicaid. There has been expansion in the use of pay-for-performance approaches, in Medicare in particular, and experimentation to identify designs and programs that are most effective. HealthAffairs.org provides more information on the topic.
The term preventive care is applied to health care and includes check-ups, patient counseling, and screenings to prevent illness, disease, and other health-related problems. Preventive health care services under the ACA are listed here.
Primary Care Associations (PCA)
PCAs are state or regional nonprofit organizations that provide training and technical assistance to safety-net providers. PCAs can help health centers and look-alikes plan for growth in their state and develop strategies to recruit and retain health center staff.
Primary health care services
Primary health care includes health promotion, disease prevention, health maintenance, counseling, patient education, diagnosis, and treatment of acute and chronic illnesses in a variety of health care settings (e.g., office, inpatient, critical care, long-term care, home care, day care, etc.). Primary care is also the level of a health services system that provides entry into the system for all new needs and problems, provides person-focused (not disease-oriented) care over time, provides care for all but very uncommon or unusual conditions, and coordinates or integrates care, regardless of where the care is delivered and who provides it. Primary care is the means by which the two main goals of a health services system, optimization and equity of health status, are approached. Health centers deliver primary health care to patients, regardless of their ability to pay. The nation's most vulnerable populations, e.g., people who are homeless, farmworkers, or residents of public housing, rely on the Health Center Program, funded by the Bureau of Primary Health Care administered by HRSA, for care. Health centers champion preventive care and advance the medical/health home model of coordinated, comprehensive, and patient-centered care, coordinating a wide range of medical, dental, behavioral, and social services. Recent financial expansions of the Health Center Program are helping health center grantees serve more patients, stimulate new jobs, and meet the significant increase in demand for primary health care services among uninsured and underserved people.
Prospective payment systems (PPS)
A PPS is a method of reimbursement in which Medicare payment is made based on a predetermined, fixed amount. The payment amount for a particular service is derived based on the classification system of that service (for example, diagnosis-related groups for inpatient hospital services). The Centers for Medicare and Medicaid Services uses separate PPSs for reimbursement to acute inpatient hospitals, home health agencies, hospice services, hospital outpatient facilities, inpatient psychiatric facilities, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities.
Qualified low-income community investment (QLICI)
A QLICI is an investment (such as a loan or equity investment) made by a community development entity in a qualified active low-income community business under the NMTC program.
Social determinants of health
The complex, integrated, and overlapping social structures and economic systems that are responsible for most health inequities. These social structures and economic systems include the social environment, physical environment, health services, and structural and societal factors. Social determinants of health are shaped by the distribution of money, power, and resources throughout local communities, nations, and the world.
4 Data from the Health Resources and Services Administration, a division of the U.S. Department of Health and Human Services (HHS), show 72 percent of patients receiving services in 2013 had incomes at or below 100 percent of poverty guidelines set by HHS.
This publication is part of:
Collection: Community Developments Investments
Letty Ann Shapiro
Articles by non-OCC authors represent the authors' own views and not necessarily the views of the OCC.