healthcare

“The bomb buried in Obamacare explodes today,” Rick Ungar declares in a December 2^nd Forbes blog post describing a regulatory provision in the Affordable Care Act:

"[T]he medical loss ratio...requires health insurance companies to spend 80% of the consumers’ premium dollars they collect—85% for large group insurers—on actual medical care rather than overhead, marketing expenses and profit. Failure on the part of insurers to meet this requirement will result in the insurers having to send their customers a rebate check representing the amount in which they underspend on actual medical care."

If this regulation is indeed a bomb, then nonprofit administrators must now be totally shell-shocked from navigating the demands of donors, institutional funders, government agencies charity rating agencies, consultants and even board members who want similar oversight of the ratio between program and administrative or fundraising expenditures and then use that data to make claims about operational efficiency. 

The fact that this kind of ratio system is now being applied prominently to a for-profit industry gives us an opportunity to highlight the way similar measures have served as a minefield in the nonprofit sector for years.

The differences between nonprofits and insurance giants are more striking than the similarities. As for-profit entities, insurance companies’ customers are expected to pay a market rate for their services, these funds are always unrestricted, annual surpluses are encouraged rather than stigmatized, and financial gain is the primary motivator.  None of these apply broadly to nonprofits.

Presumably as a matter of public policy, the medical loss ratio is being applied to insurance companies because those companies might otherwise spend even more on lavish executive salaries, luxurious offices, and so on.  But, in an environment where nonprofits face restricted grants and overall scarcity of funds, not to mention baseline commitment to mission, what would be the equivalent goal for imposing such ratios on the nonprofit sector?  Are such measures likely to be successful in inducing “operational efficiency?” 

In posts following up on Ungar’s initial article, Sarah Kliff (on the Washingon Post’s site) and Ungar raise the issue of how the government will define which expenses qualify as direct medical care, which will be administrative expenses, and which expenses could be left out of the equation altogether.  Many of these particulars seem to be addressed up front in the legislation, though one assumes that the financial staff of insurance companies will ultimately find room for interpretation. 

For the nonprofit sector, too, that room for interpretation is significant.

I recently had the pleasure of attending the groundbreaking ceremony for the expansion of the El Nuevo San Juan Health Center in the South Bronx.   It was a warm Friday morning in July and excitement was in the air as I joined my colleagues from Nonprofit Finance Fund, our lending partners, community supporters, dignitaries and the dedicated team at Urban Health Plan on Simpson Street to celebrate the beginning of an extensive expansion of the El Nuevo San Juan Health Center, which would more than double the size of the community health center.  Beyond the excitement that we were about to witness the start of a project that would support significant expansion of health services to the community, all those who attended the ceremony also had the privilege of donning blue exam gloves and participating in the choreography for a rendition of “Crazy Little Thing Called Health,” a Queen song appropriately re-mastered for the health center.

El Nuevo San Juan Health Center is a community health center which opened in 2001 and is the main site of Urban Health Plan.  Founded in 1974 by Dr. Richard Izquierdo, Urban Health Plan is a New York-based not-for-profit network of federally qualified health centers (more commonly referred to as FQHCs) and offers an array of health services, including obstetrics and gynecology, pediatrics, adolescent medicine, adult primary care, urgent care, dental and mental health. 

There has been a great deal of attention recently focused on court challenges to the constitutionality of the mandates of the 2010 healthcare reform act.  Regardless of where you stand on this issue, it is undisputed that health services are urgently needed throughout the country, especially in low to moderate income communities.

This increased demand requires new approaches to financing health centers that serve these populations; government funding alone cannot provide the capital needed to ensure services over the long term.

Community health clinics work tirelessly to serve these communities with creative approaches ranging from co-locating small health centers in public housing and public schools to creating large, multiple site networks.  A shortage of doctors in many communities has spurred the expansion of nurse-managed health centers offering lower cost care. Federally Qualified Health Centers, more commonly and succinctly referred to as “FQHCs,” are health centers that have satisfied rigorous review by the Health Resources and Services Administration (HRSA), an agency within the Department of Health and Human Services.  FQHCs deliver a comprehensive spectrum of services, either directly or contracted, including medical, dental, prenatal and behavioral health.  These services are provided to all in the community regardless of their ability to pay.

According to HRSA, these health centers served 18.75 million patients in 2009 through 73.8 million visits.  Fully 23% of the patients were children under the age of 12 and 71% were at or below federal poverty levels.   Of the patients who received care from health centers in 2009, 38% were uninsured. These numbers represent significant growth over levels from prior years, and are continuing to rise. With or without healthcare reform, demand for care from community health centers is growing, particularly from those without insurance coverage – and the government cannot shoulder the escalating costs.

Grant funding is available from HRSA to FQHCs to offset some of the costs incurred in providing care to the uninsured.  In addition to this support for operations, funding is also available to support expenses related to the expansion of an FQHC to meet the growing demand for service in underserved communities.  In 2009, the American Reinvestment and Recovery Act (ARRA) provided over $500 million in grants to FQHCs nationwide for facility projects and over $800 million to more than 1500 health centers for renovations and equipment  Though the funding provided through ARRA was significant and responsive, the need is great and exceeds the benefits provided even by a significant economic recovery.  

Government funding cannot meet the long-term needs alone. Most organizations will need to cobble together support from government funding, private foundations, loans from Community Development Financial Institutions and banks, and other incentives such as tax credits.

 I have had the opportunity to witness the work of the community health centers and am continuously impressed by the determination and commitment of their leaders and practitioners. During a recent conference sponsored by Community Health Partners for Sustainability, I was struck by the resourcefulness and creativity of these organizations.  Their commitment and effectiveness in cultivating partnerships to meet the needs of their communities reinforces the value and necessity of replicating this approach in the funding community.   

In an era where creative solutions are necessary to meet the healthcare needs in this country, we must continue to cultivate and support partnerships which develop and deliver effective, affordable financial solutions for the operation and expansion of community health centers throughout the country.