Community health centers, including FQHCs, are no strangers to making magic despite difficult circumstances. But what if those circumstances didn’t have to be quite as difficult as first imagined? When it comes to financial sustainability, even in one of the most challenging environments in recent memory, CHCs have more tools at their disposal than they might imagine.

Value-based care (VBC) is one of the strongest and most accessible levers for enhancing and expanding revenue streams for health centers. By offering a chance to translate high performance on common clinical quality measures into additional revenue opportunities, VBC can help lift CHCs out of uncertainty and provide a stable platform from which to continue delivering vital services to communities in need.

What about the risks, financial and otherwise? Those are certainly something to consider. Historically, many health centers have been left out of value-based care due to concerns about financial accountability and a contracting environment that hasn’t been designed to meet their needs, including laws and regulations that appear to actively exclude CHCs from taking on downside financial risk.

But as the healthcare industry enters a new era of reimbursement, especially with upcoming changes to the insurance landscape, it’s also entering a revitalized era of value-based incentives that are opening the door for CHCs to participate more fully.

With the right knowledge, strategies, and partnerships to significantly reduce the risks and prime the pump for success, health centers can actually start making the financial risk structures of value-based care work for them, not against them. Here’s how.

What is financial risk in value-based care, anyway?

Value-based care arrangements are built on the idea that healthcare providers should be reimbursed based on the value they provide to patients, not the volume of services they deliver.

Providers that meet defined quality, spending, and outcomes goals get rewarded for doing so, with several different incentive models to choose from. Here’s where the idea of risk-bearing comes in.

Payers want to ensure that providers have some skin in the game to motivate continuous improvement, so most VBC models use a combination of fee-for-service or per-member-per-month (PMPM) reimbursement alongside the prospect of earning additional incentives through enhanced risk pathways.

Upside risk in value-based care

Upside risk (also known as one-sided risk) arrangements are the baseline option. Upside risk enables participants to keep a portion of the difference between their projected spend on a specific population and what they actually ended up spending. The difference is either known as shared savings, when the provider spends less than expected, or shared losses if they go over their goal.

If the participant exceeds their spending target, there won’t be any shared savings to take home. But in upside-only risk arrangements, there also won’t be a bill owed back to the payer for the shared losses if they go over their benchmark. 

That’s why upside risk arrangements are very attractive to providers who are new to the world of value-based care. These models are a chance to get used to the new approach and fine-tune their processes with very limited financial risk. 

However, most payers don’t offer a huge amount of incentive dollars under these models, and don’t allow providers to stay in the safe zone for very long, in order to encourage ongoing maturity.

Downside (or two-sided) risk in value-based care

When providers graduate from upside-only arrangements, they enter the realm of downside (or two-sided) risk. In this type of agreement, providers still get to keep a portion of their shared savings, if they generate any – and typically, they get to pocket a larger percentage of the savings than in upside-only models. 

But this time, if they go over their spending targets, they will be liable to return a capped percentage of that overage (called shared losses), back to their payer partner. That’s where the downside comes in. It's a classic case of “the greater the risk, the greater the reward.” 

Understanding structural barriers to downside risk participation 

The idea of downside risk can be attractive for providers who are confident in their clinical quality and ability to manage patients in a proactive, cost-effective manner. FQHCs have continually demonstrated their capability to perform at or above the level of their non-FQHC peers across areas that are central to success with value-based care contracts, indicating that they already have the foundations in place to thrive in an incentive-based environment.

However, FQHCs and other community organizations generally haven’t been able to participate in downside risk, which has locked them out of earning additional revenue for the exceptional work they are already performing. There are three major reasons why.

1. Potential conflicts with foundational reimbursement structures

First, the Centers for Medicare and Medicaid Services (CMS) has been wary of allowing FQHCs to take on downside risk due to potential conflicts with the Prospective Payment System (PPS), which guarantees a per-visit rate intended to cover the cost of care for high-need populations. If the FQHC ends up having to pay back shared losses to a payer, its net per-visit rate could dip below the PPS guaranteed rate and violate the statutory guarantee. To avoid the legal implications, CMS has chosen to avoid the possibility of the situation all together by preventing FQHCs from directly participating in the risk environment. Many states have followed suit to protect the PPS structure.

2. Limitations built into federal regulations

FQHCs also face limits on downside risk participation from additional federal regulations. While federal Medicaid law doesn’t outright disallow FQHCs from taking on two-sided risk as a primary contracting entity, some provisions effectively shut the door. For example, FQHCs are barred from using Section 330 grant funds to cover losses from downside risk arrangements, which may make some providers less certain about participating. 

3. State-level barriers designed to support, not punish

Last but not least, state lawmakers have set up their own guardrails around direct risk bearing because they just want to protect FQHCs and other CHCs from going under. By shielding FQHCs from directly taking on risk via traditional reimbursement pathways, they are preventing situations where a CHC gets in over its head and ends up losing its ability to keep the lights on.

Smart partnerships help CHCs access the benefits of downside risk arrangements

This doesn’t mean that downside risk is off-limits to community health centers. Far from it. FQHCs might not be widely able accept traditional downside risk on their own, but they are encouraged to do so through other channels, including arrangements with a third-party risk-bearing entity.

The risk-bearing entity is a legal and administrative partner that acts as a bridge and an enabler. It takes on the administrative work and financial risks of contracting with the payer. And because they are financially responsible for success or failure, it’s in their best interest to do everything possible to make sure its CHC partners are going to hit their marks, including offering quality improvement guidance, cutting-edge technology, and risk adjustment expertise to participants to boost the likelihood of achieving savings.

This arrangement is actually an incredible opportunity for CHCs. Creating a buffer between the payer and the CHC works to maximize the rewards for participating while shielding providers from the direct risks: a winning equation for CHCs that might still be leery about what it might mean to take on financial accountability.

It also allows CHCs to benefit from economies of scale. By bringing multiple health centers together under a shared umbrella, CHCs can multiply their strengths and spread out the impact of any weaknesses, creating a super-community of high performing entities that has a much stronger likelihood of succeeding with shared goals. 

This is how the risk becomes much less risky, and the rewards suddenly move much closer to reality.

How CHCs can best take advantage of two-sided risk contracting

Many Medicaid programs are building innovative, alternative value-based care options into their core structures as a way to contain costs and improve quality for beneficiaries, including Hawai’i and New York.

To take advantage of emerging options, especially the more lucrative downside risk arrangements, CHCs will need to find experienced partners that are fully equipped to act as the contracting entity to unlock high-value opportunities.

CHCs should look for risk-bearing entities with experience in the community health world and track record of success with earning shared savings, as well as those that offer effective technology tools and at-the-elbow support for adopting innovative care delivery techniques.

Partners should be open and available at all times to answer questions and explain the details of contracting agreements, and should be flexible and enthusiastic about making sure that every member of the team has what they need to succeed.

As a leading value-based care enabler, Yuvo Health’s goal is to be a link and a launchpad for FQHCs to find success in the VBC ecosystem. By providing access to wrap-around practice transformation resources that have already generated shared savings faster than many other groups, Yuvo Health’s proven strategies for partnering with FQHCs can help navigate the complex regulatory landscape and find the most appropriate contracts available.

Value-based care doesn’t have to be off limits for community health centers, and the concept of downside risk doesn’t have to keep leaders up at night. VBC contracting just needs to be approached with confidence, commitment, openness to change and a deep understanding of the regulatory issues at hand so that CHCs can reap the rewards they are entitled to.

With the right partnerships on their side, CHCs can make financial risk into a revenue generator, turning historical uncertainty into a brighter future for community health. 

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