Community Health Centers Are Serving More Patients Than Ever, but Financial Challenges Loom Large

Community health centers (CHCs) are providing high-quality, comprehensive primary care to more patients than ever. In 2023, CHCs served a record-setting 31 million patients, including more than 19 million people with incomes below 200 percent of the federal poverty level (i.e., $29,160 per year for an individual in 2023), 5.6 million people without insurance, and 9.7 million people living in rural areas. As a result, CHCs’ costs are rising — but their funding and revenues haven’t kept pace.

To better understand their financial pressures, we analyzed data from the Commonwealth Fund 2024 Survey of Federally Qualified Health Centers, as well as new national community health center data. We found that CHCs have been experiencing financial challenges for several years, with some concerned their financial stability will worsen over the next two years.

Community Health Centers Face Mounting Financial Challenges

CHCs are funded through various revenue sources, including insurance reimbursements, federal grants and appropriations, and revenue from the 340B program, which allows safety-net providers to purchase drugs at discounted rates and use the savings to cover other services. Half of CHC patients are covered by Medicaid and these reimbursements make up CHCs’ largest revenue source. Another significant portion of CHC patients (nearly 18% in 2023) are uninsured; CHCs depend on federal grants to cover the cost of providing uncompensated care.

Across sources, CHCs face threats that impact their financial stability. For years, relatively low Medicaid reimbursement rates and stagnant federal funding have forced CHCs to operate on thin margins. More recently, declining Medicaid enrollment caused by nationwide Medicaid eligibility redeterminations, the expiration of temporary COVID-era federal funding, and restrictions from drug manufacturers on 340B discounts have exacerbated CHCs’ financial challenges. CHCs are also grappling with uncertainty over the timing and generosity of future federal investments. The Community Health Center Fund, which provides 70 percent of CHCs’ federal funding, is set to expire at the end of 2024.

Altogether, these pressures leave CHCs in a precarious position, with the narrowest national margins since 2020. Overall, there was a 64 percent decline in profit margins between 2021 and 2023. If trends continue, experts estimate that in 2024 costs will ultimately exceed revenues. While this doesn’t mean that every CHC will operate on negative margins, it signals that CHCs are struggling to keep up with rising costs as the volume of patient visits increases. A recent analysis of CHCs’ costs and revenues confirms this. In 2023, nearly half of CHCs had negative margins and overall net margins were 1.6 percent, the lowest level since 2020.

Underfunding and narrow margins leave CHCs with little room to make improvements, innovate, or address ongoing challenges, like competitively recruiting staff, adding new services, or investing in technology or infrastructure — all of which impact low-income patients’ access to and quality of care.

Data from the Commonwealth Fund 2024 National Survey of Federally Qualified Health Centers reveal that in the coming years, many CHC leaders expect their financial challenges to persist or worsen. They are particularly concerned about the effects that declining Medicaid enrollment, rising levels of uncompensated care, and changes to the 340B program will have on finances.

Findings from the survey include:

CHCs report mixed projections of financial stability over the next two years. Nearly one-quarter of CHCs (24%) expect their financial stability to decrease in the next two years; one-half expect no changes. Research confirms that most CHCs already operate on low margins, so reports of unchanged financial stability may still indicate financial stress.

Nearly one of five CHCs (19%) expect Medicaid revenues to decrease; nearly two of five (42%) expect uncompensated care to increase in the next two years. The projected decline in Medicaid revenue likely stems from Medicaid eligibility redeterminations, which have drastically reduced the number of people covered by Medicaid. As of April 2024 — one year into the redeterminations process — nearly one of four CHC patients on Medicaid had been disenrolled and few had reenrolled. CHCs reported average Medicaid revenue losses of nearly $600,000 per center because of these coverage losses. As a result of the Medicaid losses, uninsured rates are rising and will likely lead to CHCs providing more uncompensated care than in recent years.

Thirty-eight percent of CHCs expect revenues from the 340B program to decrease in the next two years. Since 2020, many drug manufacturers have restricted the discounts available to providers through the 340B program, which limits the savings CHCs and other safety-net providers can generate. These restrictions have been the subject of ongoing litigation, although they have continued after a 2023 federal court ruling. CHC leaders have reported this policy change is already taking a toll on their finances.

Policy Opportunities to Improve CHCs’ Financial Stability

Federal and state policymakers can take steps to improve CHCs’ financial stability, including:

• Increasing federal funding to offset CHCs’ rising uncompensated care costs and support needed investments in infrastructure and technology. Congress can alleviate CHCs’ current funding uncertainty by reauthorizing the Community Health Center Fund at an increased level for multiple years before it expires at the end of 2024
• Stabilizing Medicaid coverage by simplifying application and renewal processes and promoting continuous enrollment.
• Providing additional opportunities for CHCs to participate in value-based payment models, which offer more predictable, flexible funding and reward the provision of high-quality, comprehensive care.
• Addressing revenue losses caused by recent changes to the 340B program, either by reforming the program or providing supplemental payments to CHCs.