Federally Qualified Health Centers get Prospective Payment System

On May 2, 2014, CMS will comply with the statutory requirements of section 10501(i)(3)(A) of the Patient Protection and Affordable Care Act (ACA) (P. L. 111-148) by publishing a final rule implementing methodology and payment rates for a prospective payment system (PPS) for federally qualified health center (FQHC) services under Medicare Part B. The final rule also establishes a policy which allows rural health clinics (RHCs) to contract with non-physician practitioners when statutory requirements for employment of nurse practitioners (NPs) and physician assistants (PAs) are met and implements changes to the Clinical Laboratory Improvement Amendments (CLIA) regulations regarding enforcement actions for proficiency testing (PT) referrals. The final rule also makes other technical and conforming changes to the RHC and FQHC regulations. The proposed rule (78 FR 58386) was published on September 23, 2013.

Statutory Bases for the Final Rule

There are three statutory bases for the final rule. First, section 10501(i)(3)(A) of the ACA added section 1834(o) of the Social Security Act to establish a new system of payment for the costs of FQHC services under Medicare Part B based on prospectively set rates. Second, CMS authority to allow RHCs to contract with non-physician practitioners is consistent with section 1861(aa) of the Soc. Sec. Act, which requires at least one NP or PA to be employed by the RHC. Finally, the “Taking Essential Steps for Testing Act of 2012” (TEST Act) (P. L. 112-202), enacted on December 4, 2012, amended section 353 of the Public Health Service Act (PHSA) to provide CMS with discretion as to which sanctions may be applied to cases of intentional violation of the prohibition on PT referrals. The final rule adopts changes to the CLIA regulations to implement the TEST Act.


The final rule establishes the following: (1) a national, encounter-based prospective payment rate for all FQHCs, to be determined based on an average of reasonable costs of FQHCs in the aggregate, and paying FQHCs the lesser of their actual charges for services or a single encounter-based rate for professional services furnished per beneficiary per day; (2) as required by section 1834(o)(1)(A) of the Soc. Sec. Act, payment codes based on an appropriate description of FQHC services, taking into account the type, intensity, and duration of services provided by FQHCs; (3) adjustments to the encounter-based payment rate for geographic differences in the cost of inputs by applying an adaptation of the geographic practice cost indices (GPCIs) used to adjust payments under the Physician Fee Schedule (PFS); (4) adjustments when a FQHC furnishes care to a patient who is new to the FQHC or to a beneficiary receiving a comprehensive initial Medicare visit (i.e., an initial preventive physical examination (IPPE) or an initial annual wellness visit (AWV)); (5) an exception to the single, encounter-based payment when an illness or injury occurs subsequent to the initial visit, or when a mental health visit is furnished on the same day as the medical visit; (6) transition of FQHCs into the PPS based on their cost reporting periods and maintenance of the current claims processing system and the PPS until all FQHCs transitioned to the PPS; (7) transition of the PPS to a calendar year update for all FQHCs, beginning January 1, 2016, to be consistent with many of the PFS rates that are updated on a calendar year basis; and (8) because most preventive services are exempt from beneficiary coinsurance under section 4104 of the ACA, a simple method for calculating coinsurance when there is a mix of preventive and non-preventive services.

RHC and Other FQHC Changes

Consistent with section 1861(aa) of the Soc. Sec. Act, which requires that at least one NP or PA be employed by the RHC, the final rule allows RHCs to contract with non-physician practitioners. The rule also amends CMS regulations to correct terminology, clarify policy, and make other conforming changes for existing mandates and the new PPS.

PT Referrals

Section 353 of the PHSA, as amended by the TEST Act, gives CMS discretion as to which sanctions may be applied to cases of intentional PT referral. In lieu of the automatic revocation of the CLIA certificate and the subsequent ban preventing the owner and operator from owning or operating a CLIA-certified laboratory for two years, the final rule amends the CLIA regulations to add three categories of sanctions for PT referral based on the severity and extent of the violation.

Effective Date and Comments

Except for a handful of provisions that will be effective 60 days after publication, the final rule is effective October 1, 2014. CMS is also allowing comments on certain provisions of the final rule for 60 days after publication.