Proceedings of the 1st National Conference on Community Health Center – Primary Care Residency Program Linkages, "Issues in the Financing of Educational Linkages" (Part 4, Esselink)

Last Updated on April 16, 2022 by Lee Burnett, DO, FAAFP

We gratefully acknowledge the sponsorship of the Wright State University Boonshoft School of Medicine Department of Family Medicine) for funding the transcription and editing of this section of the Proceedings of the First National Conference on Community Health Center-Primary Care Residency Linkages (Lake Tahoe, Nevada, September 16, 1993):


Terry Pitts, EdD, Moderator:  Our last presentation will be presented by John Esselink, who is the Executive Director of the Community Health Associates in St. Claire Shores, Michigan.  John will be talking about issues that deal with the financing of educational linkages.  Many of the previous speakers have identified the financing issues as critical.

A View of St Claire Shores, Michigan, photographer Robert Yanal
A View of St Claire Shores, Michigan, photographer Bob Yanal

John Esselink, (Executive Director, Community Health Association, St. Clair Shores, Michigan):  I want to give you a little background.   Community Health Associates is a small consulting firm in Michigan, of which I am a principal.

We deal primarily with projects that provide care to under-served areas and under-served populations, providing them assistance with shortage designation applications, grant applications, and perhaps soon some other matters under the President’s Health Care Reform Plan.

I am a former hospital administrator, former group practice administrator, former community health center finance director and executive director.  I have been consulting for about four or five years.

I thought, in order to prepare for this session, I had to do several things.  One, I went back and I reviewed, or tried to review, the Medicare Graduate Medical Education reimbursement system.  And I decided that I clearly have been away from that way too long and that I don’t ever want to get back into that again (laughter).

Second, I signed up for CompuServe so that I could get some articles on linkages.  I downloaded literally hundreds of thousands of bytes of information on the subject, much of which is concerned with financing the urban hospital payment system and the changes to primary care.  Thirdly, I reviewed this book, “The President’s Health Security Plan,” which really blew away everything I had been looking at before and what I was going to be talking about, given it’s a proposal for radical change.

(By the way, you can get this book in most bookstores for $8.00 or you can order it from the government printing office for $15.95 [laughter]).  That’s not really true, but I did see a Grace Commission report that is out in the bookstores for about $4.00 less than the one printed by the government printing office.

So, I want to talk about issues of financing potential linkages between CHCs and residency programs.  But, I’d suggest that the potential linkages we consider include not only federally qualified health centers, but also those CHCs which are not federally funded, rural health clinics, and whatever new facilities end up being created or financed under the access initiative programs that are in this health reform plan, whatever they might be.

I included “look-alikes” – CHCs which are not designated as FQHCs under Public Health Services Act Section 330 – because the “look-alikes” have the same missions as the Section 330 community health centers and, at present, they also enjoy favorable cost-based reimbursement.  At lease for the next few years, there will be a few of them around and there may be more applying, especially as we see some pressure on the community health center funding.

I picked RHCs, too, not because I have been working with them lately, but because I think there is a need for a rural focus, although you wont’ find much of one in the health care reform plan.  In the State of Michigan there are now far more rural health clinics than there are community health centers.  We have a substantial number of community health centers, I think 37 – 38 sites for our state and about 60 rural health clinics, some of them rather large.

I know the audience is from different backgrounds, so I though I at least ought to talk about the current funding situation of some of the key programs, so that you know what the opportunities are and how CHCs are paid.  You probably know that the term “federally qualified community health center” refers to a specific list of community health centers that have grandfathered in as eligible for the Section 330 funds.  Each of these is funded by a combination of federal funds and patient or insurance company reimbursements.

It is my understanding that, across the country, the average reliance on federal funding by CHCs is about 50 percent, although that percentage is on the decline.  (However, in my experience in running a community health center in Detroit, we didn’t come close to receiving that amount.  I feel that if we had had 50 percent federal funding, we could have done some great things.  I don’t know who gets that 50 percent federal funding.)

FQHCs and other CHCs that participate in federal programs are required to provide services to anybody, irrespective of their ability to pay.  This guarantees that they will have a percentage of their patient population from whom they will receive no reimbursement.  Translate that and it means that any expenditures they might make for educational linkages are only going to be partially funded by patient insurance fees.

For those patients who have no insurance, their care, in the case of the FQHCs, will end up being provided by the federal support (when such federal support is there and if it continues to be there).  And although the “FQHC look-alike” clinics don’t receive federal categorical CHC funding, they usually have some foundation support because of their non-profit status.  Additionally, they do receive cost-based reimbursement from Medicaid (which provides a higher return than fee-for-service Medicaid reimbursement).

Rural health clinics, on the other hand, can be either for-profit or no-for-profit entities.  A number of them are not-for-profit, especially those that are sponsored by provider-based facilities like hospitals, skilled nursing facilities, or home health agencies.  But, the majority of them are for-profit practices and, as such, they don’t receive any federal Public Health Service Act funds.  Most importantly, they do not have any requirements to serve people who don’t have financial resources.

Although there can be a financial downside to educational programs getting together with CHCs, I do think that there are some strong advantages.  There are some issues that I think need to be addressed by CHCs with their residency partners.  As you know, cost-based programs have ballooned a lot in the last three or four years.

We are starting now to see some tests of reasonableness.  One of the things you need to know about cost-based reimbursement is that it only pays reasonable costs and the government defines “reasonable” in a number of ways through what they call screens and tests.

Clearly, under this reimbursement system – for at least the percentage of patients served in the community health center that are Medicare or Medicaid – the cost of the resident and the supervision can be cost-based reimbursed under the FQHC program and the RHC program.  I think this can be accomplished through the inclusion in a cost report of the reasonable cost of these professional services rendered by the residents and supervising physician.

Obviously, it’s a lot cleaner and less subject to “reasonable cost” tests applied by federal officials who administer or audit CHC funds, if you have a supervising physician who happens to be a staff member of the CHC and is included in the grant application.  But, I don’t that is required.  I think that it is reasonable.  I haven’t seen any part of the regulations that preclude the cost of those services.

One criterion used by federal officials who rest for cost-reasonableness is the Medicare cost principal (which is the number part 415c or something of the federal regulations).  That section determines the allowability of costs.  That particular citation is the same one that covers hospitals, skilled nursing facilities, home health agencies and dialysis programs.  If it is not allowable under that section, it is not going to be allowable under that section, it is not going to be allowable for cost-based reimbursement under any of the programs being discussed.

In some cases, for an FQHC in the Medicare program, there are maximum per visit rates that are higher in urban areas than in rural areas, $76 in urban this year and $66+ for rural centers.  Under the Medicaid portion there have not been and should not be, instructions to impose these limitations yet.

If cost-based reimbursement stays around long enough for the Medicare program to write applicable regulations, there may be some maximums.  From the Medicare cost principal standpoint alone, we don’t think that the community health center has a problem covering resident supervision services.  However, applying the maximum rate per visit test, there indeed may be a problem.

That leads into the next test – the productivity screen, which other speakers have talked about today.  Both the FQHC legislation and the rural health center legislation impose limits on the amount of reimbursement that can be received by a center that falls below certain productivity formulas.  Obviously you have a problem with productivity when you have a teacher and a learner.  Most of the cost reporting forms now allow for reporting team productivity.

When those regulations were written, team productivity was meant to include – for example, nurse practitioners or physician assistants in team practice with physicians.  I am not sure that you could not make that next leap into teacher/learner also.  In fact I have tested it with at least one rural health clinic.  We had a misunderstanding with an insurance company.

They were applying individual provider productivity standards, instead of team standards.  It cost our clinic a considerable amount of money, we contested it.  They did issue a clarification – it is a team productivity limit.  Those of you who have worked in CHCs for a long time know, that the productivity formulas are different between states.

For example, the Medicaid productivity level for cost-based reimbursement in Michigan is 3500 encounters for a physician full-time equivalent.  And I think there are variations across other states as far as what the cost-based minimum productivity rate is compared to the  CHC programmatic break, which is not even a standard any more.  That is out.  The cost-based productivity number is what we are looking for now.  Obviously, we are talking about significant amounts of money.

Were I to evaluate a potential linkage from the CHC administrator’s viewpoint, I would make certain I have a good grasp of how the educational activities impact on productivity.  Obviously, the training programs can reduce the productivity of a CHC practice in which they are located and thereby reduce income.  It does not have to happen, but it can.

There have been some studies that indicate that residents order more ancillary tests, which could be a consideration under cost-based reimbursement.  In one pediatric study, it was reported that the residents ordered laboratory and x-ray tests during 36 percent of their visits, while their teachers, in comparable situations, ordered only in 14 percent of theirs. Residents consume more facility time and could cause backlogs in exam rooms.

Additional space might need to be considered.  You need more exam space for residents and teachers than for just practicing physicians.  You must evaluate whether your facility can handle a training program, not only in terms of financial reimbursement, but also in terms of simple square footage.

Offsetting these concerns, however, are studies that suggest that a training program can be a tool for retention and recruitment, since a lot of providers want and desire the academic connection.  One interesting study indicated that teaching demands of a residency linkage did affect the productivity of the providers, but the productivity losses were offset by the enhancement and enjoyment of the physicians in their practice and the improved patient satisfaction.  There was a measurable increase in the perceived quality of care.

Clearly there are, I think, some distinct advantages in these linkages.

First, if you are in institutionally based provider, that off campus training program can be a great source of new patients to an institution.  Using this paradigm, maybe these institutions would be more willing to support these off-campus linkages financially.

Second, there is an old adage that training programs are an excellent source of recruitment for providers.  That advantage alone, of recruitment and retention, might be enough to pay significant fees for search and recruitment and you end up losing productivity and thus, lost revenues due to turnover.

I have no idea what impact health reform is going to have on graduate medical education or CHC funding.  The Administration plan does call for the phasing out of CHCs and the establishment of some new grant-funded providers that may or may not have a community-based governance.  It is also clear that the current reimbursement system encourages training physicians in hospital settings.  You know that is where the money is.

There is also the intention to change the emphasis to primary care in teaching programs.  I think the health reform initiatives would encourage this.  There are a number of references in the Administration plan to increase the funding for those kinds of operations.  There will be a push to establish ambulatory training sites.

There is also something in this plan that says they are going to pay the residency programs directly for some of the training costs.  That ought to encourage somebody to do some ambulatory site development.  I wonder, if we have the infrastructure available in the ambulatory sites to start training residents out in the community as opposed to in the acute care setting.  I also wonder where the devil are you going to get the money for that.  There is no start up money proposed.

I think you need to think also about linking up with each other, all of you together.  I do believe that there may be some provision for community health centers, federally qualified health centers and rural health clinics to be ultimately designated as “essential community providers.”  They fit the role for such entities described in the Administration’s health care reform plan.

The significance of the designation is that, during some transitional period, whatever health plans are formulated in your community or your state will have to contract with them irrespective of their costs.   There are conflicting statements in the reform legislation. One statement does say that essential community providers were going to be paid based on the Medicare method that is currently paid to CHCs.  That, in effect, is cost-based reimbursement.

There is also another piece under the access initiative program that states that either cost-based reimbursement or capitation will be used.  Either way, under the plan, the essential community providers would be assured a part of the action for five years.  Somebody will have to talk to them.

The intermediaries will have to negotiate with them much like the state Medicaid agencies had to talk to the FQHCs.  I am not sure what more I can give you as to what will happen under health reform.  I think there would be some opportunities.

I do believe that community and migrant health centers, rural health clinics, and look-alike federally qualified health centers should consider opportunities for residency linkages.  I think that the CHCs ought to look to them as an excellent tool for future providers.  I think there is some money there.  How much?  I don’t know.  If you have any questions, I’ll be happy to respond as best I can, given that I’m not a hospital GME expert and that I wouldn’t know a direct cost from an indirect medical education cost. (Laughter.)

Terry Pitts, EdD, Moderator:  Thank you John.


This presentation follows: Proceedings of the 1st National Conference on Community Health Center – Primary Care Residency Program Linkages, “Centering Primary Care Residency Training in a Teaching Community Health Center: Adventures in Academic Processes and Community Politics” (Part 3, Cruz).

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