The Question

Should California require that Federally Qualified Health Care Centers spend at least 90% of their annual revenue on expenses that directly advance the health center’s mission?

The Situation

Federally Qualified Health Centers (FQHCs), commonly called community health clinics or safety-net clinics, receive federal funds to provide prevention and primary care in underserved communities.  According to the LAO, there are about 2000 safety net clinics in California; many are nonprofit corporations while some are operated by public entities, such as counties. These clinics are funded through a combination of Medi-Cal reimbursements, federal grants, private insurance, local grants and donations, and direct patient payments.

FQHCs that have nonprofit status are required to file annual reports with the Internal Revenue Service and the state Attorney General. These reports disclose the clinic’s revenue, sources of funding, and expenditures. Clinics also report the portion of their total expenses that directly support their mission of providing primary care services to underserved groups, as distinct from their management, administrative and fundraising expenses. 

Prop 44 was placed on the ballot as a citizen initiative.

The Proposal

The initiative would require FQHCs in California to spend at least 90% of their annual revenue on programs that directly advance their mission of providing primary health care to medically underserved populations. Spending on other expenses like administration would be limited to 10% of their revenue. The California Attorney General would be responsible for defining which expenses qualify as mission-related and would calculate the percentage of revenue spent on mission-related activities, based on financial information reported by the clinic. 

The Attorney General would provide these calculations to the California Department of Public Health, which would be responsible for enforcing the measure. Clinics that fail to meet the 90% threshold would be subject to financial penalties. The measure also allows clinics to seek exemptions under certain circumstances.

Fiscal Effects

Enforcing Prop 44 could cost the state tens of millions of dollars each year, which would be covered by charging fees on the affected clinics.  But there might be other costs to the state. Some clinics might increase patient services paid for by MediCal. Other clinics may cut back on services or even close if they cannot meet the new rules. If that happens, more patients may have to go to public hospitals or emergency rooms to get care.

Supporters Say

• Taxpayer-funded clinics should prioritize patient care over administrative spending.
• Excessive executive compensation and overhead reduce healthcare access.
• Prop 44 will increase transparency by requiring clinics to publicly report how healthcare dollars are spent.

Opponents Say

• Community clinics are already heavily regulated by federal and state governments with strict funding rules.
• Prop 44 would force hundreds of clinics to cut services or shut down. 
• Prop 44 could unintentionally increase overall healthcare costs by shifting patients into emergency rooms and hospitals.