Understanding FQHC Reimbursement: How PPS, Wraparound and Grants Interact

The role of federally qualified health centers in the healthcare system is closely tied to how they are funded. According to the National Association of Community Health Centers, community health centers served nearly 34 million patients in 2024. That figure represents about one in ten Americans who rely on federally qualified health centers (FQHCs) for their primary care needs. What makes this possible is a funding structure that combines Medicare and Medicaid reimbursement with federal grant dollars, all working together to keep your doors open. For FQHC leaders, understanding how these revenue streams interact is fundamental to maintaining the financial health that supports your mission.

How Medicare PPS Works for FQHCs

The Medicare Prospective Payment System forms the foundation of FQHC reimbursement. Established under Section 10501 of the Affordable Care Act, the FQHC PPS took effect in October 2014 and changed how Medicare compensates health centers for patient care. Rather than paying based on actual costs incurred, Medicare reimburses FQHCs through a standardized per-visit rate designed to cover all medically necessary services furnished during a qualifying encounter.

For 2025, the Centers for Medicare and Medicaid Services set the national base PPS rate at $202.65, reflecting a 3.4 percent increase from the 2024 rate of $195.99. The actual payment your health center receives depends on your location. CMS applies a Geographic Adjustment Factor based on the Geographic Practice Cost Indices used in the Physician Fee Schedule. Depending on your service area, this adjustment can increase or decrease your payment from the national average.

When your center furnishes care to a patient who is new to your clinic, or when a beneficiary receives an Initial Preventive Physical Examination or Annual Wellness Visit, the PPS rate increases by 34.16 percent. At the national level, this raises the payment to $271.88 per visit. This enhanced rate recognizes the additional time and resources required when establishing care relationships or conducting comprehensive preventive assessments.

Medicaid Reimbursement and Wraparound Payments

While Medicare uses a nationally standardized PPS, Medicaid reimbursement for FQHCs operates differently. Federal law establishes a floor for Medicaid FQHC payments through the Medicaid PPS, but states have significant flexibility in how they structure their payment methodologies.

Under Medicaid PPS, each FQHC establishes a provider-specific rate based on the center’s allowable costs and patient visits during a rate-setting year. This cost-based approach means your Medicaid PPS rate reflects your actual operating expenses. Once established, this rate is adjusted annually for inflation. States that fail to pay FQHCs at least the PPS rate for Medicaid patient visits risk losing federal financial participation.

The wraparound payment becomes particularly important when your FQHC contracts with Medicaid managed care organizations. Federal law requires states to ensure that FQHCs receive the full PPS amount when managed care plan payments fall short. If a managed care plan pays your health center less than your established PPS rate for a covered service, the state Medicaid agency must pay the difference directly to your organization. States must make these supplemental payments on an agreed-upon schedule no less frequently than every four months.

Given that managed care now dominates most state Medicaid programs, wraparound payments have become an essential component of FQHC revenue.

Section 330 Grants: The Third Funding Pillar

Federal grant funding through Section 330 of the Public Health Service Act provides the third major revenue stream for most FQHCs. These grants, administered by the Health Resources and Services Administration Bureau of Primary Health Care, support health centers in delivering comprehensive services to underserved populations.

Section 330 grant funding comes from two sources: annual discretionary appropriations and the Community Health Center Fund. The Community Health Center Fund now accounts for approximately 70 percent of total Section 330 funding. These grants support ongoing care to the uninsured and underinsured while enabling health centers to establish new sites and expand services.

Grant funding does come with compliance obligations. FQHCs that expend $1,000,000 or more in federal awards during their fiscal year are subject to single audit requirements. These audits are far more detailed than traditional financial audits and focus heavily on programmatic compliance. Meeting these requirements demands solid financial statements and accounting records throughout the year.

How These Revenue Streams Work Together

The financial sustainability of your FQHC depends on how well you manage the interaction between these funding sources. Medicare PPS provides predictable per-visit reimbursement. Medicaid PPS and wraparound payments ensure you receive adequate compensation for serving Medicaid beneficiaries. Section 330 grants fill gaps that patient revenue alone cannot address.

Depending too heavily on any single funding source creates financial vulnerabilities. This reality has become clear in recent years as COVID-related funding has declined. FQHCs with diversified revenue and strong financial practices have found it easier to adapt.

Precise grant tracking remains essential. Federal grants come with specific stipulations about allowable expenditures that require detailed tracking systems. Revenue cycle management specific to FQHCs also plays a role, as does maintaining the internal controls necessary for compliance with multiple funding requirements.

Strengthen Your FQHC’s Financial Foundation

The complexity of FQHC reimbursement requires specialized knowledge that spans both nonprofit and healthcare accounting. We work with federally qualified health centers to address these unique challenges, from federal single audits and Section 330 compliance to revenue cycle enhancement and financial statement preparation. Contact us today to discuss how we can help strengthen your financial operations and support the communities you serve.

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