The Centers for Medicare & Medicaid Services (CMS) recently finalized a new prospective payment system (PPS) for Federally Qualified Health Center (FQHC) services. The implementation of the PPS was mandated by the Affordable Care Act (ACA).

Medicare currently pays FQHCs an all-inclusive rate for the professional component of qualified primary and preventive health services furnished to the same beneficiary on the same day. The all-inclusive rate is determined annually for each FQHC and is subject to productivity standards and an upper payment limit. The 2014 upper payment limits for rural and urban FQHCs are $111.67 and $129.02, respectively.

The FQHC PPS program will pay FQHCs an amount equal to the lesser of (1) the FQHC’s actual charges for services or (2) a single encounter-based per diem rate per Medicare beneficiary. The encounter-based per diem rate, which is based on an average cost per encounter, is $158.85, with some exceptions and adjustments. The per diem rate will be subject to adjustments for geographic differences in the cost of services and increased by 34 percent for (1) new patients, (2) initial preventive physical examinations and (3) annual wellness visits. Additional adjustments are applicable when an illness or injury occurs subsequent to the initial visit or when a mental health visit is furnished on the same day as a medical visit.

For nonpreventive care visits, FQHCs will be paid the lesser of their actual charges or 80 percent of the PPS rate. Beneficiary coinsurance amounts will make up the remaining 20 percent. When an FQHC claim includes preventive services, which have no coinsurance requirement, CMS will pay the entire FQHC PPS payment. If a bill includes preventive and other services, the beneficiary’s coinsurance will be calculated by subtracting the FQHC’s charges for the preventive service from the total charges, either PPS or actual charges, and multiplying the balance by 20 percent.

Payments received by FQHCs from Medicare Advantage plans must be at least equal to the amount the FQHC would receive under the FQHC PPS. If the Medicare Advantage rate is lower than the PPS rate, the FQHC will be entitled to receive a wraparound payment from Medicare to cover the differential.

Preventive laboratory tests and technical components of other preventive tests are not included under the FQHC PPS payment. These charges will continue to be billed separately to Medicare Part B. Flu and pneumonia vaccines will continue to be reimbursed at 100 percent of reasonable costs through the cost report process. Other Medicare-covered vaccines (e.g., hepatitis B vaccine) will be included as a part of the encounter rate.

FQHCs will transition into the PPS beginning on the FQHC’s first cost-reporting period that commences on or after October 1, 2014.