FQHCs: Practical Impacts of Governance Requirements

08 January 2020 Health Care Law Today Blog
Authors: Claire Marblestone Adam J. Hepworth

This is the fourth article in our series addressing important topics for federally qualified health centers (FQHCs) and the providers who work with them. The first post in the series offered five tips for contracting with FQHCs, the second post covered the nuts and bolts of Medicaid FQHC reimbursement, and the third post addressed state policy variations impacting payment for Medicaid FQHC services.

Federal regulations and guidance from the Health Resources and Services Administration (HRSA), the component of the U.S. Department of Health & Human Services that oversees FQHCs, impose unique corporate governance requirements on FQHCs, which impact not only how centers structure their internal operations, but also the available opportunities for centers to affiliate with other health care providers.  

1.  Community Board of Directors 

One of the distinguishing characteristics of an FQHC is the composition of the board of directors. The FQHC regulations require a majority of the members of the board of directors of an FQHC be individuals who receive services from the center, and are representative of the individuals served by the center in terms of demographic factors, such as race, ethnicity, and sex.  The remaining members of the board must be representative of the community in which the center is located and selected for their expertise in community affairs, local government, finance and banking, legal affairs, trade unions, commercial and industrial concerns, or social service agencies within the community. Additionally, no more than half of the non-patient board members may derive more than ten percent of their annual income from the health care industry.

Outside of the FQHC context, a health care provider is usually not required to ensure that the demographics of its board of directors reflect its patient population. As a result of HRSA’s board governance requirements, FQHC boards are often especially attuned to the needs of the community served by the center, which can result in more patient-centered care. Governance is particularly effective when boards are structured so that the professional expertise of the non-community board members complements the patient-centered experience of the community members.

While governance requirements are intended to ensure that FQHCs are responsive to the needs of their communities, they can pose challenges for affiliations, and may at times make it more complicated for FQHCs to participate in transactions that appear to be in the strategic interest of the centers and their community partners. Most notably, health systems or outside investors accustomed to simple acquisitions may be hesitant to deal with FQHCs when the governance requirements preclude them from exercising total control. These challenges are not insurmountable, however, and potential partners should consider alternative structures that promote more collaborative affiliations.

2.  Key Authorities Reserved to Board 

The FQHC regulations reserve certain key functions and responsibilities for the governing board of the center. Some of these reserved powers relate to personnel issues such as approving the selection and dismissal of the Chief Executive Officer or Project Director of the FQHC, and establishing policies and procedures relating to the center’s employment practices. The governing board is also responsible for the financial management of the center, must approve the center’s