Beyond Bandaids

The Need to Rebuild New York’s Community Health Centers

Results from the 2001 Capital Needs Survey

Prepared By: Primary Care Development Corporation In Collaboration With: Community Health Care Association of New York State

April 2001

PRIMARY CARE DEVELOPMENT CORPORATION
PCDC was established to prese rve and expand critically needed primary care services in underserved communities in New York City. Since 1994, it has provided financial and technical assistance to health care providers to enable them to enhance their facilities and improve their operations. Through its unique financing mechanisms, which leverage public and private grants and loans, PCDC has financed 28 primary care centers to date, representing a total investment of $100 million.

COMMUNITY HEALTH CARE ASSOCIATION OF NEW YORK STATE
CHCANYS is a 30-year old primary care trade association that represents more than 100 Community Health Centers and affiliated organizations across the State providing primary care to some 1.5 million New Yorkers. CHCANYS provides technical workshops, education and training services, and advocacy at both the State and national levels on behalf of its members. CHCANYS also undertakes promotional, public relations, and media work that benefits its members.

© 2001 Primary Care Development Corporation. All Rights Reserved.

Primary Care Development Corporation 291 Broadway, 17th Floor New York, New York 10007 Telephone: 212-693-1850 Fax: 212-693-1860 Web: www.pcdcnyc.org

Cover design by: DGMC Marketing Communications, Inc.

Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers

TABLE OF CONTENTS

ACKNOWLEDGEMENTS............................................................................ii I. II. EXECUTIVE SUMMARY ......................................................................1 INTRODUCTION...................................................................................2

III. FINDINGS.............................................................................................6 A. Capital Need Overview..................................................................6 B. Main Sites & Satellites ..................................................................9 C. Geographic Distribution .............................................................11 D. Age of Facilities...........................................................................12 E. Capital Priorities ..........................................................................15 F. Funding Sources..........................................................................17 IV. FINANCIAL CONDITION ...................................................................18 V. TOWARD A SOLUTION .....................................................................20

APPENDICES APPENDIX A – S URVEY QUESTIONNAIRE APPENDIX B – S URVEY RESPONDENTS

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ACKNOWLEDGEMENTS
The Primary Care Development Corporation (PCDC) and the Community Health Care Association of New York State (CHCANYS) thank all who participated in the preparation, distribution, and analysis of the capital needs survey. We would especially like to thank the health centers, not only for responding to the survey, but also for taking the time to provide us with a clearer picture of their needs and the obstacles they face in trying to access capital. We would also like to thank The Osborne Group and the United Hospital Fund (UHF). The Osborne Group was retained by PCDC to collect and wade through the data to create a thorough and consistent database. They also assisted in analyzing, testing and compiling the results, and wrote portions of this report. UHF compiled and analyzed information on the financial condition of Community Health Centers, and this report incorporates relevant findings from UHF’s work. Thanks are also due to the staff members of and advisors to PCDC and CHCANYS for their invaluable insight and support.

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I. EXECUTIVE SUMMARY
New Yorkers in underserved communities throughout the State depend on Community Health Centers for primary and preventive health care. The role of these centers grows more important as Medicaid managed care, Child Health Plus and Families Health Plus are implemented. Many Community Health Centers face serious capital needs. To assess the extent of that need, PCDC and CHCANYS surveyed 40 Community Health Centers throughout the State concerning the state of their facilities. The 40 entities reported on 114 health center sites providing 2.8 million patient visits per year. The principal findings from the capital needs survey are: 1. Two-thirds (65%) of the health center organizations provide services in facilities with critical capital needs. These centers are urban and rural and located throughout New York State, including New York City, Buffalo, Rochester, Syracuse, Utica, the Capital Region, the Hudson River Valley, Westchester and the Adirondacks. Larger sites, serving the most patients, tend to be in the worst condition. These health centers are typically overcrowded, often operating in retrofitted, inefficient space in need of modernization. Many face issues of compliance with current codes governing handicapped access, fire safety and patient privacy. Health centers’ Statewide capital needs total $90 million.

2.

3. 4.

5.

An analysis undertaken by the United Hospital Fund has documented a volatility in the financial condition of Community Health Centers that impairs their access to conventional loans in amounts that could pay for the needed level of capital improvements. Based on the level of need and the centers’ financial status, PCDC and CHCANYS have proposed that: The State should establish a Community Health Center Capital Program, funded with a $25 million appropriation, and requiring a dollar-for-dollar match from other sources. This measure offers a reasonable, achievable and substantial step toward creating a modern, efficient and effective Community Health Center infrastructure. With the required match, the State appropriation will be leveraged to meet $50 million or more of the demonstrated need. To sustain and upgrade this vital link in the primary and managed care delivery system, this investment is a wise one and is needed now. 1

Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers

II. INTRODUCTION New York’s Reliance on Community Health Centers
Community Health Centers play a major role in providing quality health care to residents of New York’s low-income and medically underserved populations. They are a particularly important source of preventive and primary care for Medicaid, uninsured and under-insured populations. Though located in diverse communities, health center patients across the State share many characteristics. They are predominantly young, with a large portion being mothers and children. They are predominantly poor. Many are on Medicaid, but increasingly they are working families without insurance. Almost universally, their health problems are worse than the general population. Urban and rural communities throughout New York State have fully endorsed the Community Health Center concept, leading to the creation of dozens of facilities. Many of these health centers were constructed 25 to 30 years ago. Since then many have become antiquated, overcrowded or both. Although Community Health Centers have long provided essential services, they have gained added prominence in recent years as a vital component of the State’s strategy to improve health care access and continuity while containing costs via managed care. Health centers are well suited to this role. They provide a comprehensive array of services, and they enable patients to surmount barriers that often shut them out from other providers, such as inability to pay, geographic isolation, cultural and linguistic differences, and immigration status. In addition to the care they provide, Community Health Centers are a significant force for local economic development. Recruiting from their local communities, New York’s Community Health Centers have created more than 20,000 jobs with a collective payroll of $250 million. ‡ They also strengthen and anchor communities’ physical infrastructure.

Need for Renewed Investment in Health Center Facilities
As New York moves forward in implementing managed care programs for Medicaid, Child Health Plus and Family Health Plus enrollees, preserving and strengthening all sectors of the State’s primary care delivery system is crucial. Community Health Centers, which are organized in New York as Article 28 not-for-profit corporations, generally lack access to the conventional capital markets that could provide a source of financing for facility improvements. This lack of access
‡ Community Health Care Association of New York State, 1997.

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to capital results from the health centers’ narrow budgetary margins and lack of financial reserves, which are a direct result of their commitment to treating patients regardless of insurance status or ability to pay for services. This combination of aging facilities and limited access to conventional financing suggests that Community Health Centers face an ever-growing need to modernize and upgrade their facilities, with little means of accomplishing the task. PCDC was created to address this very need, and its programs have resulted in $100 million in investment in 28 health centers in New York City since 1994. PCDC does not, however, operate outside New York City, nor is there a PCDC-equivalent for the rest of the State. In addition, PCDC has found that its programs cannot reach some of the City’s largest, and therefore most important, freestanding health centers. As described further in this report, that is due to the magnitude of these centers’ capital needs and to the volatility of their current financial situation, which makes even PCDC’s low-cost financing inaccessible for the foreseeable future.

Survey Purpose
To determine the extent of the capital needs of the State’s Community Health Centers, and to help form a basis for addressing that need, PCDC, in conjunction with the CHCANYS, distributed a capital needs survey to all federally-designated comprehensive Community Health Centers ‡ in New York State, as well as to those CHCANYS member organizations that provide similar services to a similar clientele, but lack the federal designation. The survey was specifically designed to assess:
s s

The age and condition of existing medical facilities; and The current capital needs of health centers, whether for modernization, expansion, equipment or other needs.

The Osborne Group, a consulting firm with extensive experience working with Community Health Centers, was retained to collect and analyze the responses received.

Federally Qualified Health Centers (FQHCs) and FQHC look-alikes. FQHCs are those health centers that receive federal funds to help offset the cost of medical services provided to the uninsured. Lookalikes are health centers that do not receive these federal funds, but are formally recognized by the Public Health Service as providing similar services to a similar clientele.

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The Need to Rebuild New York’s Community Health Centers

Survey Process
PCDC distributed the survey questionnaire‡ in the Fall of 2000. It was based primarily on models used in recent years in several different states to assess capital needs of the community health sector. PCDC and the Osborne Group collected responses into January of 2001. The Osborne Group collated and analyzed the information, and followed up with respondents for clarification and to ensure consistency.

Respondents
The response rate was excellent. Forty health center organizations responded to the questionnaire, including virtually all major Community Health Centers in New York State. Respondents include 84% (36 of 43) of the federally-designated Community Health Centers in the State, and four additional full-service Community Health Centers. The geographic distribution of the respondents is shown in the map below.

See Appendix A, the Survey Questionnaire

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The Need to Rebuild New York’s Community Health Centers

The 40 respondents provided data for a total of 114 sites that accommodate 2.8 million billable patient visits per year. Represented are large, small, urban, and rural centers located throughout the State. Eighteen respondents are located in New York City (denoted in the report as “Downstate”) and 22 are located throughout the rest of the State (denoted as “Upstate”). There are no Community Health Centers on Long Island. Patient visits are evenly divided between the Upstate and Downstate respondents.

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The Need to Rebuild New York’s Community Health Centers

III. FINDINGS
The principal findings of the survey regarding the extent of health centers’ capital needs Statewide are included in the first subsection (Capital Need Overview, below) of this “Findings” section. The subsections that follow include additional information and findings that provide a more complete picture of the status of Community Health Centers. Those subsections are:
s s s s s

Main Sites & Satellites Geographic Distribution Age of Facilities Capital Priorities Funding Sources

Please note that information in this report is typically presented using either Community Health Center entities or individual sites as the basis of analysis. An entity may operate one or more sites. Although this distinction can be confusing at times, it is important given the vast variation in the size and significance of individual sites – with some providing as few as 1,000 patient visits annually, while others provide over 150,000 patient visits.

A.
1.

Capital Need Overview
Two-thirds (65%) of the health center organizations provide services in facilities with critical capital needs.

Twenty-six of the 40 respondents (65%) provide services in facilities with critical capital requirements. These 26 include 20 entities (50%) reporting facilities in poor condition and an overlapping 21 entities reporting an urgent need for physical expansion at one or more sites. During follow-up conversations, respondents indicated that their needs were typically driven by such priorities as:
s

Modernizing facilities that have become outmoded due to age or were never properly configured for primary care delivery; Achieving and maintaining compliance with current code standards for handicapped accessibility, fire safety, patient privacy and other matters; and Relieving facility overcrowding.

s

s

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The Need to Rebuild New York’s Community Health Centers

A few examples illustrate the critical facility improvement needs of the respondents: a. A Downstate health center provides services out of a 1950’s-era Health Department station, the design of which anticipated neither the kind nor the volume of care being provided at the health center today. The three-story structure has never been substantially renovated, has no elevator and has become extremely constricted as patient volume has grown and needed services have been shoehorned into all available space. In an atmosphere reminiscent of a discount warehouse, patients are greeted by corridors lined with old lockers, storage boxes and file cabinets. b. An Upstate rural health center, providing 45,000 patient visits annually in a 26year old facility, has been forced by patient demand to convert its physician offices into exam rooms and to add a trailer for administrative uses. The facility is not handicapped-accessible and has no sprinkler system. The health center must make a $1.6 million capital investment to meet the growing service demand and to remedy both patient and staff safety concerns for which it has been cited by the New York State Department of Health. c. A Downstate health center operates out of a two-story windowless former factory building that has not been substantially renovated since the center took occupancy in 1967. It has a deteriorated and visually unappealing façade, no elevator, and, although the center handles 30,000 visits annually, portions of the facility have been placed off-limits to patients. 2. Facilities in poor condition tend to be the main, larger sites serving the most patients.

The 114 sites operated by the 40 respondents fall into two categories – main sites and satellites – based on the volume of care delivered at each site. The main sites in the survey each average 44,600 patient visits per year, whereas the satellite sites average only 7,800 visits each. Main sites are far more likely than satellites to be in poor condition. 85% of the health center entities (17 of 20) reporting that they operate facilities in unacceptable or barely acceptable condition have a main site in such condition. An example illustrates this situation: An Upstate health center organization provides 170,000 patient visits annually at four sites, including 140,000 at its main site. The 66,000 square foot main site is housed in a building that was not constructed as a medical facility. Since occupying the building 22 years ago, the center has undertaken modest, piecemeal renovations to accommodate service additions and patient volume increases. Since it has never had the funds for a complete overhaul, the center is

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now quite inadequate. The layout is extremely inefficient, facilities and equipment are outdated, and treatment space is insufficient to meet the still-growing demand. To continue providing care to the uninsured, the center must also maintain a satisfied base of paying patients. The center’s unattractive and dated main facility therefore jeopardizes its viability. The differentiations between main sites and satellites are examined below in more detail (see subsection IIIB, Main Sites & Satellites). 3. Health centers’ capital needs total $90 million Statewide.

The aggregate cost of capital needs identified by the survey – i.e., renovating, expanding and equipping facilities – is estimated at $90 million. This figure appears reasonable, if not conservative, based on tests using industry standards (discussed further in Section IIIE, Capital Priorities).

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The Need to Rebuild New York’s Community Health Centers

B. Main Sites & Satellites
Health centers vary greatly in size, measured both by patient volume and by the physical size of facilities. The largest centers handle more than 150,000 patient appointments (“visits”) annually in centers of some 50,000 square feet, while the smallest are single-doctor practices in sites of 1,000 square feet or less. Categorizing facilities into main sites and satellites presents a clearer picture of the health centers. The 40 respondents to the survey provided data for a total of 114 sites. Using visit volume as the major criterion, PCDC found 54 main sites and 60 satellites. As shown in the table below, the differences between the main sites and the satellites are quite pronounced:

The differences in the physical condition of the main sites and satellites are particularly significant, and can be seen in several different ways. As shown in the chart above, 46% of all main sites exhibit high capital needs (either due to poor physical condition or significant overcrowding) compared with 13% of all satellites. As discussed above in the Capital Need Overview, when looking just at those facilities in unacceptable or barely acceptable condition, 17 of 20 entities reporting facilities in such condition reported so for a main site. While the data above would suggest that an “average” health center consists of one main site and one or two satellite sites, health center organizations actually exhibit three different patterns of facility configuration:
s s

Single-Site entities – which operate only one center; Hub & Spoke Networks – which have one main or “hub” site as well as one or more substantially smaller sites. The hub provides the bulk of the entity’s services and tends to be the locus of the organization’s administrative, social and specialty services; and

This average excludes five sites with no visit volume data.

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Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers

s

Balanced Networks – which lack a single dominant center, and have either multiple larger sites and multiple smaller sites or a series of similarly-sized centers.

The survey respondents fall into these configurations as follows:

Health centers in each configuration pattern exhibit significant capital needs:
s

63% of health centers operating at a single site (10 of 16) report critical capital needs in that facility. 54% of Hub & Spoke Networks (seven of 13 networks) report at least one center with critical capital needs, including five main sites. Hub & Spoke Networks, which range from two sites (one main, one satellite) to ten sites, exhibit an average of three sites (one main and two satellites). 82% of Balanced Networks (nine of 11) have at least one center with critical capital needs. Eight of the networks report a main site with critical needs, including two networks with two main sites having critical needs. The Balanced Networks range from two sites to twelve sites, with an average of six sites, including 2-3 main sites and 3-4 smaller sites.

s

s

This figure excludes eight federally-designated sites operated by these health center entities but for which surveys were not completed.

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Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers

C. Geographic Distribution
Health centers are evenly distributed between Upstate and Downstate regions, with a nearly equal visit volume reported in the survey (see table below). The wide geographic distribution of the centers can be seen on the map on page 3.

Upstate and Downstate centers are similar in many respects, including:
s

Size – Both have a similarly wide array of sizes, with main sites providing as many as 150,000 visits and satellite centers as few as 1,000 visits. The median visit volume is also similar, with an Upstate figure of 14,000 versus a median volume of 14,800 visits Downstate. Configuration – Both have a similar distribution of Single Site, Hub & Spoke and Balanced Network entities. Capital Needs – Upstate and Downstate entities exhibit equally compelling needs. Fourteen Upstate organizations reported facilities with high capital needs (12 main sites), and 12 Downstate organizations reported such conditions (13 main sites).

s

s

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D. Age of Facilities
The typical center has occupied its main site for 20-plus years and its satellites for five years or less. Beyond that finding, additional information on the age of facilities turned out to be inconclusive. In the original design of the survey, age was intended as a rough proxy for physical condition. The survey attempted to measure age in three different ways:
s s s

Site tenure, i.e. the number of years an entity has occupied its site(s); The age of the buildings, since original date of construction; and The number of years since the clinical facilities had last undergone a major renovation.

Site Tenure – Site tenure is sharply differentiated between main sites and satellites. Whereas tenure at main sites, as shown in the chart below, is typically in excess of 20 years, fully half of the satellites have been in place for five years or less. Clearly many Community Health Centers have occupied and operated out of one main site for many years before beginning to establish satellites. In addition, this length of tenure differential is consistent with the far greater incidence of high capital needs found at main sites.

Although far from ideal or conclusive, “years at the site” is probably the best available measure of facility age. It is a figure that is typically not subject to interpretation, and is also generally known by the current management.

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Building Age – Health centers occupy buildings that range in age from one year (newly constructed) to 110 years; the median building age is 28 years. There is little difference in the average age of buildings that are owned versus those that are leased by health center organizations.

Years Since Last Renovation – The survey attempted to ascertain the number of years since each facility underwent a major renovation, i.e., a renovation that produced a fully modern medical facility. Unfortunately, the information gathered is largely inconclusive because the scope and extent of the renovations reported appears to have varied widely. Limitations of these Measures – Each of these measures has limitations as a proxy for the condition of the facility:
s

Site Tenure – The “true” age of the facility can be greater or less than the period of occupancy. “Years at the site” overstates the age of the facility if it has had a subsequent renovation, and understates the age if a health center moved into a facility in “as-is” condition. This latter point needs to be stressed. Typically, businesses move into space that is either new or newly renovated. That is not always the case, however, with Community Health Centers. It is not unusual for a health center to take “fixer-upper” space, sometimes donated, with make-do partial renovations completed from time-to-time during the period of occupancy. Building Age – The age of the building, based on the original date of construction, has an obvious shortcoming in terms of drawing any conclusions about the condition of the health centers since the building could have been fully

s

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Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers

renovated at any point in time. In fact a 100-year old building houses one of the newest health centers in the State. It was fully renovated via the PCDC program and opened as a state of the art facility in 1998.
s

Years Since Last Renovation – Survey responses exhibited many definitions of a “major renovation,” indicating a flaw in framing the survey question. The intended definition was a renovation to create modern, up-to-date medical space. One facility, known by PCDC to be essentially untouched for nearly 50 years, reported a major renovation within the past year. The renovation turned out to be a full roof repair – certainly significant, but having little impact on patient care or satisfaction. Another center based its response on a recent upgrade of its medical records system – again a significant improvement for the organization, but not one that a patient is likely to directly experience as an improved facility. Ultimately, varying interpretations of the meaning of “major renovation” compromised the usefulness of this measure.

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E. Capital Priorities
Health center organizations identified as essential or very important the following needs:
s s s

Renovation – 70% Equipment replacement or improvement – 63% Expansion – 53%

Statewide capital need totals $90 million, based on specific estimates of total costs for anticipated projects provided by 32 of 40 health center organizations. This figure appears reasonable when tested against industry standards, as discussed below. Respondents identified 36 planned renovation or new construction projects. The following bar graph indicates the size, in square feet, of those projects.

The graph shows that health centers’ capital plans are modest, with most projects falling on the smaller end of the scale. More than two-thirds (26 of 36) are renovation rather than new construction. Renovation is typically less expensive than new construction, although it is not always possible or appropriate. To test whether the $90 million estimate of capital needs is reasonable, PCDC applied standard cost figures to two overlapping but different data sets from the survey.

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Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers

Each test provided corroboration for the $90 million figure. The data sets are:
s

s

the set of existing health centers reported in unacceptable or barely acceptable condition, and the set of projects that the respondents identified as “planned” (those in the chart above).

Applying a standard renovation cost (including all design and construction costs) to the set of centers in poor condition, one arrives at a capital need of nearly $70 million. This figure does not account for the equipment and/or expansion needs of all the remaining health centers, which could reasonably total $20 million or more. Using standard renovation and new construction costs, as applicable, for the planned projects, one arrives at a figure of approximately $80 million. To that number one must add equipment and other needs at all other sites around the State. Both tests support the overall capital need figure of $90 million.

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Beyond Bandaids
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F. Funding Sources
Most health centers indicated they intend to rely upon grants and fundraising as the key funding sources for their capital projects: 62% of responding centers named grants alone or in combination with other sources, with the remaining centers split evenly (at 19% each) between internal sources of equity and debt financing.

These responses are consistent with the financial condition of health centers (see Section IV, Financial Condition, below). With little equity to invest and limited capacity to carry debt, health centers must rely upon “free” money. Unfortunately, given the overall lack of available grant funds and the typically low level of fundraising attainable by health centers in low-income communities, this suggests that very few capital improvements will occur any time soon. The example of the following Downstate health center is instructive: For more than ten years, this health center has been planning the relocation of its deteriorated main site. Although the center is among the top tier in the State in terms of financial performance, the major stumbling block preventing relocation has been capital funding. As its operating revenues have been squeezed and its margin for capital has become extremely thin, its ability to take on debt to pay for its capital needs has severely eroded. To compensate, this center has worked hard to raise more than 50% of the funds it needs from government and private foundation grants. Even with the success of its fundraising efforts, the center will still need to supplement this fundraising with long-term debt. The length of time required to raise funds has lost it several siting options. While the center now has an opportunity to construct a new site, this option, too, may be lost if the center is unable to put together a sufficient funding package within a given timeframe. This example is repeated across the State.

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Beyond Bandaids
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IV. FINANCIAL CONDITION
Current financial conditions impair health centers’ access to capital. As medical providers for the uninsured, health centers have traditionally operated with narrow financial margins. However, in transitioning to managed care, health centers are experiencing increasingly volatile finances. As a result, few health centers currently have either the operating surpluses to invest in facility upgrades or the credit profile to borrow money to finance a complete facility renovation, especially at the dollar levels necessary to modernize the older and larger main sites. This problem is exacerbated by the loss of capital reimbursement under managed care. In past years, federal and State grant programs were available for these purposes. These programs have largely been eliminated. Wealthy donors, in the category that often fund museums, hospitals and other major not-for-profit facilities, have never been effectively available for health centers in poor communities. Although the capital needs survey did not investigate the financial capacity of health centers, this factor is essential for understanding and framing solutions to this problem. The United Hospital Fund (UHF) recently analyzed the financial status of health centers in New York State, using cost data submitted to the State for 1996-1998‡. The results reveal a steady erosion of financial health over the three years despite an increase in patient volume. The change in two key financial indicators – current ratio and operating margin – highlights this decline:
s

The current ratio for federally-qualified health centers (FQHCs)‡‡ declined steadily over the three years, and dropped below 1.0 in 1998. The current ratio is a measure of a business’ ability to pay its bills over the coming year and is derived by dividing current assets by current liabilities. The current ratio must be at least 1.0 (i.e. current assets are at least equal to current liabilities) for a sustained period if that business is to remain viable. Over the three years measured, FQHC margins started at zero and declined to negative 0.8%. For other voluntary health centers, margins dropped to negative 2.6%. The operating margin compares revenues from operations to expenses. A positive margin indicates that a business is generating sufficient revenues to pay its bills. A negative margin indicates that the business must use accumulated savings or fundraising to cover on-going expenses. Not-for-profit health care providers in New York typically seek margins of one to two percent.

s

‡‡

UHF published its findings in the Summer 2000 edition of Currents, a quarterly UHF publication. 33 of the 40 respondents to this survey are FQHCs.

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Beyond Bandaids
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The charts below‡ show these trends:

Roughly half the centers had a negative margin in each of the three years of the analysis. More telling, however, is the financial volatility experienced by individual centers. Fully 83% had a negative margin in at least one year, and almost half of the top performers in 1996 were among the lowest performers in 1998. This volatility ensures that health center managers are frequently engaged in crisis management, undermining their ability to undertake and act on long-term planning. The lack of financial predictability also ensures that health centers have virtually no access to conventional capital markets, particularly at the dollar levels required to fully renovate their older and larger main sites.

Charts provide median values for New York State FQHCs based on UHF analysis of AHCF-1 cost reports submitted by 28 FQHCs to New York State Department of Health, 1996 to 1998.

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V. TOWARD A SOLUTION: LEVERAGED GRANT FUNDS
The survey paints a picture of many health centers across the state with older, larger facilities in urgent need of modernization. Because the capital needs of Community Health Centers exceed their financial resources, infrastructure investment, especially in the oldest and largest facilities, has long been delayed. Given their mission and the transition of New York State’s health system, Community Health Centers are unlikely in the short run to achieve the adequacy or predictability of operating revenue necessary for them to finance their own capital needs or successfully access the credit markets. Yet, they remain an increasingly valuable resource to their communities. Several policy options could help address these long-standing capital needs, including enhanced payment for indigent care and the restoration of capital reimbursement under Medicaid managed care. An alternative strategy, that could have a more immediate impact, is to make a measured public investment in New York’s community health infrastructure, thus reducing the portion of capital needs requiring debt financing or dependent on fundraising. Accordingly, PCDC and CHCANYS propose that New York State appropriate $25 million into a Community Health Center Capital Program. For maximum effect, this program should be:
s

Structured as a leveraged grant program, with State funds available only when equally matched by funds from other sources. The certainty of a State grant source, with the incentive provided by the match, would leverage funds from the private philanthropic sector and other levels of government, and do so within the predictable time frames necessary for successful facility development. It would also leverage loan funds to create affordable debt financing. Administered by an impartial intermediary, with targeted underwriting and facility development skills, to assure accountability and the long-term viability of the investment. The intermediary should have the expertise and flexibility to work with the State, the health centers and the various additional funding sources (the match funders) – banks, foundations, local governments and the federal government. Grant funds would be apportioned regionally, with oversight through the New York State Department of Health.

s

The approach of making a limited public investment in New York State’s community health infrastructure is a doable and substantial step toward solving the problem. At $25 million, the State’s commitment will leverage equal commitments from other quarters. A total of $50 million, while meeting roughly half of the total estimated statewide Community Health Center capital need, will be an enormous step forward.

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This approach also builds upon the successful experience of the Primary Care Development Corporation. Established to address this problem in New York City, PCDC’s programs have invested $100 million in the modernization, expansion and creation of 28 new or expanded health centers since 1994. Despite these successes, thinner margins and increased financial volatility mean that a number of large freestanding health centers cannot afford even the low-cost financing available through PCDC programs. In addition, there is no PCDC-equivalent outside of New York City. Accordingly, despite a great deal of progress, the problem of upgrading some of the State’s oldest and largest Community Health Centers remains unresolved. A State-funded $25 million leveraged grant pool offers a responsible, achievable, affordable and badly needed solution. It will be a wise investment in the health of New York State communities and the success of its health system.

***

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Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers Appendix A

Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers Appendix A

Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers Appendix A

Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers Appendix A

Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers Appendix B

Beyond Bandaids
The Need to Rebuild New York’s Community Health Centers Appendix B

© 2001 Primary Care Development Corporation. All Rights Reserved.

Primary Care Development Corporation 291 Broadway, 17th Floor, New York, New York 10007 Telephone: 212-693-1850 Fax: 212-693-1860 Web: www.pcdcnyc.org

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