These sales enabled Genesis to be profitable at $19 million in 2021 on revenue of $52 million (37% margin), according to audited financial statements. It was the fourth straight year he had a center surplus above his 35%, according to records. The industry average is 5%, according to a federally funded report on medical center financial performance.
Genesis believes it is profitable thanks to a strong management team, and says it needs funding to expand and modernize its services while reducing its reliance on government funding. . The center benefits financially through government drug discount programs.
Still, Genesis’ hefty surplus stands out among federally accredited nonprofit health centers and is a cornerstone of the nation’s safety net for treating the poor.
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2021, The federal government has poured more than $6 billion [nachc.org] Basic financial assistance to 1,375 centers nationwide providing primary care to more than 30 million low-income people. That same year, the American Rescue Plan provided an additional $6 billion over two years to treat COVID-19.
These community health centers must admit all patients, regardless of their ability to pay, and in return receive annual government subsidies and higher reimbursement rates from Medicaid and Medicare than private physicians. increase.
KHN’s analysis found that a small number of centers posted surpluses of 20% or more in at least three of the last four years. Health policy experts say the surplus alone shouldn’t cause concern when medical centers plan to use the funds for their patients. But high profit margins suggest a need for federal scrutiny of the industry and whether that money is being spent fast enough, he adds.
“No one is tracking where their money goes,” said Garnisher Davlyatov, an assistant professor at the University of Oklahoma who studies medical center finance.
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The Federal Office of Health Resources Services, which regulates the centers, has limited authority under federal law over how much the centers spend on services and how surplus funds are used, said deputy administrator James McRae. .
The purpose of federal funding is to help clinics meet the health needs of many of the country’s poorest.
“The expectation is that they will take the profit and re-use it to run the center,” he said. what are they doing with those resources,” he said.
But Ge Bai, a professor of accounting and health at Johns Hopkins University, questions why some centers are consistently posting surpluses of 20% or more.
The high-margin center questions “where did the surplus money go?” and its tax-free status. “The center must provide sufficient benefits to warrant exemption from public taxes. [surpluses],” she said.
Bai said the center must be able to answer the question, “By expanding the range of services, why aren’t we doing more to help our communities?”
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Medical center officials capitalized on their strong surplus, saying the funding would allow them to expand their services without relying on federal funding and help them save for big projects such as building new buildings. defended. They noted that their operations are overseen by a board of directors, of whom at least 51% must be patients, ostensibly to ensure that operations meet the needs of the community.
“Health centers are expected to have operating reserves to be financially sustainable,” said Ben Money, senior vice president of the National Association of Community Health Centers. A surplus is necessary “so long as medical centers plan to use the money to help patients,” he said.
Some center officials noted that the large donations allocated to construction projects could distort the ultimate profit margin. Grants and donations show up as income for a given year, while project costs are allocated to the financial statements over longer periods (often decades).
Annual federal grants to centers account for about 20% of that funding on average, according to HRSA. Grants have more than doubled for him over the past decade. Federal grants to centers are based on complex formulas that consider service needs in the community and whether the clinic provides care to specific populations such as the homeless, farmers, or residents. Offered annually on a competitive basis. of public housing.
The center also receives Medicare and Medicaid reimbursement, which could be as much as double what federal programs pay private doctors, according to Jeffrey Allen, a partner at consulting firm Forbis.
Additionally, some health centers like Genesis also benefit from the 340B federal drug discount program. This allows you to purchase medicines from manufacturers at heavily discounted rates. The patient’s insurance company usually pays the center a higher rate, and the clinic covers the difference. Clinics can reduce patient out-of-pocket costs, but are not required to do so.
For that analysis, KHN began with a survey by Davlyatov using the centers’ tax returns to the IRS to identify the 20 centers with the highest profit margins in 2019. After that, KHN found 9 cases where, in the last 4 years (2018-2021), he had margins of 20% or more for at least 3 years.
North Mississippi Primary Health Care is one of them.
Christina Nunnally, Chief Quality Officer for the Center said: In 2021, the center’s revenue was her $36 million, with a surplus of about $9 million. More than $25 million of her earnings came from selling pharmaceuticals.
Nunnally said the center is building a financial cushion in case the 340B program ends. Pharmaceutical companies have asked for program changes.
The center recently opened a school-based health program, a new dental office, and a nearby county clinic.
“There may come a day when this kind of margin is no longer feasible,” she said. When a center faces tough times, it doesn’t have to “start cutting programs and staff.”
Outside of Los Angeles, Friends of Family Health Center CEO Bahram Bahremand said his profit margins are a result of California’s extensive Medicaid coverage and better management of low-income residents. I was.
The center, which posted a profit margin of over 25% from 2018 to 2020, opened a $1.9 million facility in Ontario last year and purchased a building in La Habra to house its main clinic for $12.3 million. , has plans to expand, he said.
Bahremand added that the center’s focus on having more providers in relatively few locations also keeps administrative costs down.
“We shouldn’t ask, ‘Why are we making so much money?’ We should ask, ‘Why aren’t other clinics making as much profit?'”
Genesis started out as an independent clinic in South Carolina and was sometimes barely able to pay a salary, said Tony Megna, Genesis CEO and General Counsel. Converting to a federally accredited medical center about 10 years ago brought federal funding and a stronger foundation. From 2018 to 2021 he posted a surplus of over $65 million.
Katie Noyes, Chief Special Projects Officer, Genesis, said:
The center is spending $50 million to renovate and expand its aging facilities, Megna said. In Darlington, a $20 million new building he plans to open in 2023 will more than double the space in his facility. And its strong earnings will allow the center to pay every worker at least $15.45 an hour. That’s more than double her state minimum wage. , He said.
Meghna received about $877,000 in salary and bonuses in 2021, according to Genesis’ latest IRS tax return. This is almost four times the industry average.
In a memo to KHN, incoming chairman of the Genesis board of directors, David Corry, said in a memo to KHN that Meghna was inadvertently underpaid for years, and some of that compensation was compensated. “We decided early on that offering Meghna a ‘average’ compensation like his CEO of his other FQHCs was not what we wanted. Mr. Meghna’s extensive legal experience and knowledge of education, institutions and regulations set him apart from the rest. ”
According to Meghna, his base salary is $503,000.
Financial guarantees provided by the center’s surplus funds have enabled it to provide additional patient services, such as foot care for diabetics, according to Genesis officials. In 2020, Genesis used her $2 million to create an independent foundation to help with her family’s food and utility bills and other needs.
According to audited financial statements, most of Genesis’ revenue comes from the 340B program. Many of the prescriptions given in clinic pharmacies are expensive specialty drugs that treat rare or complex conditions such as cancer.
Meghna, 67, a former bankruptcy attorney, said financial security was essential to keeping the center open for patients.
“We are very careful about how we spend our money,” Meghna said.
KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism on health issues. Along with Policy Analysis and Polling, KHN is one of three major operational programs. KFFMore (Kaiser Family Foundation). KFF is a donated non-profit organization that provides information on health issues to the public.