Why FQHC Designation Is the Most Valuable Status in Community Health
Federally Qualified Health Center status confers a package of statutory benefits that no other designation provides. Understanding what FQHC status actually gives you is the starting point for everything else in this guide. **Enhanced Medicare reimbursement:** FQHCs are paid through a Prospective Payment System at a national base rate of $202.65 per encounter (FY2025). New patients receive a 34% increase (approximately $271.55). Medicare deductible is waived for FQHC services. Rates update annually using the Medicare Economic Index. **Enhanced Medicaid reimbursement:** Medicaid pays FQHCs through an encounter-based PPS established under the Benefits Improvement and Protection Act of 2000. Rates are based on each facility's historical cost structure, adjusted for inflation. The intent is that PPS covers Medicaid patient costs, freeing HRSA grant dollars to support uninsured and underinsured care. **Free malpractice coverage:** Section 330 grantees can apply for Federal Tort Claims Act (FTCA) deeming. Once deemed, the FQHC and its providers are treated as federal employees for malpractice purposes. The federal government defends and pays judgments. This eliminates the need for commercial malpractice insurance — a savings that can exceed $200,000 per year for a rural health center. **340B Drug Pricing:** FQHCs purchase outpatient drugs at 25-50% below market price. The spread between the purchase price and insurance reimbursement generates program revenue that must be reinvested in expanding access. For a typical mid-size FQHC ($10-20 million in revenue), 340B generates $500,000 to $2 million or more in annual savings. See the 340B section below for current threats to this program. **Sliding fee schedule requirement:** FQHCs must serve all patients regardless of ability to pay, using income-based sliding fees. Patients at 100% of the Federal Poverty Level pay nothing.
Section 330: How the Core Grant Works
The HRSA Health Center Program, authorized under Section 330 of the Public Health Service Act, is funded through two streams. **Mandatory funding (Community Health Center Fund):** $4.6 billion for FY2026, authorized by the Consolidated Appropriations Act, 2024. According to NACHC, this is a significant increase to the CHCF and provides approximately 70% of total federal grant funding to health centers. **Discretionary funding:** Approximately 30% of total federal grant funding. A full-year FY2026 discretionary appropriations bill has not been enacted as of February 2026; a continuing resolution funded programs at FY2025 rates through March 2026. Check congress.gov for the latest appropriations status. **National scope:** Approximately 1,400 HRSA-funded health centers operate at more than 16,200 service sites, serving 32.4 million patients through 139.4 million visits in 2024. They employ 326,000 people. 90% of patients have incomes at or below 200% of FPL. 1 in 5 rural residents receives care at an HRSA-funded health center. **How grants are awarded:** New organizations enter through **New Access Points (NAP)** competitions. The most recent cycle (HRSA-25-085) offered up to $650,000 per award to 77 organizations. However, HRSA stated NAP awards are contingent on Congress appropriating additional targeted funding. No additional NAP funding has been confirmed for FY2026. Existing grants are recompeted through the **Service Area Competition (SAC)** every 3 years. An incumbent health center must reapply to keep its award — there is no automatic renewal. Challengers can win the service area. In August 2025, HRSA began transitioning grantees from 3-year to 4-year performance periods, extending approximately 194 health centers with roughly $828 million in non-competitive extensions. **Revenue context:** Section 330 grants represent approximately 10% of total health center revenue. Medicaid provides approximately 42%. The rest comes from Medicare, private insurance, and other sources. This means Medicaid policy changes are a larger financial threat than grant-level changes.
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How to Become an FQHC
There are two pathways: full Section 330 grantee status and FQHC Look-Alike designation. **Section 330 Grantee requirements:** 1. Serve a federally designated Medically Underserved Area (MUA) or Medically Underserved Population (MUP) 2. Governed by a consumer majority board (at least 51% must be patients) 3. Provide comprehensive services: primary medical, dental, mental health, and pharmacy (directly or through formal arrangements) 4. Use a sliding fee schedule for patients up to 200% FPL 5. Implement a formal quality improvement program 6. Open at least 40 hours per week 7. Comply with federal accounting, audit, and Uniform Data System reporting To receive a Section 330 grant, you must apply during an active NAP or SAC cycle. There is no continuous application window. **FQHC Look-Alike (LAL) pathway:** Meets all the same requirements but does not receive Section 330 grant funds. Look-Alikes still get Medicare PPS, Medicaid PPS, 340B eligibility, and NHSC site eligibility. The major gap: **no FTCA malpractice coverage** — Look-Alikes must purchase commercial insurance. **Realistic timeline:** 3-12 months of pre-application preparation (governance, board composition, policies, financial systems). After submission: 30 days for HRSA preliminary review, 60-90 days to schedule a site visit, 60-75 days for HRSA to complete the compliance review, 30 days for your response to additional information requests, 30-45 days for final decision. **Total: 12-24 months from decision to designation.** **Current FQHC count:** Approximately 1,400 Section 330 grantees and 200-300 Look-Alikes, totaling roughly 1,600-1,700 organizations in the Health Center Program.
The $50 Billion Rural Health Transformation Program
CMS announced this program on December 29, 2025, and awarded funds to all 50 states. It is funded at **$10 billion per year for 5 years** through 2030. **Funding formula:** - 50% distributed equally to all states ($100 million baseline per state per year) - 50% distributed by rural health needs and proposed impact Year 1 awards range from $147 million (New Jersey) to $281 million (Texas), with an average of approximately $200 million per state. States applied between September 15 and November 5, 2025. All 50 submitted applications and all 50 received awards. Applications required collaboration with state health departments, Medicaid agencies, rural health offices, and tribal affairs offices. **Eligible uses:** 1. Expanding access to primary care, specialty care, and behavioral health 2. Modernizing rural facilities and health information technology 3. Strengthening the rural clinical workforce 4. Implementing new care delivery and payment models **Eligible providers:** Rural hospitals (including Critical Access Hospitals), FQHCs and Look-Alikes, Rural Health Clinics, skilled nursing facilities, telehealth infrastructure, rural emergency hospitals, and workforce programs. **The critical detail for health centers:** This is a state-administered program. Organizations apply to their state, not to CMS directly. Each state is developing its own distribution plan and will issue sub-grants through state-level RFPs. Track your state's implementation through your State Office of Rural Health. For organizations in rural areas that serve agricultural communities, see also our USDA grants guide.
340B: The Sustainability Mechanism Under Threat
The 340B Drug Pricing Program requires manufacturers participating in Medicaid to sell outpatient drugs to covered entities (including all FQHCs and Look-Alikes) at 25-50% below market price. The financial mechanism: 1. FQHC purchases drug at 340B price (e.g., $10 for a drug costing $100 at market) 2. FQHC dispenses the drug and bills the patient's insurance at standard reimbursement rates 3. The spread between purchase price and reimbursement becomes program revenue 4. Revenue must be reinvested in services that expand patient access **Scale:** The 340B program saves safety-net providers an estimated $6 billion annually. FQHCs account for approximately $2.4 billion in 340B purchases and 22% of all participating facilities. **Current threats (February 2026):** - **Eli Lilly's data demand:** According to 340B Health, starting February 1, 2026, Eli Lilly requires covered entities to submit pharmacy and medical claims data to verify 340B eligibility, creating new administrative burden. - **Rebate model blocked:** HHS approved a pilot allowing manufacturers to offer 340B discounts as backend rebates instead of upfront discounts. On February 10, 2026, a federal court in Maine vacated and remanded the pilot, blocking implementation. - **Proposed oversight transfer:** The FY2026 HHS budget proposal would move 340B oversight from HRSA to CMS, representing a fundamental shift in regulatory approach. - **Manufacturer restrictions:** AstraZeneca, Sanofi, Eli Lilly, and Johnson & Johnson have attempted to limit contract pharmacy arrangements. Courts have generally sided with covered entities. 340B is critically important to health center financial sustainability, but the program is under active legal and regulatory challenge. Organizations should monitor the 340B Health association (340bhealth.org) for updates.
HRSA Rural Health Grants
HRSA funds several rural health programs separate from Section 330. **Rural Health Care Services Outreach Grant Program:** The FY2025 round (HRSA-25-038) awarded over $15 million to 58 organizations. Requires a consortium of 3+ healthcare providers. Two tracks: Regular Outreach and Healthy Rural Hometown Initiative. 4-year performance period. The most recent deadline was January 27, 2025; watch for HRSA-26-038. **Rural Health Network Development Program:** Supports formal networks of rural providers to strengthen infrastructure and coordination. Open to public or private, nonprofit or for-profit entities. **Small Health Care Provider Quality Improvement:** Approximately $6.4 million per cycle, up to $200,000 per award to approximately 40 organizations. For rural public or nonprofit providers including Critical Access Hospitals and Rural Health Clinics. Rural health grants typically open on 18-24 month cycles. Monitor grants.gov and hrsa.gov/rural-health/grants for new opportunities. **NHSC Loan Repayment as a Recruitment Tool:** The National Health Service Corps provides tax-free loan repayment to providers serving at HPSA-designated sites. FQHCs are automatic NHSC-approved sites. Current programs (applications open through March 31, 2026 as of February 2026): | Program | Full-Time Award | Commitment | |---|---|---| | Standard NHSC LRP | Up to $75,000 | 2 years | | Rural Community LRP | Up to $105,000 | 3 years | | Students to Service | Up to $120,000 | 4 years | | SUD Workforce LRP | Up to $80,000 | 2 years | For organizations struggling with provider recruitment, NHSC eligibility is one of the most powerful benefits of FQHC designation.
DOGE, HHS Restructuring, and What It Means
The Health Center Program faces several concurrent disruptions. **HHS restructuring:** HRSA is being merged into a new agency called the Administration for a Healthy America (AHA), which will also absorb SAMHSA, OASH, ATSDR, and NIOSH. HRSA is not being eliminated — it is being reorganized. The broader restructuring is expected to reduce HHS from approximately 82,000 to 62,000 FTEs, according to HHS statements. **February 2025 funding freeze:** Health centers were caught in a temporary domestic grant funding freeze. Multiple centers reported financial stress; some cut staff or reduced hours. The freeze was short-lived but exposed cash-flow fragility. **$11.4 billion grant rescission:** HHS rescinded COVID-era and public health grants. Courts blocked portions of the clawback. This did not directly target Section 330 funds but affected adjacent programs. **Medicaid threat (most significant):** The administration's proposed budget includes significant Medicaid cuts. Since Medicaid represents approximately 42% of health center revenues, any structural Medicaid changes (block grants, per-capita caps, work requirements) would affect health centers far more than changes to the Section 330 grant itself. The Section 330 program has strong statutory protection through multi-year mandatory appropriations. But the support infrastructure around it — HRSA technical assistance, staffing capacity, and operational guidance — is being reduced. Organizations should build compliance capacity internally rather than depending on HRSA consultation being available at previous levels. For broader context on federal funding disruptions, see our DOGE tracker. For help preparing grant applications, see our grant proposal guide. For behavioral health integration funding, look into the SAMHSA Certified Community Behavioral Health Clinic (CCBHC) model, which provides $94 million in FY2026 improvement grants (expected 94 awards, posted approximately March 31, 2026).
Shortage Designations: HPSA and MUA/MUP
Shortage designations determine eligibility for Section 330 grants, NHSC placements, Medicare bonus payments, and other programs. **Health Professional Shortage Areas (HPSAs)** designate geographic areas, populations, or facilities with insufficient primary care access. HPSAs are scored 0-25, with higher scores indicating greater severity. The score factors in provider-to-population ratio, poverty rate, percentage of residents age 65+, and travel time to non-shortage care. HPSA score directly affects NHSC loan repayment priority and Medicare provides a 10% bonus for primary care in primary care HPSAs. **Medically Underserved Areas (MUAs)** use the Index of Medical Underservice, a composite score on a 0-100 scale. An IMU of 62.0 or below qualifies for MUA designation. Components: physician-to-population ratio, poverty rate, age 65+ population, and infant mortality rate. MUA designation is required for Section 330 eligibility. **How to check your area:** Visit data.hrsa.gov for interactive maps and search tools. Contact your State Primary Care Office (PCO) — they manage the nomination process and provide technical assistance. Organizations serving tribal communities should also review our tribal grants guide. For HHS programs beyond the Health Center Program, see our HHS grants guide. Every state has a PCO, typically housed within the state health department. Find yours at bhw.hrsa.gov. If your area is not currently designated but likely qualifies, your State PCO can assist with submitting a designation request. HRSA updates designations on a rolling basis.