Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services, including federally qualified health center (FQHC) services as described by federal law. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions.

This bill would require each FQHC to have an annual mission spend ratio, as defined, of no less than 90% and would provide a methodology for calculation of that ratio, as specified, until the State Department of Public Health (department) has adopted a methodology for this purpose, with a goal of implementation of the latter methodology by January 1, 2027. 2028.

By June 30, 2026, 2027, and annually thereafter by June 30, the bill would require each FQHC or its parent corporation to report to the department total revenues collected in a form to be determined by the department. The bill would require each report to include, among other things, one of certain Internal Revenue Service (IRS) forms. The bill would require each FQHC to submit an annual registration fee in an amount to be determined by the department and adjusted as necessary to fund these provisions. The bill would require the department to calculate and prepare a report of each FQHCs mission spend ratio no later than 90 days after the deadline for receipt of each FQHCs submission, and to transmit the report to the State Department of Health Care Services. submission. The bill would require the department to conduct an audit of the financial information reported by FQHCs every 3 years, as specified.

This bill would impose penalties for failure of an FQHC to comply with the above-described reporting and mission spend ratio requirements, including an administrative fine of $5,000 for a first violation and $10,000 for each subsequent month that an FQHC fails to submit an annual report. The bill would require those penalties to be deposited into the Mission Spend Ratio Penalty Account, which would be subject to appropriation by the Legislature, within the Special Deposit Fund.

This bill would authorize an FQHC to apply to the department for a waiver, for a term of one year from the date of issuance, to provide waiver providing a temporary pause of the above-described reporting and mission spend ratio requirements or for an alternative mission spend ratio requirement on the basis of unexpected or exceptional circumstances or the FQHCs economic condition. The bill would provide that a waiver or alternative mission spend ratio is for a term of one calendar year. The bill would prescribe various types of information to be reported by an FQHC to obtain a waiver. waiver or alternative mission spend ratio. The bill would authorize the department to provide an alternative mission spend ratio to an FQHC to adjust, exclude, or otherwise account for imminently planned capital improvement, as specified, if the assessed penalty will result in the inability for the planned capital improvement to move forward during the next calendar year. The bill would authorize an FQHC to apply to renew a waiver or alternative mission spend ratio at any time no fewer than 180 days before the expiration of the existing waiver. waiver or alternative mission spend ratio.

This bill would make its provisions inapplicable to an FQHC or FQHC look-alike that is owned or operated by a political subdivision of the state or by a tribe or tribal organization or urban Indian organization receiving certain federal funding, as specified, or to an FQHC or FQHC look-alike participating in a bona fide labor-management cooperation committee.

The bill would require the department to adopt all regulations necessary to implement these provisions and would authorize the department to implement, interpret, or make specific these provisions, in whole or in part, by means of information notices, all-county letters, or other similar instructions without taking regulatory action. The bill would make its provisions severable. The bill would define various terms for purposes of these provisions.

Existing law establishes the Medi-Cal program, which is administered by the State Department of Health Care Services and under which qualified low-income individuals receive health care services, including federally qualified health center (FQHC) services as described by federal law. The Medi-Cal program is, in part, governed and funded by federal Medicaid program provisions.

This bill would require each FQHC to have an annual mission spend ratio, as defined, of no less than 90% and would provide a methodology for calculation of that ratio, as specified, until the State Department of Public Health (department) has adopted a methodology for this purpose. The bill would require the department to adopt that methodology, as specified, sufficient for implementation by January 1, 2027. By purpose, with a goal of implementation of the latter methodology by January 1, 2027.

By June 30, 2026, and annually thereafter by June 30, the bill would require each FQHC or its parent corporation to report to the department total revenues collected in a form to be determined by the department. The bill would require each report to include, among other things, the FQHC or parent corporations filed Internal Revenue Service (IRS) Form 990, 990-PF, 990-EZ, or 1120, from the most recent taxable year, as specified. one of certain Internal Revenue Service (IRS) forms. The bill would require each FQHC to submit an annual registration fee in an amount to be determined by the department and adjusted as necessary to fund these provisions. The bill would require the department to calculate and prepare a report of each FQHCs mission spend ratio no later than 90 days after the deadline for receipt of each FQHCs submission, and to transmit the report to the State Department of Health Care Services. The bill would require the department to conduct an audit of the financial information reported by FQHCs every 3 years, in a manner and form prescribed by the department, as specified.

This bill would prescribe various fines impose penalties for failure of an FQHC to comply with the above-described reporting and mission spend ratio requirements, including an administrative fine imposed by the department of $5,000 for a first violation and $10,000 for each subsequent month that an FQHC fails to submit an annual report. The bill would require those penalties to be deposited into the Mission Spend Ratio Penalty Account, which is would be subject to appropriation by the Legislature, within the Special Deposit Fund. If

If an FQHC disputes a determination or assessment, the bill would require the FQHC to simultaneously submit a request for appeal to both the department and the State Department of Health Care Services within 30 days of the FQHCs receipt of the determination or assessment, as specified. The bill would require the department to submit, among other things, its responsive arguments submit its responsive arguments and all supporting documents to the FQHC and the State Department of Health Care Services within 30 days of the departments receipt of the FQHCs request for appeal. The bill would require the State Department of Health Care Services to hear a timely appeal and issue a decision, as prescribed. specified.

This bill would authorize an FQHC to apply to the department for a waiver, for a term of one year from the date of issuance, to provide a temporary pause of the above-described reporting and mission spend ratio requirements or for an alternative mission spend ratio requirement on the basis of unexpected or exceptional circumstances or the FQHCs economic condition. The bill would prescribe various types of information to be reported by an FQHC to obtain a waiver. The bill would authorize an FQHC to apply to renew a waiver at any time no fewer than 180 days before the expiration of the existing waiver.

This bill would exempt an FQHC participating in a bona fide labor-management cooperation committee from the above-described requirements. The make its provisions inapplicable to an FQHC or FQHC look-alike that is owned or operated by a political subdivision of the state or by a tribe or tribal organization receiving certain federal funding, as specified, or to an FQHC or FQHC look-alike participating in a bona fide labor-management cooperation committee.

The bill would require the department to adopt all regulations necessary to implement these provisions and would authorize the department to implement, interpret, or make specific these provisions, in whole or in part, by means of information notices, all-county letters, or other similar instructions without taking regulatory action. The bill would make its provisions severable. The bill would define various terms for purposes of these provisions.

Existing law establishes the State Department of Public Health (department) to implement various programs throughout the state relating to public health and requires the department and the Office of Emergency Services, in coordination with other state agencies, to establish a personal protective equipment stockpile. Existing law also establishes the Personal Protective Equipment Advisory Committee (committee), consisting of representatives of various industries, as prescribed, to make recommendations to the department for the development of guidelines for the procurement, management, and distribution of PPE, as specified. Existing law requires the Director of Emergency Services to appoint the representatives that make up the committee.

This bill would instead require the State Public Health Officer to appoint representatives to the committee.

Date of Hearing: May 21, 2025

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 1113

Author:(Mark González) – As Amended Ver:May 5, 2025

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires every federally qualified health center (FQHC) to have an “annual mission spend ratio” of no less than 90%. The bill requires the California Department of Public Health (CDPH) adopt a methodology for this purpose, for implementation by January 1, 2027. This bill provides a methodology for an FQHC to calculate its mission spend ratio until CDPH adopts a methodology.

This bill also:

1. Requires an FQHC, by June 30, 2026, and annually thereafter, to report total revenues and the portion of revenues spent on mission-directed expenses in a form to be determined by CDPH.
2. Requires CDPH to enforce the bill with fines, and requires the Department of Health Care Services (DHCS) to hear and ajdudicate appeals of CDPH’s enforcement actions.
3. Exempts certain clinics, including an FQHC or FQHC look-alike participating in a bona fide labor-management cooperation committee, or that is owned or operated by a local government, University of California, or a tribe or tribal organization.
4. Defines mission spend ratio as the percent of an FQHC’s total revenue from all payer sources in a calendar year expended on expenses associated with activities that further an FQHC’s patient services mission and for which the FQHC was created to conduct.

Please refer to the Assembly Health Committee analysis for a thorough description of this bill’s provisions.

FISCAL EFFECT:

General Fund costs of an unknown amount, potentially in the millions of dollars one-time and in the hundreds of thousands or more annually, for CDPH to establish a new program and regulations, and collect information from FQHCs and conduct enforcement activities. At the time this analysis was prepared, CDPH had not provided a cost estimate.

Additional ongoing General Fund costs of an unknown amount to DHCS to adjudicate appeals between FQHCs and CDPH.

COMMENTS:

1. Purpose. SEIU California is the sponsor of this bill. According to the author:

At a time when many Californians face growing challenges, we must ensure that the institutions responsible for community health are transparent and accountable. AB 1113 affirms the importance of directing resources where they’re needed most—toward patient care and the dedicated workforce that makes it possible.

This bill promotes a standard of stewardship that ensures community clinic funding is aligned with the mission of serving those most in need.

1. Background. FQHCs. FQHCs are federally designated clinics that provide primary care services to serve medically underserved populations. FQHCs must meet specified requirements, including being located in or serving a medically underserved area or population, provide comprehensive primary care services furnished regardless of ability to pay, and governance by a community-based board that meets certain composition requirements.
   
   Medi-Cal reimbursement to FQHCs is governed by state and federal law. FQHCs are reimbursed by Medi-Cal at a predetermined per-visit rate known as the prospective payment system (PPS) rate for services provided by specific providers listed in statute. Each FQHC has a specific Medi-Cal PPS rate for each face-to-face encounter, irrespective of the reason for the visit. For Medi-Cal managed care (MCMC) plan patients, DHCS reimburses FQHCs for the difference between its per-visit PPS rate and the payment made by the plan. This payment is known as a “wrap around” payment.
   
   Each FQHC has a specific Medi-Cal PPS rate for each face-to-face encounter, irrespective of the reason for the visit. For Medi-Cal managed care (MCMC) plan patients, DHCS reimburses FQHCs for the difference between its per-visit PPS rate and the payment made by the plan. This payment is known as a “wrap around” payment. The MCMC wrap-around rate was established to reimburse providers for the difference between their PPS rate and their MCMC reimbursement rate. The rationale for the enhanced reimbursement is to ensure that FQHCs do not use federal grant funds intended for the uninsured and special needs populations to back-fill for potentially below-cost Medicare or Medi-Cal rates.
2. Sponsor. SEIU California states that in many communities—particularly for communities of color, rural populations, and immigrant families—clinic revenue mismanagement can manifest as long wait times, insufficient staffing, or even a lack of access altogether. SEIU contends certain clinic CEOs and executives are irresponsibly spending precious clinic resources on unrelated expenditures. In some cases, serious concerns have been raised regarding the mismanagement of resources. Certain community clinics have been mired in multiple scandals over allegations of false reporting and fraudulent claims, and across the state, many clinic workers report chronic understaffing, high workloads and staffing turnover, and long wait times for patients.
3. Opposition. The California Primary Care Association (CPCA) Advocates opposes this bill, stating it will create harmfully broad restrictions with an unworkable spending mandate on how community health centers and clinics can use resources for patient care. CPCA notes that this bill also creates a duplicative and conflicting regulatory burden on clinics already overseen by numerous federal and state government agencies and will ultimately divert millions from patient care into bureaucracy with uncapped state fees, recurring audits and steep and unnecessary penalties. CPCA argues this bill will harm patients by cutting funding for providers, healthcare services, and infrastructure, disproportionately hurting low-income, rural, and medically underserved patients. CPCA further contends this bill imposes an arbitrary spending requirement on an extremely narrow list of services that ignores real operational needs.

Analysis Prepared by: Allegra Kim / APPR. / (916) 319-2081

Date of Hearing: April 29, 2025

ASSEMBLY COMMITTEE ON HEALTH

Mia Bonta, Chair

ABPCA Bill Id:AB 1113

Author:(Mark González) – As Amended Ver:April 10, 2025

SUBJECT: Federally qualified health centers.

SUMMARY: Requires each federally qualified health center (FQHC) to have an annual “mission spend ratio,” as defined, of no less than 90% and would provide a methodology for calculation of that ratio, as specified, until the Department of Public Health (DPH) has adopted a methodology for this purpose. Requires DPH to adopt that methodology, as specified, sufficient for implementation by January 1, 2027. By June 30, 2026, and annually thereafter by June 30, requires each FQHC or its parent corporation to report to DPH total revenues collected in a form to be determined by DPH. Exempts an FQHC participating in a bona fide labor-management cooperation committee (LMCC) from the requirements of this bill. Specifically, this bill:

1. Requires each FQHC to have an annual “mission spend ratio” of no less than 90%.
2. Specifies that, until DPH has adopted a methodology for this purposes of calculating the mission spend ratio, pursuant to 4) below, an FQHC’s total revenue from all payer sources means the FQHC’s total revenue for the calendar year, calculated consistent with Line 12 of Part I of Internal Revenue Service (IRS) Form 990, as set out in the form and instructions applicable to the 2024 taxable year. (Line 12 of part I of IRS Form 990 is used to provide information on grants and other assistance made by the filing organization during the tax year to domestic organizations, domestic governments, and domestic individuals. The form helps nonprofits keep their tax-exempt status and demonstrate transparency to donors and the IRS.)
3. Requires, until DPH has adopted a methodology for this purpose pursuant to 4) below, for the calculation of the mission spend ratio of each FQHC in the 2026 calendar year, “mission-directed expenses” to be the total program service expenses reported under Line 25 of Column B of Part IX of IRS Form 990, as set out in the form and instructions applicable to the 2024 taxable year.
4. Requires for the calculation of the mission spend ratio of each FQHC in the 2027 calendar year and all subsequent years, DPH to adopt a methodology to determine the expenses associated with activities that further an FQHC’s patient services mission, consistent with this section. Requires, if the department has not adopted a methodology for implementation by January 1, 2027, then the specified methodology to continue to be used until the department has adopted a methodology.
5. Requires, by June 30, 2026, and annually thereafter by June 30, each FQHC or its parent corporation to report total revenues collected from all revenue sources, along with the portion of revenues that are expended on all mission-directed expenses, to DPH in a form to be determined by DPH. Requires each report to include, at a minimum:
   1. The FQHC or parent corporation’s filed IRS Form 990, 990-PF, 990-EZ, or 1120, from the most recent taxable year, with all attachments and schedules as applicable, in the same form as filed with the IRS, along with a list identifying which FQHC’s activities are included in the information on the IRS form.
   2. A copy of the annual report filed for each FQHC with the Department of Health Care Access and Information (HCAI) pursuant to existing state law;
   3. A certification signed by a duly authorized official of the FQHC or its parent corporation that certifies that, to the best of the official’s knowledge and information, each statement and amount in the accompanying report is believed to be true and correct; and,
   4. For any FQHC that is required to prepare an annual financial statement, as specified, certification from an independent certified public accountant that the report submitted has been audited in conformity with generally accepted auditing standards.
6. Requires each FQHC to submit an annual registration fee in an amount to be determined by DPH and adjusted as necessary to fund the activities set forth in this bill.
7. Requires DPH, no later than 90 days after the deadline for receipt of each FQHC’s submission of the report described in 5) above, to calculate the mission spend ratio for each FQHC and prepare a report of the mission spend ratios of every FQHC. Requires DPH to transmit the report to the subunit of the Department of Health Care Services (DHCS) responsible for conducting Change in Scope-of-Service Request (CSOSR) audits.
8. Requires DPH to publish the report of the mission spend ratios of every FQHC on its internet website.
9. Requires DPH to conduct an audit of the financial information reported by FQHCs pursuant to this bill every three years, in a manner and form prescribed by DPH, to ensure the accuracy of the information reported and compliance with the requirements of this section. Authorizes these audits to also include any audits of contractors or related party entities.
10. Prohibits, notwithstanding any other provision to the contrary, the requirements of this bill from applying to any FQHC participating in a bona fide LMCC.
11. Defines the following for purposes of this bill:
    1. “Bona fide labor-management cooperation committee” or “bona fide LMCC” to mean a statewide, multiemployer joint labor-management committee that is established pursuant to the federal Labor Management Cooperation Act of 1978 and meets the following criteria:
       1. The bona fide LMCC is not involved in the governance of an FQHC but exists to promote worker training, workforce expansion, and support for workers during training;
       2. The bona fide LMCC has the following composition:
          1. Fifty percent of the committee consists of representatives of organized labor unions that represent health center workers in the state;
          2. Fifty percent of the committee consists of representatives of FQHCs located in the state; and,
          3. The membership of the bona fide LMCC includes one or more labor organizations that are certified or recognized as the exclusive bargaining representative of applicable workers at FQHCs in the state.
    2. “FQHC” to mean any community or public federally qualified health center as that term is defined in federal law, including FQHC look-alikes;
    3. “FQHC look-alike” to mean an organization that does not receive an FQHC award, but is designated by the federal Health Resources and Services Administration (HRSA) as meeting FQHC program requirements, as set forth in federal law. Clarifies that for purposes of this bill, an FQHC look-alike is considered an FQHC and all references to FQHCs apply with equal force to FQHC look-alikes;
    4. “Mission-directed expenses” to mean expenses associated with activities that further an FQHC’s patient services mission and for which the FQHC was created to conduct, and that “mission-directed expenses” include all of the following:
       1. The total compensation for all staff employed by the FQHC, including salaries, wages, and employee benefits, but excluding all compensation for executive and administrative officers and employees. Specifies that employee benefits include payroll benefits, paid time off, health insurance, life insurance, pension and retirement, and workers’ compensation insurance;
       2. The cost of consumable supplies that are used to provide patient care;
       3. Outside patient care services, which includes expenses associated with patient care services purchased under contract from any entity, including a hospital, laboratory, or physician group;
       4. Professional liability insurance;
       5. Continuing education, which includes the total cost of providing continuing education classes for health care professionals; and,
       6. Capital expenditures that directly relate to patient care services, including rent, mortgage interest, depreciation, property taxes, property insurance, utilities, and other capital expenditures determined by DPH.
    5. Specifies that “Mission-directed expenses” do not include any of the following:
       1. Administrative costs, including compensation paid to management and executive officers and employees, all costs to management companies, administrative service companies, home office expenses for parent companies and holding companies, legal expenses, trade association fees and dues, insurance costs, licensing fees, and all administrative costs and profits paid to contractors or related party entities for staffing services, ancillary services, support services, or other services;
       2. Capital expenditures that relate to administrative, overall operations or management purposes, including rent, mortgage interest, depreciation, property taxes, property insurance, utilities, and other capital expenditures determined by DPH; and,
       3. Profits, including net income and any profit paid to related parties on leases and property, and any profits paid to management companies.
    6. “Mission spend ratio” to mean the percent of an FQHC’s total revenue from all payer sources in a calendar year expended on mission-directed expenses; and,
    7. “Related party” to means an organization related to the FQHC or that is under common ownership or control, as those terms are defined in Section 413.17(b) of Title 42 of the Code of Federal Regulations. includes in the related party definition, a management organization, owners of real estate, entities that provide staffing, any parent companies, holding companies, sister organizations, and others.
12. Continues in the Special Deposit Fund, the Mission Spend Ratio Penalty Account, subject to appropriation by the Legislature. Requires the account to contain all moneys deposited pursuant to 13) and 14), below.
13. Requires DPH to impose sanctions for the failure to comply with the reporting provisions of this bill, in the form of an administrative fine of five thousand dollars ($5,000) for a first violation and ten thousand dollars ($10,000) for each subsequent month that an FQHC fails to submit annual reports as required.
14. Requires, if DPH determines that an FQHC has not met the required mission spend ratio for any reporting year, DPH to assess an administrative penalty equal to the difference between the amount of the FQHC spent on mission-directed expenses and 90% of the FQHC’s total revenue that year.
15. Prohibits any penalties paid pursuant to this bill from being considered mission-directed expenses for the calculation of the FQHC’s mission spend ratio in the year the penalty was incurred.
16. Requires, if the FQHC does not dispute the determination or assessment, the penalties to be paid in full to DPH within 30 days of receipt of a notice of penalty and deposited into the Mission Spend Ratio Penalty Account. Requires if the FQHC disputes the determination or assessment made pursuant to this subdivision, the FQHC to, within 30 days of the FQHC’s receipt of the determination or assessment, simultaneously submit a request for appeal to both DPH and DHCS. Requires the request to include a detailed statement describing the reason for appeal and include all supporting documents the FQHC will present at the hearing.
17. Requires DPH, within 30 days of receipt of the request for appeal, to submit, to both the FQHC and DHCS, its responsive arguments and all supporting documents that DPH will present at the hearing. Requires DHCS to timely hear an appeal and issue a decision as follows:
    1. The hearing to commence within 60 days from the date of receipt by DHCS of the FQHC’s timely request for appeal;
    2. DHCS to issue a decision within 120 days from the date of receipt by DHCS of the FQHC’s timely request for appeal; and,
    3. The decision of the DHCS’ hearing officer, when issued, to be the final decision of DPH.
18. Makes the appeals process described in 17) above exempt from the administrative adjudication provision of the Administrative Procedure Act.
19. Authorizes an FQHC to apply to DPH for a waiver providing a temporary pause of the mission spend requirements or for an alternative mission spend ratio requirement, on the basis of unexpected or exceptional circumstances or the FQHC’s economic condition. Makes the issuance and terms of the waiver pursuant to be solely and exclusively within the authority of DPH. Requires a waiver issued pursuant to this provision to be for a term of one year from the date of issuance.
20. Requires, in order to obtain a waiver based on unexpected or exceptional circumstances, an FQHC to detail the following circumstances experienced by the FQHC:
    1. When the FQHC first learned of the unexpected or exceptional circumstances;
    2. Why the FQHC could not have anticipated those circumstances arising;
    3. Actions the FQHC took to address those circumstances;
    4. Expenses incurred as a result of addressing those circumstances;
    5. When the FQHC expects those circumstances to be resolved; and,
    6. Preventive steps the FQHC is taking to ensure that those circumstances do not unexpectedly arise in the future.
21. Requires, in order to obtain a waiver based on economic condition, an FQHC to demonstrate that compliance with the mission spend requirements would raise doubts about the FQHC’s ability to continue as a going concern under generally accepted accounting principles. Requires the evidence to include documentation of the FQHC’s financial condition, the financial condition of any parent or affiliated entity, and evidence of the actual or potential direct financial impact of compliance with the mission spend ratio.
22. Requires consideration of an FQHC’s ability to continue as a going concern to include the following factors regarding the FQHC or any affiliated entity:
    1. Actual or likely closure of the FQHC or any affiliated entity;
    2. Actual or likely closure of patient services or programs;
    3. Actual or likely loss of jobs;
    4. Whether the FQHC is small, rural, frontier, or serves a rural catchment area;
    5. Whether closure of the FQHC would significantly impact access to services in the region or service area; and,
    6. Whether the FQHC is in financial distress that results or is likely to result in the closure of the FQHC or any affiliated entity, closure of patient services or programs, or loss of jobs. Specifies that factors to consider in determining financial distress include, but are not limited to, the FQHC’s prior and projected performance on financial metrics, including the amount of cash on hand, and whether the FQHC has, or is projected to experience, negative operating margins.
23. Requires requests for a waiver based on economic conditions to be submitted in writing to DPH.
24. Requires DPH to notify the FQHC of the decision on the waiver request in writing. Authorizes an FQHC to apply to renew a waiver issued pursuant to 21) above at any time no fewer than 180 days before the expiration of the existing waiver.
25. Exempts any FQHC participating in a bona fide LMCC, as defined, from the provisions described above.
26. Requires DPH to adopt all regulations necessary to implement this bill. Authorizes DPH to implement, interpret, or make specific the bill’s provisions, in whole or in part, by means of information notices, all-county letters, or other similar instructions without taking regulatory action.
27. Makes the provisions of this bill severable. States that if any provision of this act or its application is held invalid, that invalidity does not affect other provisions or applications that can be given effect without the invalid provision or application.

EXISTING LAW:

1. Establishes the Medi-Cal Program, administered by DHCS, to provide comprehensive health benefits to low-income individuals who meet specified eligibility criteria. [Welfare and Institutions Code (WIC) § 14000 et seq.]
2. Requires FQHC services to be covered benefits under the Medi-Cal program and requires these services to be reimbursed on a per-visit basis, as defined. [WIC § 14132.100]
3. Establishes the HCAI in the California Health and Human Services Agency to expand equitable access to quality, affordable health care for all Californians through resilient facilities, actionable information, and the health workforce each community needs. [Health and Safety Code (HSC) § 127000, et seq.]
4. Requires every clinic holding a license to, on or before the 15th day of February each year, file with HCAI, upon forms to be furnished by HCAI, a verified report showing the following information relating to the previous calendar year:
   1. Number of patients served and descriptive information, including, but not limited to, age, gender, race, and ethnic background of patients;
   2. Number of patient visits by type of service, including all of the following:
      1. Child health and disability prevention screens, treatment, and follow-up services;
      2. Medical services;
      3. Dental services;
      4. Other health services;
      5. Total clinic operating expenses;
      6. Gross patient charges by payer category, including Medicare, Medi-Cal, the Child Health Disability Prevention Program, county indigent programs, other county programs, private insurance, self-paying patients, nonpaying patients, and other payers;
      7. Deductions from revenue by payer category, bad debts, and charity care charges; and,
      8. Additional information as may be required by HCAI or DPH. [HSC § 1216]
5. Requires, commencing January 1, 2027, every clinic holding a license and, every intermittent clinic operated by a licensed clinic and exempt from licensure to file with HCAI a verified report showing the following information relating to the previous calendar year:
   1. Number of patients served and descriptive information, including, but not limited to, age, sex, race, ethnicity, preferred language spoken, disability status, sexual orientation, gender identity, and payor category. Prohibits a clinic from being subject to any adverse action for not providing sexual orientation and gender identity information if the patient refused to provide that information;
   2. Number of patient visits by type of service, including all of the following:
      1. Child health and disability prevention screens, treatment, and follow up services;
      2. Medical services;
      3. Dental services; and,
      4. Other health services.
   3. Requires primary care clinics participating in the Medi-Cal program or county indigent programs to include the following:
      1. Number of assigned members per Medi-Cal managed care plan and county indigent program;
      2. Number of assigned members per Medi-Cal managed care plan and county indigent program that had one or more clinic visits;
      3. Total clinic operating expenses;
      4. Gross patient charges by payer category, including Medicare, Medi-Cal, the Child Health Disability Prevention Program, county indigent programs, other county programs, private insurance, self-paying patients, nonpaying patients, and other payers;
      5. Deductions from revenue by payer category, bad debts, and charity care charges;
      6. Average weekly number of clinic operating hours and whether or not the clinic is licensed or intermittent; and,
      7. Additional information as may be required by the department or the State Department of Public Health. [HSC § 128905]
6. Authorizes, under federal labor law, the Federal Mediation and Conciliation Service (Service) to provide assistance in the establishment and operation of plant, area and industrywide labor management committees which:
   1. Have been organized jointly by employers and labor organizations representing employees in that plant, area, or industry; and,
   2. Are established for the purpose of improving labor management relationships, job security, organizational effectiveness, enhancing economic development or involving workers in decisions affecting their jobs including improving communication with respect to subjects of mutual interest and concern. [Title 29, United States Code § 175a]

FISCAL EFFECT: Unknown. This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, this bill is a key component of a broader legislative effort to put the health of our communities’ front and center. The author states that when our health is supported, our students can thrive, working families can succeed, and our seniors can age with dignity. The author continues that at a time when many Californians face growing challenges, we must ensure that the institutions responsible for community health are transparent and accountable. The author argues that this bill affirms the importance of directing resources where they’re needed most—toward patient care and the dedicated workforce that makes it possible. The author concludes that this bill promotes a standard of stewardship that ensures community clinic funding is aligned with the mission of serving those most in need.
2. BACKGROUND.
   1. FQHCs. FQHCs are federally designated clinics that provide primary care services to serve medically underserved populations. Pursuant to federal requirements, health centers must meet specified requirements, including being located in or serving a medically underserved area or population, provide comprehensive primary care services furnished regardless of ability to pay, and governance by a community-based board that meets certain composition requirements (including a board composed of a majority of individuals who are served by the health center) that exercises specified authorities.

Medi-Cal reimbursement to FQHCs is governed by state and federal law. FQHCs are reimbursed by Medi-Cal on a per-visit rate (prospective payment systems) which is known as the PPS rate for services provided by specific providers listed in statute. Each FQHC has a specific Medi-Cal PPS rate for each face-to-face encounter, irrespective of the reason for the visit. For Medi-Cal managed care (MCMC) plan patients, DHCS reimburses FQHCs for the difference between its per-visit PPS rate and the payment made by the plan. This payment is known as a “wrap around” payment. The MCMC wrap-around rate was established to reimburse providers for the difference between their PPS rate and their MCMC reimbursement rate. The rationale for the enhanced reimbursement is to ensure that FQHCs do not use federal grant funds intended for the uninsured and special needs populations to back-fill for potentially below-cost Medicare or Medi-Cal rates.

The mean and median PPS rate for FQHC services, as calculated based on DHCS’s December 2024 Rates Sheet for clinic rates, is approximately $291 and $262, respectively. According to the DHCS’ November 2024 Medi-Cal Local Assistance Estimate, clinics receive an annual rate adjustment based on the percentage increase in the Medicare Economic Index and is effective October 1st of each year. In addition, an FQHC can apply for an adjustment to its per-visit rate based on a change in the scope of services provided by the FQHC.

• 1. Medical Loss Ratios (MLR). The Patient Protection and Affordable Care Act (ACA) requires health insurance issuers to submit data on the proportion of premium revenues spent on clinical services and quality improvement, also known as the Medical Loss Ratio (MLR). It also requires them to issue rebates to enrollees if this percentage does not meet minimum standards. The ACA requires insurance companies to spend at least 80% or 85% of premium dollars on medical care. If an issuer fails to meet the applicable MLR standard in any given year, as of 2012, the issuer is required to provide a rebate to its customers. The 90% “mission spend ratio” in this bill appears to be based on MLR requirements.
  2. Nonprofit Health Center Spending Rules. Federal and state law requires community health centers and clinics to focus on their healthcare mission. By definition, community health centers and clinics must be nonprofit or public entities. Under IRS 501(c)(3) rules, an organization must operate exclusively for charitable (health) purposes, and cannot distribute profits to private individuals. Surplus funds are reinvested in expanding services or improving care.
  3. Current Clinic Reporting Requirements. Health centers and clinics are regulated by both the federal and state government and have extensive reporting requirements including audits that detail how resources are spent on patient care. The federal HRSA provides oversight of grants and ensures administrative costs are reasonable. One of HRSA’s monitoring roles includes reviewing that a community health center or clinic’s budget and spending align with project goals, and that administrative expenses are proportional. Medicare cost principles also allow CMS to impose a cap or adjustment if “the level of administrative and general expenses” is excessive.

Community health centers and clinic federal grantees also report data to HRSA annually as part of Uniform Data System (UDS) reporting, including total revenues (by source) and total expenditures (by category). HRSA uses this data to assess each health center’s performance and financial soundness. Community health centers and clinics must also submit their independent audit results to HRSA each year. These audits contain financial statements and a schedule of federal program expenditures. This bill also requires DPH to conduct independent audits every three years.

This bill requires clinics to file their IRS Form 990 or equivalent to the state every year, a document they already file with the federal government annually, which are public documents available via IRS or charity databases. The Form 990 discloses executive compensation, program vs. administration expense breakdown, and related-party transactions – all information this bill is asking to be submitted to the state.

California also has oversight of clinic finances through HCAI. Licensed community clinics must file annual utilization and financial reports with HCAI. HCAI collects data on clinic revenues, expenses, and services. Additionally, in 2023, the Legislature passed, and Governor Newsom signed SB 779 (Stern) Chapter 505, Statutes of 2023 which requires community health centers and clinics to provide additional data reporting to the state, commencing on January 1, 2027.

• 1. The Federal Mediation and Conciliation Service (FMCS). FMCS is a small, independent federal agency that plays a role in sustaining the economy by preventing, minimizing, and resolving work stoppages and labor disputes. These efforts help avoid disruptions in production, services, and supply chains, ensuring economic stability and growth. FMCS accomplishes this mission by offering mediation, training, and facilitation services to employers and unions nationwide, fostering collaborative labor-management relationships.
  2. LMCCs. An LMCC is a forum where employers and union workers work together to solve problems. They generally include a relatively equal number of employer and union members and can include a neutral chairperson or facilitator who all meet periodically to identify, discuss, and resolve issues or problems that are not typically covered under their collective bargaining agreement.
  3. Tribal Clinics. All Tribal health clinics (THPs and TFQHCs) operate their healthcare programs under the federal authority of the Indian Self-Determination and Education Assistance Act (ISDEAA), enacted in 1975. This law explicitly provides flexibility in how funds are allocated and spent by Tribes, allowing them to prioritize and respond to the unique needs of Tribal communities. ISDEAA marked a significant shift away from paternalistic federal policies and empowered Tribes by recognizing their inherent autonomy and control over their own programs and services, particularly in areas like healthcare and education. This bill does not provide an exemption from the mission spend requirement for tribal clinics.

1. SUPPORT. SEIU California is the sponsor of this bill and states that nonprofit community clinics receive hundreds of millions of taxpayer dollars each year to fulfill their mission of reducing disparities in access to care. SEIU notes that when clinic funding is not being directed toward adequate staffing, high-quality care, and accessible services, the consequences are felt most acutely by those already facing barriers to healthcare. In many communities—particularly for communities of color, rural populations, and immigrant families—clinic revenue mismanagement can manifest as long wait times, insufficient staffing, or even a lack of access altogether. SEIU contends that even as Congress threatens cuts to Medicaid funding, certain clinic CEOs and executives are irresponsibly spending precious clinic resources on unrelated expenditures. In some cases, serious concerns have been raised regarding the mismanagement of resources. Certain community clinics have been mired in multiple scandals over allegations of false reporting and fraudulent claims, and across the state, many clinic workers report chronic understaffing, high workloads and staffing turnover, and long wait times for patients.

SEIU argues that by requiring FQHCs to spend a predetermined percentage of their revenue on core program services, a mission spend ratio (MSR) threshold will improve financial accountability, ensure equitable and efficient use of federal resources, and align spending with the core mission of providing high-quality, accessible care to vulnerable populations. This is similar to the ACA requirement that large group healthcare insurance companies spend most of their premium dollars they receive on healthcare services and activities to improve healthcare quality. More specifically, the ACA’s Medical Loss Ratio (MLR) requires health insurers in the large group market to spend at least 85% of premium revenues on medical care and quality improvement rather than administrative costs and profits.

SEIU continues that while each part of the healthcare system is unique, these policies all aim to ensure that patient care is prioritized over excessive overhead and profit-taking, improving healthcare value and access for consumers. SEIU concludes that with increased transparency and accountability of public dollars, community clinics will be better situated to improve health outcomes for patients, expand access to care, and invest in improving the working conditions of clinic workers who provide care and support for California’s most vulnerable residents.

1. OPPOSITION. The California Primary Care Association (CPCA) Advocates is opposed to this bill and states that it will create harmfully broad restrictions with an unworkable spending mandate on how community health centers and clinics can use resources for patient care. CPCA notes that this bill also creates a duplicative and conflicting regulatory burden on clinics already overseen by numerous federal and state government agencies and will ultimately divert millions from patient care into bureaucracy with uncapped state fees, recurring audits and steep and unnecessary penalties. And most importantly, it will harm patients by cutting funding for providers, healthcare services, and infrastructure, disproportionately hurting low-income, rural, and medically underserved patients.

CPCA notes that this bill will impose an arbitrary spending requirement which mandates community health centers and clinics to spend at least 90% of their total revenue from all payer sources on an extremely narrow list of services that ignores real operational needs. This does not include community outreach and education, medical devices and technology, state licensing fees, health insurance enrollment assistance, and patient case management, among many other essential services and functions which directly improve patient outcomes. The bill also requires DPH to determine every year, for every individual community health center and clinic in California if capital expenditures like rent, property taxes, mortgage interest, fire and earthquake insurance, and utilities relate to patient care and can or cannot be included in the minimum spend. This would create huge volatility and uncertainty for community health centers and clinics and the vulnerable patients they serve, at a time when Medicaid is already on the chopping block.

Additionally, community health centers and clinics receive a set reimbursement rate from DHCS under the PPS, which comes from both state and federal Medicaid dollars. The PPS rate is set by the Audit and Investigation Unit based on a multiple year deep cost evaluation of each individual health center’s patient population and operations. Many of the vital services excluded from this bill like community outreach and education, are services the federal HRSA, the Centers for Medicare & Medicaid Services (CMS) and DHCS require community health centers to provide. This makes this bill in direct conflict with state and federal law.

CPCA also notes that the entirely new regulatory structure created under this would be funded by three different fines and fees foisted on community health centers and clinics. The largest of which is an ongoing annual registration fee of uncapped size which the bill explicitly states can be adjusted as high as necessary to fund implementing this immensely complex legislation. This bill would force health centers and clinics to waste millions of limited dollars and staff resources on bureaucracy and red tape that should be directed toward patient care. This includes the time and effort to meet all the reporting requirements of the bill, the cost of DPH’s administration of the program, and large fees for missing reporting deadlines or not meeting the spending requirements in this bill, in addition to the uncapped ongoing annual fee to fund administering the program. This just further siphons away precious resources that should be invested in broadening patients’ access to critical services.

CPCA points to the fact that this bill exempts community health centers and clinics who are in a union-sponsored statewide multi-employer labor management committee (LMCC) from the 90% spending requirement. Approximately 30% of workers in California health centers and clinics are represented by several different labor unions. But only one of those unions runs a health center LMCC as defined in the bill. CPCA contends that this reveals the bill’s true intent is not to improve patient care but to penalize community health centers and clinics that happen to not participate in one union’s LMCC. While labor-management collaboration is important, exempting some FQHCs from all the law's requirements undermines fairness and suggests a dual standard not based on quality or accountability, but organizational structure. All workers of course have a right to join a union. And there is an established process for workers at individual health centers to decide whether to unionize. But LMCC’s aren’t subject to any government approval, oversight, or public accountability. And the LMCC members themselves create their own rules regarding who to accept. The exemption of community health centers and clinics who are in LMCCs from this bill is deeply problematic for patients because it creates an unequal system. CPCA concludes patients in our communities have no control over their proximity to a union affiliated or non-union health center and changing health standards based on that will create an unequal system of care.

1. PREVIOUS LEGISLATION.
   1. SB 525 (Durazo) Chapter 890, Statutes of 2023 enacts a phased-in multi-tiered statewide minimum wage schedule for health care workers employed by covered healthcare facilities, as defined; requires, following the phased-in wage increases, the minimum wage for health care workers employed by covered healthcare facilities to be adjusted, as specified; provides a temporary waiver of wage increases under specified circumstances; and establishes a 10-year moratorium on wage ordinances, regulations, or administrative actions for covered health care facility employees, as specified.
   2. SB 779 (Stern) Chapter 505, Statutes of 2023 requires, beginning January 1, 2027, an organization that operates or maintains a primary care clinic or an intermittent clinic, to file an annual report with HCAI containing specified information for the previous calendar year. Creates new reporting requirements for all PCCs, including intermittent clinics, to report various types of data to HCAI, including a labor report, workforce demographic information, and a detailed workforce development report. Revises and recasts current reporting requirements for specialty clinics.
   3. AB 2079 (Wood) of 2022 would have established, no later than July 1, 2023, a requirement that skilled nursing facilities (SNFs) report revenues and expenses to the DHCS, and based on these reports, requires 85% of a SNF's total non-Medicare health revenues from all payer sources in each fiscal year to be expended on the direct patient-related services of residents. Would have required a SNF that does not meet the minimum spending requirements on direct patient services to issue a pro rata dividend or credit to the state and anyone that made non-Medicare payments to the SNF for resident services, in an amount to bring the total spending up to 85%. AB 2079 was vetoed.
   4. SB 1014 (Hertzberg) of 2022, would have required DHCS to authorize a new and voluntary supplemental payment program known as the Enhanced Clinically Integrated Program (ECIP) for FQHCs, or, pursuant to DHCS’ discretion, another type of payment program that DHCS determines will best meet the clinical and financial goals of ECIP and is permissible under federal law. Would have required ECIP to improve quality and access to care by allocating funds to FQHCs that commit to ensuring that all health center workers are paid a minimum wage equivalent to $25 per hour, as specified, and that commit to participate in a bona fide LMCC. Would have required 80% of ECIP funds to be allocated to FQHCs for the purpose of improving patient access primarily by strengthening the workforce, through improved wages, benefits, and salaries, addressing specialist physician reimbursement, and investing in clinic infrastructure and capacity, as specified, and 20% for purposes of training workers and financially supporting workers as they train through a bona fide LMCC. SB 1014 died on the Assembly inactive file.
2. AMENDMENTS.
   1. In order to address concerns raised by the Association of California Health Care Districts, among others, the author is proposing to amend his bill as follows: This article does not apply to any FQHC or FQHC look-alike that is owned or operated by a county, a city and county, a healthcare district organized pursuant to Health and Safety Code 32000 et seq., the University of California, a special health authority described in Part 4 of Division 101 of the Health and Safety Code, or any other political subdivision of the state.
   2. As noted above, Tribal health clinics operate their healthcare programs under the federal authority of the Indian Self-Determination and Education Assistance Act (ISDEAA), enacted in 1975. Imposing a state-mandated mission-spend requirement on these entities conflicts with the flexibility afforded under ISDEAA and raises concerns regarding Tribal sovereignty and federal preemption. While some Tribal Health Programs may be exempt from IRS Form 990 filing due to their governmental status, others do file and would be directly subject to the bill’s requirements. Those that do not file may still be indirectly affected through Medi-Cal implementation, audit processes, or related reporting mechanisms. The Committee may wish to amend this bill as follows: “This article shall not apply to any Federally Qualified Health Center operated by a Tribe or Tribal organization receiving funding under the Indian Self-Determination and Education Assistance Act (25 U.S.C. § 5301 et seq.).”

REGISTERED SUPPORT / OPPOSITION:

Support

SEIU California (sponsor)

Alliance for a Better Community

California Alliance for Retired Americans

California Black Health Network

California Federation of Labor Unions, AFL-CIO

Kate Daniels, District 5, Monterey County Board of Supervisors

Felipe Hernandez, District 4, Santa Cruz County Board of Supervisors

Monterey Bay Central Labor Council, AFL-CIO

The Translatin@ Coalition

Working Partnerships USA

Opposition

Achievable Health

Alexander Valley Healthcare

AltaMed Health Services Corporation

Altura Centers for Health

Anderson Valley Health Center

APLA Health

Aria Community Health Center

Arroyo Vista Family Health Center

Asian Pacific Health Care Venture, INC.

Bartz-Altadonna Community Health Centers

Benevolence Health Centers

Calexico Wellness Center

California Consortium for Urban Indian Health

California Human Development

Camino Health Center

Celebrating Life Community Health Center

Central Valley Opportunity Center (CVOC)

Clinica Sierra Vista

Coalition of Orange County Community Health Centers

Communicare+ole

Community Clinic Association of Los Angeles County (CCALAC)

Community Health Association of Inland Southern Region

Community Health Partnership

Community Medical Wellness Centers, USA

Comprehensive Community Health Centers

CPCA Advocates, Subsidiary of the California Primary Care Association

Eisner Health

El Centro Del Pueblo

El Dorado Community Health Centers

El Proyecto Del Barrio, INC.

Elica Health Centers

Family Health Centers of San Diego

First Day Foundation

Fresno American Indian Health Project

Friends of Family Health Center

Golden Valley Health Centers

Harbor Community Health Centers

Health Alliance of Northern California

Health and Life Organization, Inc./ Dba Sacramento Community Clinics

Health Care LA, IPA

Health Center Partners of Southern California

Hill Country Community Clinic

Hurtt Family Health Clinic

Indian Health Center of Santa Clara Valley

Inland Family Community Health Center

InnerCare

JWCH Institute, INC.

LA Clinica De LA Raza, INC.

LA Cooperativa Campesina De California

Laguna Beach Community Clinic

Los Amigos De LA Comunidad, INC.

Los Angeles LGBT Center

Marin Community Clinics

Mendocino Coast Clinics, INC.

Mountain Valleys Health Centers

North Coast Clinics Network

North East Medical Services (NEMS)

Northeast Valley Health Corporation

Omni Family Health

One Community Health

Parktree Community Health Centers

Petaluma Health Center, INC.

Proteus, INC.

Saban Community Clinic

Salud Para LA Gente

Samuel Dixon Family Health Center, INC.

San Fernando Community Health Center

San Francisco Community Clinic Consortium

San Ysidro Health

Santa Cruz Community Health

Santa Rosa Community Health

Share Our Selves

Shasta Cascade Health Centers

Shasta Community Health Center

Shingletown Medical Center

Southside Coalition of Community Health Centers

St. Jude Neighborhood Health Center

Tarzana Treatment Centers, INC.

Truecare

Umma Community Clinic

Universal Community Health Center

Valley Community Healthcare

Venice Family Clinic

Via Care Community Health Center

Watts Healthcare Corporation

Wesley Health Centers

Westside Family Health Center

White Memorial Community Health Center

Wilmington Community Clinic

Analysis Prepared by: Lara Flynn / HEALTH / (916) 319-2097