AB1113 - Federally qualified health centers: mission spend ratio.

Amended IN Assembly January 22, 2026 Amended IN Assembly May 05, 2025 Amended IN Assembly April 10, 2025 CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Assembly Bill No. 1113 Introduced by Assembly Member Mark González February 20, 2025 An act to add Article 4.15 (commencing with Section 14138.35) to Chapter 7 of Part 3 of Division 9 of the Welfare and Institutions Code, relating to public social services. LEGISLATIVE COUNSEL'S DIGEST AB 1113, as amended, Mark González. Federally qualified health centers: mission spend ratio. 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 FQHC’s mission spend ratio no later than 90 days after the deadline for receipt of each FQHC’s 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. 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 FQHC’s receipt of the determination or assessment, as specified. The bill would require the department to submit its responsive arguments and all supporting documents to the FQHC and the State Department of Health Care Services within 30 days of the department’s receipt of the FQHC’s request for appeal. The bill would require the State Department of Health Care Services to hear a timely appeal and issue a decision, as specified. This bill would require an FQHC to abate the violation within 2 years after the department imposes an administrative penalty. The bill would prohibit the FQHC from being required to pay the penalty if it meets specified requirements within the abatement period, including reaching an agreement with the department on a plan to spend the total amount of the administrative penalty on mission-directed expenses within 2 years. The bill would require the department to conduct annual audits of any FQHC that has reached an agreement with the department. If the department determines that an FQHC is not in substantial compliance with the agreed-upon plan, the bill would require the FQHC to pay the imposed administrative penalty within 2 working days and to pay other costs, as specified. The bill would provide that appeals run concurrently with the abatement period. 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 FQHC’s 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. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO Bill Text The people of the State of California do enact as follows: SECTION 1. The Legislature finds and declares all of the following: (a) Federally qualified health centers (FQHCs) are fundamental to the California health care safety net, as their mission is to provide primary and preventive care to low-income and underserved populations. (b) It is the intent of the Legislature to ensure that an appropriate proportion of each FQHC’s revenue is spent on program services expenses directly related to the FQHC’s mission to provide essential primary and preventive care to low-income and underserved populations. (c) (1) The Legislature recognizes the critical intersection between workforce development and delivery of high-quality care, and further recognizes that an FQHC’s participation in a statewide, multiemployer bona fide labor-management cooperation committee (LMCC) reflects institutional commitment to seeking partnerships and leveraging funding opportunities to achieve these twin objectives. (2) Bona fide LMCCs are a specific form of labor-management partnership which in general have been shown to promote cost savings as well as improve staff retention and patient care. The intent of this legislation is to support these same goals for FQHCs that are not part of LMCCs by directing a greater share of spending towards FQHCs’ mission to provide quality care to vulnerable populations. (d) It is the intent of this legislation to create a reasonable minimum standard of mission-directed spending as a proportion of revenue (“mission spend ratio”) to ensure FQHC patient service delivery is prioritized over management and overhead spending, while still allowing an FQHC to maintain ongoing, sound financial footing. It is the intent of the Legislature to apply the mission spend ratio to all FQHCs except those participating in a bona fide LMCC or certain other FQHCs. (e) It is the intent of the Legislature that the mission spend ratio ensures that no more than 10 percent of an FQHC’s revenue may be profit or spent on administrative costs and other costs that do not contribute to the clinic’s charitable mission. SEC. 2. Article 4.15 (commencing with Section 14138.35) is added to Chapter 7 of Part 3 of Division 9 of the Welfare and Institutions Code, to read: Article 4.15. Federally Qualified Health Center Mission Spend Ratio 14138.35. For purposes of this article, the following definitions apply: (a) “Bona fide labor-management cooperation committee” or “bona fide LMCC” means a statewide, multiemployer joint labor-management committee that is established pursuant to the federal Labor Management Cooperation Act of 1978 (29 U.S.C. Sec. 175a) 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: (A) Fifty percent of the committee consists of representatives of organized labor unions that represent health center workers in the state. (B) Fifty percent of the committee consists of representatives of FQHCs located in the state. (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. (b) “Department” means the State Department of Public Health, unless otherwise specified. (c) “Federally qualified health center” or “FQHC” means any community or public federally qualified health center as that term is defined in Section 1396d of Title 42 of the United States Code, including FQHC look-alikes. (d) “FQHC look-alike” means an organization that does not receive an FQHC award, but is designated by the federal Health Resources and Services Administration as meeting FQHC program requirements, as set forth in Sections 1395x(aa)(4)(B) and 1396d(l)(2)(B) of Title 42 of the United States Code. For purposes of this article, an FQHC look-alike is considered an FQHC and all references to FQHCs apply with equal force to FQHC look-alikes. (e) (1) “Mission-directed expenses” means expenses associated with activities that further an FQHC’s patient services mission and for which the FQHC was created to conduct. conduct, but shall not include administrative and managerial expenses, fundraising expenses, profits, or other expenses that do not further an FQHC’s patient services mission. Profits include net income and any profit paid to related parties on leases and property, and any profits paid to management companies. “Mission-directed expenses” include expenses required for an FQHC to provide culturally and linguistically competent care. (2) “Mission-directed expenses” shall include all of the following: (A) 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. Employee benefits shall include payroll benefits, paid time off, health insurance, life insurance, pension and retirement, and workers’ compensation insurance. (B) The cost of consumable supplies that are used to provide patient care. (C) Outside patient care services, which shall be expenses associated with patient care services purchased under contract from any entity, including a hospital, laboratory, or physician group. (D) Professional liability insurance. (E) Continuing education, which shall be the total cost of providing continuing education classes for health care professionals. (F) 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 the department. (3) “Mission-directed expenses” shall not include any of the following: (A) 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. (B) 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 the department. (C) Profits, including net income and any profit paid to related parties on leases and property, and any profits paid to management companies. (2) The department shall further define by regulation the scope of “mission-directed expenses” as provided in Section 14138.36. (f) (1) “Mission spend ratio” means the percent of an FQHC’s total revenue from all payer sources in a calendar year expended on mission-directed expenses. (2) When calculating the mission spend ratio, the department shall exclude from both the total amount of expenses and total revenue an amount equal to any penalties paid pursuant to this article or any expenditures made based on an agreed-upon plan with the department pursuant to Section 14138.37. (g) “Related party” 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. A related party may include a management organization, owners of real estate, entities that provide staffing, any parent companies, holding companies, sister organizations, and others. 14138.36. (a) Each FQHC shall have an annual mission spend ratio of no less than 90 percent. (1) Until the department has adopted a methodology for this purpose pursuant to paragraph (3), 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 2025 taxable year. (2) Until the department has adopted a methodology for this purpose pursuant to paragraph (3), for the calculation of the mission spend ratio of each FQHC in the 2026 2027 calendar year, “mission-directed expenses” shall 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 2025 taxable year. (3) For the calculation of the mission spend ratio of each FQHC in the 2027 2028 calendar year an [Text truncated for display. 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