Community health center efficiency: the role of grant revenues in health center efficiency.

OBJECTIVE To test the relationship between external environments, organizational characteristics, and technical efficiency in federally qualified health centers (FQHCs). We tested the relationship between grant revenue and technical efficiency in FQHCs. DATA SOURCES/STUDY DESIGN Secondary data were collected in each year from the Uniform Data System (UDS) on 644 eligible U.S.-based FQHCs between 2005 and 2007. The study employs a retrospective longitudinal cohort design with instrumental variables. PRINCIPAL FINDINGS Increased grant revenues did not increase the probability that a health center would be on the efficiency frontier. However, increased grant revenues had a negative association with technical efficiency for health centers that were not fully efficient. CONCLUSION If all health centers were operating efficiently, anywhere from 39 to 45 million patient encounters could have been delivered instead of the actual total of 29 million in 2007. Policy makers should consider tying grant revenues to performance indicators, and future work is needed to understand the mechanisms through which diseconomies of scale are present in FQHCs.