Bill Text: CA AB1113 | 2025-2026 | Regular Session | Amended
Bill Title: Federally qualified health centers: mission spend ratio.
Sponsorship: Partisan Bill (Democrat 1)
Status: (Failed) 2026-02-02 - From committee: Filed with the Chief Clerk pursuant to Joint Rule 56. [AB1113 Detail]
Download: California-2025-AB1113-Amended.html
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Amended
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Assembly
January 22, 2026 |
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Amended
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May 05, 2025 |
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Amended
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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: NOBill 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 and all subsequent years, the department shall adopt a methodology to determine the expenses associated with activities that further an FQHC’s patient services mission, consistent with this section. If the department has not adopted a methodology pursuant to this paragraph sufficient for implementation by January 1, 2027, 2028, then the methodology set forth in paragraph (2) shall continue to be used until the department has adopted a methodology pursuant to this
paragraph.
(4) It is the intent of the Legislature that the department makes every effort to minimize the administrative burden on an FQHC of any reporting requirement necessary to carry out this article.
(b) By June 30, 2026, 2027, and annually thereafter by June 30, each FQHC or its parent corporation shall report total revenues collected from all revenue sources, along with the portion of revenues that are expended on all mission-directed expenses, to the department in a form to be determined by the department. Each report shall include,
at a minimum, all of the following:
(1) The FQHC’s 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 pursuant to Section 1216 of the Health and Safety Code.
(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.
(4) For any FQHC that is required to prepare an annual financial statement pursuant to
Section 12586 of the Government Code, certification from an independent certified public accountant that the report submitted has been audited in conformity with generally accepted auditing standards.
(5) For any FQHC that has entered into an agreement with the department pursuant to subdivision (d) of Section 14138.37 or received an alternative mission spend ratio pursuant to paragraph (5) of subdivision (e) of Section 14138.37, documentation demonstrating compliance with the terms agreed to by the FQHC and the department.
(c) Each FQHC shall submit an annual registration fee in an amount to be determined by the department and adjusted as necessary to fund the activities set forth in this article.
(d) (1) No later than 90 days after the deadline for receipt of each FQHC’s submission, the department shall calculate the mission spend ratio for each FQHC and prepare a report of the mission spend ratios of every FQHC. The department shall transmit
the report to the subunit of the State Department of Health Care Services responsible for conducting Change in Scope-of-Service Request (CSOSR) audits.
(2) The department shall publish the report of the mission spend ratios of every FQHC on its internet website.
(e) The department shall conduct an audit of the financial information reported by FQHCs pursuant to this section every three years, in a manner and form prescribed by the department, to ensure the accuracy of the information reported and compliance with the requirements of this section. These audits may also include any audits of contractors or related party entities.
14138.37.
(a) (1) There is hereby continued in the Special Deposit Fund, established pursuant to Section 16370 of the Government Code, the Mission Spend Ratio Penalty Account, which shall be subject to appropriation by the Legislature. The account shall contain all moneys deposited pursuant to subdivisions (b) and (c).(2) Money in the Mission Spend Ratio Penalty Account, upon appropriation by the Legislature, shall be used to implement this article. It is the intent of the Legislature that moneys deposited in the
fund that are not used for purposes of this article shall be used for future legislative efforts relating to clinic worker training, recruitment, and retention.
(b) The department shall impose sanctions for the failure to comply with the reporting provisions set forth in Section 14138.36, 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 the annual reports required by that section.
(c) (1) If the department determines that an FQHC has not met the required mission spend ratio for any reporting year, the department shall assess
issue a notice of assessment of an administrative penalty equal to the difference between the amount of the FQHC spent on mission-directed expenses and 90 percent of the FQHC’s total revenue that year. year, subject to the abatement procedures set forth in subdivision (d).
(2)Any penalties paid pursuant to this subdivision shall not be considered mission-directed expenses for the calculation of the FQHC’s mission spend ratio in the year the penalty was incurred.
(3)
(2) If the FQHC does not dispute the determination or assessment, the penalties shall be paid in full to the department within 30 days of receipt of a notice of penalty and deposited into the Mission Spend Ratio Penalty Account. Account, subject to the abatement procedures set forth in subdivision (d).
(4)(A)If the FQHC disputes the determination or assessment made pursuant to this subdivision, the FQHC shall, within 30 days of the FQHC’s receipt of the determination or assessment, simultaneously submit a request for appeal to both the department and the State Department of Health Care Services. The request shall include a detailed statement describing the reason for appeal and include all supporting documents the FQHC will present at the hearing.
(B)Within 30 days of the department’s receipt of the FQHC’s request for appeal, the department shall submit, to both the FQHC and the State Department of Health Care Services, its responsive arguments and all supporting documents that the department will present at the hearing.
(C)The State Department of Health Care Services shall hear a timely appeal and issue a decision as follows:
(i)The hearing shall commence within 60 days from the date of receipt by the State Department of Health Care Services of the FQHC’s timely request for appeal.
(ii)The State Department of Health Care Services shall issue a decision within 120 days from the date of receipt by the State Department of Health Care Services of the FQHC’s timely request for appeal.
(iii)The decision of the State Department of Health Care Services’ hearing officer, when issued, shall be the final decision of the State Department of Public Health.
(D)The appeals process set forth in this paragraph shall be exempt from Chapter 4.5 (commencing with Section 11400), and Chapter 5 (commencing with Section 11500), of Part 1 of Division 3 of Title 2 of the Government Code. The provisions of Sections 100171 and 131071 of the Health and Safety Code do not apply to appeals under this paragraph.
(3) If an FQHC disputes the determination or assessment, the FQHC may, within 10 working days, request a hearing pursuant to Section 131071. The administrative penalty shall be paid when all appeals have been exhausted and the department’s position is upheld, subject to the abatement procedures set forth in subdivision (d). Appeals shall run concurrently with the abatement period provided in subdivision (d).
(d) (1) After the department imposes an administrative penalty pursuant to this section, an FQHC shall abate the violation within two years. The FQHC shall not be required to pay the penalty if, within the abatement period, the FQHC meets all the following:
(A) The FQHC comes into compliance with the applicable 90-percent mission spend ratio requirement during the abatement period.
(B) The FQHC reaches an agreement with the department on a plan to spend the total amount of the administrative penalty on mission-directed expenses within two years.
(2) (A) The department shall conduct annual audits of any FQHC that has reached an agreement under this subdivision for compliance with an agreed-upon plan pursuant to subparagraph (B) of paragraph (1).
(B) (i) If the department determines that an FQHC is not in substantial compliance with a plan agreed upon pursuant to subparagraph (B) of paragraph (1), the FQHC shall pay the imposed administrative penalty within two working days, reduced by the amount of any spending in compliance with the plan agreed upon pursuant to subparagraph (B) of paragraph (1).
(ii) The FQHC shall also be responsible for any administrative costs incurred by the department associated with implementing the plan agreed upon pursuant to subparagraph (B) of paragraph (1) and auditing the FQHC during the abatement period.
(d)
(e) (1) An FQHC may apply to the department for a waiver providing a temporary pause of the requirements of Section 14138.36 or for an alternative mission spend ratio requirement to that set forth in subdivision (a) of Section 14138.36, on the basis of unexpected or exceptional circumstances or the FQHC’s economic condition. The issuance and terms of the waiver or alternative mission spend ratio pursuant to this subdivision shall be solely and exclusively within the authority of the department. A waiver or alternative mission spend ratio issued
pursuant to this subdivision shall be for a term of one year from the date of issuance.
calendar year.
(2) To obtain a waiver or alternative mission spend ratio based on unexpected or exceptional circumstances, an FQHC shall detail the following circumstances experienced by the FQHC:
(A) When the FQHC first learned of the unexpected or exceptional circumstances.
(B) Why the FQHC could not have anticipated those circumstances arising.
(C) Actions that the FQHC took to address those circumstances.
(D) Expenses incurred as a result of addressing those circumstances.
(E) When the FQHC expects those circumstances to be resolved.
(F) Preventive steps that the FQHC is taking to ensure that those circumstances do not unexpectedly arise in the future.
(3) To obtain a waiver or alternative mission spend ratio based on economic condition, an FQHC shall demonstrate that compliance with Section 14138.36 would raise doubts about the FQHC’s ability to continue as a going concern under generally accepted accounting principles. The evidence shall 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 Section 14138.36.
(4) Consideration of an FQHC’s ability to continue as a going concern shall include the following factors regarding the FQHC or any affiliated entity:
(A) Actual or likely closure of the FQHC or any affiliated entity.
(B) Actual or likely closure of patient services or programs.
(C) Actual or likely loss of jobs.
(D) Whether the FQHC is small, rural, frontier, or serves a rural catchment area.
(E) Whether closure of the FQHC would significantly impact access to services in the region or
service area.
(F) 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. 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.
(5) (A) The department may also provide an alternative mission spend ratio to an FQHC to adjust, exclude, or otherwise account for current year revenue placed in a designated reserve account for imminently planned capital improvement,
including multi-year capital grants or donor-specific contributions, if the penalty assessed under this section will result in the inability for the planned capital improvement to move forward during the next calendar year.
(i) To obtain an alternative mission spend ratio based on the inability of an imminently planned capital improvement to move forward in the next calendar year, an FQHC shall demonstrate the reserved funds will be used solely on capital expenditures that directly relate to the provision of patient care services and that the project will be completed within two years.
(ii) Demonstration that the reserved funds will be used solely on capital
expenditures pursuant to clause (i) and that the penalty assessed under this section will result in the inability of the planned capital improvement to move forward during the next calendar year shall include all of the following:
(I) Documentation of the imminently planned capital improvements. This includes permits, contracts, spending to date on the project, and a timetable for completion.
(II) Documentation of the designated reserve account for capital improvement.
(III) The FQHC’s financial
condition.
(IV) The financial condition of any parent or affiliated entity.
(V) Evidence of the actual or potential direct financial impact of compliance with Section 14138.36.
(B) The department shall have the authority to audit an FQHC for compliance with the alternative mission spend ratio and shall reassess an FQHC’s alternative mission spend ratio and any resultant penalties under subdivision (c) when properly accounting for funds not spent for the planned project.
(5)
(6) Requests for a waiver
or alternative mission spend ratio pursuant to this subdivision shall be submitted in writing to the department.
(6)
(7) The department shall notify the FQHC of the decision on the waiver or alternative mission spend ratio request in writing.
(7)
(8) An FQHC may apply to renew a waiver or alternative mission spend ratio issued pursuant to this subdivision at any time no fewer than 180 days before the expiration of the existing waiver. waiver or alternative mission spend ratio.
14138.38.
This article shall not apply to any of the following:(a) Any FQHC or FQHC look-alike that is owned or operated by a county, a city and county, a health care district organized pursuant to Division 23 (commencing with Section 32000) of the Health and Safety Code, the University of California, a special health authority described in Part 4 (commencing with Section 101525) of Division 101 of the Health and Safety Code, or any other political subdivision of the state.
(b) Any FQHC or FQHC look-alike that is owned or operated by a tribe or tribal organization
or an urban Indian organization receiving funding under the federal Indian Self-Determination and Education Assistance Act (25 U.S.C. Sec. 5301 et seq.).
(c) Any FQHC or FQHC look-alike participating in a bona fide LMCC.
