Arizona’s community health centers were built on Medicaid. Now they face uncertainty

When 35-year-old Jessica Rhodes walked into a residential treatment program in Phoenix three months ago, she had almost nothing left. She was broke, addicted to meth and terrified of losing her 4-year-old daughter.

"I was at my rock bottom," she said. "I was sitting in a room trying to get high, but I couldn't because my veins were all shot out."

A week later, she checked herself into Lifewell, a residential treatment program run by Terros Health. With Medicaid covering her treatment, housing and primary care, Rhodes is now sober, preparing to move into her own home and starting a new job.

"If it was not for this facility and these specific people working here, I could be dead," she said.

Terros Health is one of 24 federally qualified community health centers (CHCs) in Arizona that provide care to low-income patients. (Lake Havasu City's North Country Healthcare clinic is among those numbers as well). Together, they operate nearly 240 sites and serve about 870,000 patients, offering everything from prenatal care and vaccinations to behavioral health services and chronic disease management.

Arizona CHCs rely on Medicaid more than centers almost anywhere else in the country. Last year, 43% of their patients were covered through the Arizona Health Care Cost Containment System, the state's Medicaid agency. Those visits bring in more than $700 million a year, about two-thirds of all patient revenue. Even with federal grants and other funding in the mix, Medicaid still pays for 54% of everything Arizona's clinics do, the fourth-highest rate in the country as of 2023.

"When you take a state like Arizona, where about one in every five Medicaid enrollees in the state is actually served by a health center, it's a great example of how reliant health centers are (on Medicaid funding)," said Feygele Jacobs, a national health policy expert and director of the Geiger Gibson Program in Community Health. The state's health centers don't just serve Medicaid patients — they depend on Medicaid payments to survive.

Now, the passage of the One Big Beautiful Bill Act, a sweeping federal tax and spending measure central to President Donald Trump's second-term agenda, threatens to upend the clinics at the core of Arizona's health safety net.

The state could lose an estimated $34 billion in Medicaid funding over the next decade under the statute, signed into law on July 4. More than 300,000 of the state's most vulnerable patients may ultimately lose coverage after eligibility rules tighten and new work requirements take effect late next year.

For community health centers, that could mean millions in lost revenue, enough to force some to reduce hours, lay off staff, cut services or even close their doors. Though the losses would be felt statewide, they're likely to hit rural communities hardest. Roughly 40% of Arizona's health centers are located outside metropolitan areas, where patients can face drives of 90 minutes or more to reach affordable care.

The impact of closures and cutbacks in those regions could ripple far beyond community health centers, straining emergency departments, rural hospitals and private practices statewide, according to Karen Hoffman Tepper, president and CEO of Terros Health.

"What we're really talking about is destabilizing the entire health care system, not just harming those individuals that currently are receiving Medicaid," Tepper said.

Medicaid and community health centers have been linked from the start.

Both were created in 1965 as part of President Lyndon Johnson's War on Poverty and rooted in the Civil Rights Movement, with CHCs designed to provide a national infrastructure for health equity and Medicaid intended to cover care for low-income populations.

More recently, Arizona's expansion of Medicaid under the Affordable Care Act added hundreds of thousands of patients to the program, fueling the growth of CHCs across the state.

Policy experts warn the new federal law could reverse much of that progress.

Starting in December 2026, the law will require states to conduct Medicaid eligibility checks twice a year and impose additional work requirements on adults who gained coverage under the Affordable Care Act.

Supporters of the new rules argue the changes are necessary to rein in costs and reduce fraud. They say work requirements will encourage self-sufficiency and ensure taxpayer dollars are directed to those who need them most.

But Dr. Daniel Derksen, director of the University of Arizona's Center for Rural Health, said the paperwork alone could push thousands of qualified Arizonans off the rolls.

Many are likely to lose coverage not because they're ineligible, but because they failed to update or renew their information on time, he said.

Jacobs, with the Geiger Gibson Program in Community Health, described the upcoming work requirements as particularly onerous. To stay covered, many enrollees will need to prove they work at least 80 hours a month — a difficult hurdle for older adults, people in poor health, or those without steady jobs or places to live.

Her concerns are backed by research. She and other analysts found that 5.6 million health center patients who live in Medicaid expansion states like Arizona could lose coverage over the next five years, resulting in $32 billion in lost revenue.

Even for those who manage to keep their coverage, access could shrink. The law will reduce the federal government's share of Medicaid funding in the coming years, forcing Arizona to either spend more state dollars or cut services.

That could mean lower payments to providers, fewer covered services like dental or mental health care, and added financial pressure on clinics and hospitals.

"I think we're going to see staffing reductions. We're going to definitely see site closures and consolidations, and we may see health center closures," Jacobs said. "In some states, we know that these things are already happening."

Community health centers rely on a fragile mix of Medicaid, Medicare, commercial insurance and sliding-fee payments to operate. Even a 1% decrease in Medicaid coverage for center patients — and a corresponding 1% spike in uncompensated care — could mean a $1 million annual shortfall for clinics, said Lisa Nieri, chief programs officer for the Arizona Alliance for Community Health Centers.

The math worries patients like Rhodes, who depends on her Terros Health center for ongoing substance use treatment and primary care. The clinic has the highest percentage of Medicaid patients of any health center in the state.

"It's life and death for us," Rhodes said. "Not only is it the treatment part, but it's the housing while we're here. It's the medication while we're here."

Together, those supports help people in recovery get "in the right mindset … to be able to participate and be an active member of society," she said. "If that's taken away, lives will be lost."

Any drop in primary care access will lead to a decline in overall population health, according to Tepper, the Terros Health CEO. When patients lose coverage or access to clinics, they often delay or skip preventive care, leading over time to higher costs, longer waits and greater strain on remaining clinics and emergency rooms.

Rural regions are likely to feel those effects most acutely.

In many communities, health centers "serve as the front line of care for people who might otherwise go without," said Jessica Yanow, president and CEO of the Arizona Alliance for Community Health Centers. Some residents already travel up to two hours to see a doctor, with access to certain specialized services, like perinatal care, particularly limited.

"Health centers are more than clinics. They are lifelines," Yanow said. "Losing them would mean losing vital access to care where it's needed most."

Access to already-scarce hospitals is also at risk in rural areas. Five of Arizona's 17 federally designated critical access hospitals — in Page, Winslow, Bisbee, Nogales and Globe — could close due to Medicaid cuts, a University of North Carolina study found.

"People will lose their coverage, but they will not lose their health care needs," said Mike Renaud, CEO of Valle Del Sol Community Health in Phoenix. "They will continue to need services. … The problem is, there will be no reimbursement for it. How do you sustain that system? The answer is, you can't."

Most of the law's major changes won't take effect until after the 2026 election. How much they sting will largely depend on how Arizona chooses to implement them.

The state will have far fewer dollars to run its Medicaid program, Tepper said, leaving leaders to choose between backfilling the gap with state funds or imposing cuts. AHCCCS is asking for more than $71 million in next year's state budget solely to fund the staff and system updates needed to comply with the new federal mandates.

Gov. Katie Hobbs, a Democrat, has said Arizona doesn't have the capacity to fully replace the federal dollars it will lose — and her budget priorities often clash with those of the Republican-controlled Legislature, which will play a decisive role in how the state responds.

Renaud said state leaders and health care providers alike will need to work together to soften the blow.

"It is a state problem. It is a managed care problem. It is a provider problem. It is a hospital problem. Frankly, it is an employer problem," he said. "The whole entire community is going to have to come together to solve it."

For health center leaders, the question is not whether the cuts will hit but how deeply. That uncertainty makes it hard to plan ahead. In the meantime, organizations like Terros Health and Valle Del Sol are expanding their eligibility teams to help people enroll — and stay enrolled — in Medicaid.

"We're not going to stop caring for people, because that's what we are here for," Renaud said. "We will be under significant stress financially if there's no solution to coverage for these folks."

The stakes are especially personal for Jessica Rhodes, who is starting a new life with her daughter. Recovery is something she works at everyday, she said, and the support of her community health center has been essential. She worries about what happens if that safety net frays.

"You have to chase your recovery the way you chased those drugs," she said. "And without these people and these places that help us? There's no chance."

Adriana Navarro, an investigative reporter and Roy W. Howard fellow, contributed reporting.