On March 25, 2020, the U.S. Senate passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) by a 96-0 vote. Thereafter, on March 27, 2020, the U.S. House of Representatives agreed to pass the CARES Act (H.R. 478), by a voice vote, and President Donald Trump signed the bill into law.
The CARES Act provides over $2 trillion in stimulus benefit for the economy. Highlights of the law include certain sick leave and family leave benefits, expanded unemployment benefits, tax provisions that support employers during the 2019 novel coronavirus (COVID-19) pandemic, loans for small businesses and significant financial appropriations for certain industries. Also included in the CARES Act are provisions to help the healthcare industry meet the challenges of the COVID-19 pandemic. These provisions address drug and equipment shortages, provide COVID-19 testing coverage, and, as further described in this legal alert, support hospital providers.
Read on for 10 key things healthcare providers should know about the CARES Act and how it will help hospitals respond to the current pandemic and prepare for future national healthcare needs.
- $100 billion to hospitals and other eligible providers. The CARES Act sets aside $100 billion to the Public Health and Social Services Emergency Fund for eligible providers (including hospitals) to prevent, prepare for and respond to the COVID-19 pandemic. Specifically, the fund seeks to reimburse providers for healthcare items, expenses and lost revenue directly related to the COVID-19 outbreak. The CARES Act provides that the funds may be utilized for, among other things, construction of temporary structures, leasing of properties, medical supplies and equipment, and emergency operation centers. The funds cannot be used to reimburse expenses that have been reimbursed by other sources, and recipients must maintain documentation and submit reports to the Secretary of Health and Human Services (HHS) on an as-requested basis to ensure compliance with the required conditions.
- $250 million for the Hospital Preparedness Program. The CARES Act also sets aside $250 million for the Hospital Preparedness Program, which supports regional collaboration and preparedness/response among health systems and includes the National Ebola and Special Pathogens Training and Education Center; regional, state and local special pathogens treatment centers; and hospital preparedness cooperative agreements.
- Medicare sequestration temporarily suspended. Beginning on May 1, 2020, through Dec. 31, 2020, the CARES Act temporarily suspends the Medicare sequester, which will increase payments to hospitals and other providers during the COVID-19 outbreak. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. The American Hospital Association has estimated this policy will cost hospitals over $85 billion through fiscal year 2029. Thus, this change should reduce the policy’s impact during the pandemic. Providers should note, however, that the CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension.
- Add-on payment for inpatient hospital COVID-19 patients. Hospitals will receive a payment increase of 20 percent for patients diagnosed with COVID-19 and later discharged during the emergency period. The discharge will be identified based on diagnosis codes, condition codes or other necessary means. The CARES Act provides this add-on by increasing the weighting factor for the diagnosis-related groups (DRG) that a COVID-19 discharged patient is assigned by 20 percent, without any budget neutrality adjustment.
- Accelerated payment for hospitals is expanded. For the duration of the COVID-19 pandemic, the CARES Act expands an existing Medicare accelerated payment program, allowing hospitals to request that HHS: (i) make accelerated payments; (ii) increase the amount of payment that would otherwise be made available to the hospital under the Medicare program to up to 100 percent (or 125 percent for critical access hospitals); (iii) extend the period of accelerated payments up to six months; (iv) allow up to 120 days before claims are offset to recoup any accelerated payments; and (v) allow at least 12 months from the first accelerated payment date before requiring payment in full. In addition to those hospitals already eligible for participation, the CARES Act expands participation eligibility to additional hospital provider types, including but not limited to critical access hospitals. Accelerated payments allow hospitals to receive regular, estimated periodic interim payments for hospital inpatient services for what they would expect to receive of unbilled discharges/bills. Expansion of this program will help hospitals sustain a stable cash flow to, in turn, maintain the necessary workforce, purchase supplies and equipment, and treat patients during this pandemic.
- Additional Medicare access granted for post-acute care. The CARES Act seeks to increase Medicare access for post-acute care during the COVID-19 emergency by permitting long-term care hospitals (LTCHS) to maintain their designation in the event that more than 50 percent of the LTCH’s cases are less intensive. Additionally, the legislation permits the Secretary of HHS to waive the application of site-neutral payment rates that currently apply to LTCHs for a patient discharge if such patient was admitted during the emergency period and in response to the COVID-19 pandemic. In addition, this provision would waive the Inpatient Rehabilitation Facility (IRF) three-hour rule. These actions will help fill the need for hospital beds during the pandemic. Such efforts are similar to and will likely work in parallel with the Centers for Medicare & Medicaid Services’ section 1135 waivers announced recently with respect to post-acute care.
- Medicaid payment for home- and community-based attendant services. The CARES Act permits state Medicaid programs to pay for home- and community-based attendant services rendered in an acute-care hospital. The concept of this program is to allow caregivers to assist patients with activities of daily living to reduce the length of such patients’ hospital stay, particularly those patients with disabilities. The program requires that, among other things, the services be identified in a patient’s plan of care and designed to ensure a smooth transition between the acute-care and home-care settings.
- Medicaid disproportionate share hospital reductions delayed. The CARES Act delays the $4 billion in Medicaid disproportionate share hospital (DSH) reductions for fiscal year 2020. Additionally, DSH reductions for fiscal year 2021 are delayed until Dec. 1, 2020 (as opposed to Sept. 30, 2020). The CARES Act also reduces the fiscal year 2021 DSH reductions to $4 billion (instead of the $8 billion originally proposed), with no additional cuts after fiscal year 2025.
- Additional Medicare payment adjustments. The CARES Act provides additional Medicare payment adjustments, including but not limited to halting scheduled Medicare payment reductions for durable medical equipment. In addition, the CARES Act prevents scheduled reductions in Medicare reimbursement for clinical diagnostic laboratory tests furnished to beneficiaries in 2021 and delays reporting private payor data for one year.
- Loans for small hospitals. For-profit and not-for-profit hospitals with fewer than 500 employees each would be eligible for up to $10 million in emergency loans to pay for salaries, healthcare and other employee-related expenses that could be forgiven later if no layoffs occur during the emergency period. Expect further guidance from McGuireWoods on small business loans in the near future.
The various provisions described above may assist hospitals in responding to the COVID-19 pandemic and strengthen the U.S. healthcare system in the years to come. While this alert focuses on provisions that may affect hospital providers, the CARES Act includes various other provisions affecting the healthcare sector, such as those geared toward home health/hospice as well as rural health/the healthcare workforce and expanded telehealth measures, each of which will be discussed in upcoming McGuireWoods alerts.
Please contact the authors for additional information on how the CARES Act could affect the delivery of healthcare at hospital systems. McGuireWoods has published additional thought leadership on how companies across various industries can address crucial coronavirus-related business and legal issues. The firm’s COVID-19 response team stands ready to help clients navigate urgent and evolving legal and business issues arising from the COVID-19 pandemic.