Health Department Updates Provider Relief Fund Reporting Guidance

November 3, 2020

Update (June 21, 2021): Healthcare providers receiving Provider Relief Fund payments will have to report to the government on using such payments before certain newly announced spending deadlines. The first spending deadline is June 30, 2021, with a 90-day reporting period beginning July 1, 2021, to report on funds received in the first half of 2020. For the most recent updates on future deadlines and further guidance on Provider Relief Fund reporting, visit our Provider Relief Fund reporting page.

Update (Jan. 4, 2021): Our recent alert provides details about the Provider Relief Fund provisions in the recent spending bill, which include changes to the definition of “lost revenue,” new flexibility for utilizing relief fund payments, $3 billion in additional appropriations and a new successor General Distribution phase for eligible healthcare providers. These provisions modify certain text below and may lead to additional HHS guidance.

The U.S. Department of Health and Human Services (HHS) recently issued updated reporting requirements, a policy update memo and answers to frequently asked questions (FAQs) addressing mandatory final reports from recipients of support from the Public Health and Social Services Emergency Fund (Provider Relief Fund). These collective guidance documents update and supplement a Sept. 19, 2020, document published by HHS, including specifically revising the definition of “lost revenue” and directing expense and cost reporting.

As discussed in an Oct. 2 client alert, HHS set a Feb. 15, 2021, deadline for each recipient of at least $10,000 from the Provider Relief Fund to report healthcare-related and general and administrative expenses and lost revenue attributable to COVID-19. HHS will require a second report due July 31, 2021, if the recipient expends such funds in 2021. HHS will require more detailed expense reporting for each provider receiving $500,000 or more from the Provider Relief Fund distributions, as well as require all recipients to provide certain demographic information such as tax identification number, national provider identifier, tax classification and fiscal year-end date. Most controversially, in its previous guidance, HHS’ definition of “lost revenue” was inconsistent with earlier Provider Relief Fund guidance. HHS has now updated that definition as discussed further below.

This updated guidance essentially provides HHS’ most fulsome statements regarding use of funds since the Provider Relief Fund’s inception, couched as guidance on reporting expenses offset by other support and reimbursement. Providers that have already expended funds based on guidance available at such time, will now need to carefully review this reporting guidance and re-evaluate their expenditures, prior to submitting their final report and engaging auditors for any required audits discussed in item five in an Aug. 10 client alert. Seven key updates from these three documents include the following:

1. Its Revised “Lost Revenue” Definition Will Help Some Providers. Providers will report both their expenses and lost revenue attributable to COVID-19 to HHS. HHS’ September 2020 reporting guidelines defined “lost revenue” as a “negative change in year-over-year net operating income from patient related sources” (emphasis added). Effectively, HHS shifted revenue to profit after providers relied on earlier HHS guidance that they could use “any reasonable method of estimating revenue” to apply for earlier funding. In its memo, HHS explained it added this limitation to address concerns “that it would be inequitable to allow some providers to be more profitable in 2020 than 2019.” HHS now notes, however, that as it had encouraged providers to use funds to maintain the healthcare delivery system, as shown in this comparison to its prior guidance, it is diverting from a profit measurement and instead asking for “the difference between [a recipient’s] 2019 and 2020 actual patient care revenue.”

This updated definition will assist many providers but it is not perfect. First, providers with expected 2020 growth through acquisitions, service line expansions or de novo facilities, will be capped at 2019 revenue. In the earlier applications noted above, HHS allowed providers to use their budget to estimate this number; now providers must compare year-over-year revenue. Further, this comparison must be for the full year. Providers that have increased services post-community lockdowns will reduce their eligibility to use lost revenue to justify Provider Relief Fund payments and will have to rely on expenses attributable to COVID-19. One other note: Lost revenue is net of uncollectible patient service revenue recognized as bad debt.

2. Reported Expenses Need to Net Third-Party Payor Reimbursement. The Provider Relief Fund terms and conditions have always required recipients to use funds for “expenses attributable to coronavirus not reimbursed by other sources” (emphasis added). For certain programs — e.g., Paycheck Protection Program loans or FEMA grants — providers have known to offset these funds from expenses. HHS now clarifies the need to offset direct patient billing, commercial insurance and government healthcare reimbursement for such expenses. HHS gives its view on how to apply such reimbursement in its FAQs. First, HHS notes that “providers should apply reasonable assumptions when estimating the portion of [expenses] that are reimbursed from other sources.” Second, HHS states that providers can use the “marginal increased expenses related to coronavirus” per each patient visit, giving an example of a provider with pre-pandemic expenses of $80/patient visit rising by $5/visit. In such circumstance, unless a third-party insurer reimbursed additional funds for COVID-19, a provider could record $5/visit as increased expenses, regardless of how much the provider actually received from a patient or third-party source (e.g., if Medicare paid $70 or the commercial insurer paid $100 it would still be recorded as $5 in increased expenses).

3. General and Administrative Expenses Also Must Be Incremental Expenses. For general and administrative expenses, HHS notes that Provider Relief Funds should be used only for incremental expenses or those “expenses incurred that were attributable to coronavirus,” and would again require providers to offset other sources covering such expenses. HHS gives the specific example of a provider with $1,000 in personal protective equipment (PPE) costs in 2019 increasing $3,000 in 2020 (and if some of that was incurred by expansion of services, that could not be included as it needs to be attributable to COVID-19). Providers would then need to “apply reasonable assumptions” to reduce this amount based on other assistance received, including third-party reimbursement. Other potential general and administrative expenses to calculate prior to offset could include “hiring additional security personnel, increased hazard pay, increased cost of utilities to operate temporary facilities, or similar items … not normally incurred.”

4. Employee Expenses Entail a Similar Two-Step Process. HHS also gave employee cost guidance. Effectively, HHS first totals the amount paid for security personnel, registered nurses and a medical director, capping the physician’s compensation at the Executive Level II cap (or $197,300), exclusive of fringe benefits and indirect costs. HHS then proceeds to step two, determining whether any other reimbursement, including FEMA grants and commercial insurance, should be reasonably applied to this amount to reduce the reported number. Only after both steps can a provider include the balance on its final report to retain such Provider Relief Fund payments. Notably, HHS did not indicate any necessary Executive Level II adjustment other than the aggregate cap (i.e., no monthly prorating) but puts the cap before offsetting, which providers will want to review. With respect to the Executive Level II cap, HHS reinforced its position that the limitation applies only to the rate of pay charged to Provider Relief Fund payments and “other” HHS awards. Organizations may pay their employees above the salary cap with non-federal funds.

5. Interest Calculations May Be Necessary. HHS answered multiple questions in its FAQs regarding interest earned on Provider Relief Fund amounts. If a recipient returns funds to HHS (perhaps due to not being able to report appropriate use of all funds received) after those funds were held in an interest-bearing account, HHS must receive that interest, too. HHS notes it will audit for such interest. There is, however, no requirement to hold Provider Relief Fund payments in such an account, so interest will not be required on returned funds the recipient held in a non-interest account. For recipients retaining Provider Relief Fund payments, any interest earned on such funds will be reported as “other assistance received,” to be reported as operating revenue. While 2020 interest rates have not been significant, this guidance may create additional required calculations.

6. Keep Records for at Least Three Years. Consistent with the September guidance, HHS stated in its FAQs that no supporting documentation will be required with the final report. That said, HHS pointed to 2 C.F.R. 200.333 to indicate that each recipient will need to retain original documentation with respect to its participation in the Provider Relief Fund for three years after submitting a final report.

7. Parent Entities Can Report for Consolidated Entities in Many Situations. In the FAQs, HHS provided a helpful table addressing the party that can both use and report on the Provider Relief Fund payments (i.e., the parent entity or the subsidiary). For targeted distributions, such as the amounts provided to hospitals with significant COVID-19 admissions, the subsidiary entity must report on its use of funds. For the general distributions, in most cases, parent entities can direct the funds amongst their subsidiaries, and report on the same. Consistent with past guidance, however, HHS reiterates that parent companies cannot utilize funds intended for providers that were sold in an asset deal.

This updated guidance on reporting comes right before a Nov. 6, 2020, deadline to submit applications for Phase III Provider Relief Fund payments. As discussed in an Oct. 2 client alert, HHS has encouraged providers with increased expenses or lost revenue attributable to COVID-19 to apply for Phase III funding. While funding methodologies have not been fully disclosed, providers may reconsider their applications based on this new guidance, particularly around offsetting third-party reimbursement against use of funds. On the other hand, HHS indicated it would provide further guidance on returning unused funds (or funds that cannot be reported) before the second report is due in July 2021, which could give providers time to make adjustments in the future.

Expect further updates to the FAQs to address questions on final reporting before the Feb. 15, 2021, deadline. McGuireWoods stands ready to assist with any questions about this updated reporting guidance, and will continue to monitor developments before the 2021 reporting deadlines. McGuireWoods has published additional thought leadership analyzing how companies across industries can address crucial business and legal issues related to COVID-19.


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