HHS Loosens Restrictions on COVID Relief Fund Spending

Ken Terry

October 28, 2020

Responding to the concerns of physician and hospital associations and some members of Congress, the Department of Health and Human Services (HHS) has backed off from recent reporting requirements for groups that have received payments from the Provider Relief Fund (PRF), a $175 billion fund established by the CARES Act. However, it's unclear whether HHS' new approach will satisfy healthcare providers.

In an October 22 policy statement and guidance that significantly revised the content of guidance released on September 19, HHS explained that it had imposed the reporting requirements to prevent PRF payments from making some providers more profitable in 2020 than they were before the coronavirus pandemic.

HHS' September guidance "has generated significant attention and opposition from many stakeholders and members of Congress," the department said. "There is consensus among stakeholders and members of Congress who have reached out to HHS that the PRF should allow a provider to apply PRF payments against all lost revenues without limitation."

The American Group Medical Association (AMGA) sent HHS a letter on October 21, the day before the policy change, in which it explained what's at stake. Earlier guidance from the department, AMGA noted, had indicated that the providers could calculate COVID-related lost revenues by using "any reasonable method." That included basing the calculation on the difference between budgeted and actual revenue in 2020.

The September guidance document, in contrast, said that providers had to calculate their lost revenues by computing the negative change in their net operating income from 2019 to 2020.

"Earlier guidance allowed our members to use 'any reasonable method' to determine their expenses and losses due to COVID-19," the letter said. "Now, HHS is changing that calculation to one that will not capture the extent of their losses. AMGA members are still facing severe financial headwinds as they continue to deal with new COVID outbreaks and a difficult economic outlook. Changing the rules in the middle of this pandemic just adds to our members' existing burdens. HHS should reinstate the earlier standard."

The October update of the guidance, however, does not do that. Instead, HHS said, "Recipients may apply PRF payments toward lost revenue, up to the amount of the difference between their 2019 and 2020 actual patient care revenue."

AMGA spokesman Matt Clark told Medscape Medical News that because AMGA members had not yet been asked for their reaction to the new policy, the association could not comment on it.

The Medical Group Management Association (MGMA), which agreed with AMGA's objections, also had no substantive comment. "This latest update is definitely welcome, but it's complicated, and we have to analyze it to determine whether it meets our concerns or whether it still needs improvement," said Mollie Gelburd, associate director of government affairs for MGMA, in an interview with Medscape Medical News.

Getting Down to Nuts and Bolts

Under both sets of reporting requirements, physician practices that received more than $10,000 in PRF payments must report their healthcare-related expenses attributable to the coronavirus that haven't been reimbursed by another source. After subtracting that amount from the PRF payment, they can then apply the remainder to cover financial losses.

In the September guidance, these losses were defined "as a negative change in year-over-year net patient care operating income (ie, patient case revenue less patient care related expenses…)."

According to AMGA, this approach created several problems for physician groups. For one thing, if a group took on additional providers in 2020, its net revenue might grow. "However, the increase in volume is a result of the new clinicians joining and not due to growth in volume of services delivered," the letter said. "COVID-19 continues to decrease patient volume, and in fact, the average revenue per clinician is well below last year's figures."

AMGA also pointed out that changing the definition of losses would require providers who relied on the earlier guidance to reevaluate how this modification affects their use of the PRF money — an additional administrative burden.

The September guidance requires that providers apply any COVID-related healthcare expenses to the PRF money before calculating lost revenues, AMGA noted. Combining that with the change in the definition of lost revenue, the association said, "HHS is creating a situation in which it is possible that COVID 'attributable' expenses and lost revenue is less than the amount a provider received from the PRF. This raises a number of concerns, not only about how these funds may be used, but also about possible tax implications."

The September document said that in the first half of 2021, providers could apply any amount remaining after the end of 2020 "toward lost revenues in an amount not to exceed the 2019 net gain." In contrast, the October guidance bases the extension of PRF spending on revenue.

If recipients of PRF funds do not use all the money by the end of 2020, the updated guidance said, they will have an additional 6 months in which to use the remaining amount toward unreimbursed expenses attributed to coronavirus or to lost revenues "in an amount not to exceed the difference between 2019 and 2021 actual revenue."

In both documents, the allowable spending of these amounts will be calculated by comparing revenue for the first half or first quarter of 2019 with volume for the first half or first quarter of 2021.

No more PRF money is available. The deadline for applying for a relief payment was August 28.

Will Funds Have to Be Repaid?

The PRF payments are grants, not loans. Nevertheless, Gelburd said, it is possible that some practices might have to repay some of the money under HHS' new policy.

Although the most recent HHS guidance doesn't say that specifically, Gelburd noted that HHS can audit how a practice spent its PRF payments. So it's vital for groups to keep track of how they calculated their potential losses and what set of reporting requirements they used.

"What we've told groups to do is pull down all their documents and the guidance as evidence of what they relied on," she said. "When the reporting kicks in, since it has shifted, it's important to create a document trail and say, when I applied for the funds, this is what I was using. When the reporting comes, HHS will be looking at auditing and even recoupment if they determine that funds were not properly expended."

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