United States: Congress Delivers Legislative Relief To Provider Relief Fund Recipients

After weeks of negotiations, the Senate and House passed a legislative package combining a $900 billion COVID-19 relief bill with a $1.4 trillion omnibus bill. The massive 5,500+ page bill officially titled the Consolidated Appropriations Act, 2021 (the "Act"), passed both the Senate and House with overwhelming bipartisan support. President Trump is expected to sign the Act into law on Tuesday, December 22.

The Act appropriates an additional $3 billion to the Provider Relief Fund ("PRF") and makes major revisions to the existing Department of Health and Human Services ("HHS") PRF Guidance.

Most significantly, the Act provides greater flexibility for calculating "lost revenue" for purposes of reporting and retaining PRF payments. The change overrides current HHS guidance that requires recipients to compare 2019 actual patient care revenue to 2020 actual patient care revenue when calculating lost revenue. The Act will also allow recipients to allocate Targeted Distribution payments to related entities under common control, flexibility that was previously limited to General Distribution payments only.

These two changes will help hospitals and other providers keep millions in PRF payments and help them continue to serve their patients and communities during the ongoing public health crisis. Below is additional information about the PRF revisions included in the Act and the impact on recipients.

Highlights and Key Takeaways

• Lost revenue: The most significant change to the PRF is a clarification about how recipients calculate COVID-19 related "lost revenue." The Act provides that recipients can calculate lost revenues consistent with HHS guidance issued in June 2020 (described in more detail below). This means recipients are no longer restricted to calculating lost revenue based on a year to year actual patient care revenue comparison as described in current HHS guidance.
• System Allocation of Targeted Funds: The Act will allow parent organizations to allocate Targeted Distributions to subsidiaries, flexibility that was previously limited to General Distribution payments.
• Additional Funding: The Act would appropriate an additional $3 billion to the Relief Fund. This is a substantially lower number than was included in an earlier version of the bill, but the Act does include billions in additional funding related to vaccine distribution and administration.
• No Reporting Delay: The Act does not include any delay in the reporting requirements scheduled to begin January 15 with first reports due by February 15. Though it is possible HHS could delay the reporting requirements in response to the changes included in the Act and/or the change in administration.
• Diligently Prepare for Reporting Period: Providers should continue diligently preparing to report on the use of PRF payments taking into consideration the revisions included in the Act. There are only a few weeks left before the first report is due on February 15, 2021.

Lost Revenue Calculation

The most significant Congressional "fix" to the current HHS PRF guidance is undoubtedly allowing greater flexibility for recipients to calculate COVID-19 related lost revenue. The Act states:

"[a] provider may calculate such lost revenues using the Frequently Asked Questions guidance released by the Department of Health and Human Services in June 2020, including the difference between such provider's budgeted and actual revenue budget if such budget had been established and approved prior to March 27, 2020."

This language overrides current HHS guidance that requires providers to calculate lost revenue by comparing 2019 actual patient care revenue to 2020 actual patient care revenue, a restrictive approach that left many providers facing the prospect of needing to return millions in much-needed PRF payments.

The language in the Act will allow providers significantly more flexibility in deciding how to calculate the impact of COVID-19 on their revenue. The reference in the Act to a June 2020 HHS FAQ is presumably to the HHS FAQ that describes the expenses or lost revenues that are "considered eligible for reimbursement" using PRF payments. That FAQ was modified on June 19 (and later modified again on October 28). The June 19 version of the FAQ described the term lost revenue broadly as "any revenue that [a recipient] as a healthcare provider lost due to coronavirus." The June 19 FAQ also clarified that recipients could "use any reasonable method" for estimating COVID-19 related lost revenue (though at the time the FAQ was only referring to lost revenue in March and April).

The description in the Act, essentially reverting back to June HHS guidance, will allow recipients to calculate lost revenue in a way that best reflects how COVID-19 impacted their unique situations.

In preparation for the upcoming PRF reporting, Providers should immediately begin working with their financial, accounting, and legal advisors to determine how to best calculate their lost revenue consistent with the new legal standard included in the Act.

System Allocation for Targeted Distributions

The flexibility previously afforded only to General Distributions will now be available for Targeted Distributions as well. The Act states:

". . . for any reimbursement by the Secretary from the Provider Relief Fund to an eligible health care provider that is a subsidiary of a parent organization, the parent organization may, allocate (through transfers or otherwise) all or any portion of such reimbursement among the subsidiary eligible health care providers of the parent organization, including reimbursements referred to by the Secretary as ''Targeted Distribution'' payments, among subsidiary eligible health care providers of the parent organization except that responsibility for reporting the reallocated reimbursement shall remain with the original recipient of such reimbursement."

Similar to the fixes to calculating lost revenue, this change could have an enormous beneficial financial impact on multi-corporate health systems.

Current HHS guidance allowed parent organizations to allocate General Distribution PRF payments among separate legal entities but required Targeted Distribution payments to remain with the legal entity that received the applicable payments. This lack of flexibility adversely impacted numerous health systems, particularly systems with various provider operations housed within separate legal entities. In these multi-corporate structures, it has been common for Targeted Distributions (rural, safety net, high impact, etc.) to be "stuck" in an overfunded legal entity (TIN), with no system flexibility to reallocate the funding among affiliates, even though those other legal entities may be underfunded.

The revision allowing parent organizations to allocate General Distribution and Targeted Distribution payments to subsidiary organizations better accounts for the different corporate structures used by health systems and will again allow systems to retain millions in PRF payments. However, it is important to note that reporting obligations for reallocated funds will remain with the original recipient. Affected systems will therefore need to establish tracking and reporting guidelines for these intra-system reallocations.

Additional Funding and Distribution of Remaining Funds

The Act includes an additional $3 billion in funding to the PRF. In addition, the Act provides that at least 85% of the unobligated PRF balance and any future funds recovered from providers must be used for additional distributions that consider financial losses in the third and fourth quarters of 2020 and the first quarter of 2021.

No Delay in Reporting

As a reminder, the HHS PRF reporting system is scheduled to open on January 15 with the first report due February 15, 2021. A final report is due for most recipients on July 31, 2021. The Act does not include any delay or modification to this reporting schedule.