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Legal Insights and Perspectives for the Healthcare Industry

COVID-19: HHS Expands Phase 3 Relief Fund Provider Pool, Responds to ‘Lost Revenue’ Concerns

The US Department of Health and Human Services (HHS) issued two welcome announcements on October 22 relating to the CARES Act Relief Fund Provider Relief Fund (PRF). First, the agency expanded the pool of eligible recipients to “include provider applicants such as residential treatment facilities, chiropractors, and eye and vision providers that have not yet received Provider Relief Fund distributions.” The full list of providers eligible for PRF Phase 3 Payment application is listed on the HHS website, and HHS confirmed that these providers may apply “regardless of whether they accept Medicaid or Medicare.” (Read the announcement for more information.)

These providers would have until November 6, 2020 to make an application through the public portal, and once validated, “will receive a baseline payment of approximately 2% of annual revenue from patient care plus an add-on payment that considers changes in operating revenues and expenses from patient care, including expenses incurred related to coronavirus.” Like recipients of Phase 1 and Phase 2 recipients, these new eligible providers would be required to attest to compliance with the terms and conditions, including reporting requirements, associated with PRF payments.

Second, HHS also heeded the chorus of criticism related to its September 19 guidance related to the agency’s calculation methodology for lost patient revenues that may be compensated from PRF payments. In its September 19 iteration of the General and Targeted Distribution Post-Payment Notice of Reporting Requirements, HHS had limited the reporting of lost revenues covered by the PRF to be those that were “represented as a negative change in year-over-year net patient care operating income (i.e., patient care revenue less patient care related expenses for the Reporting Entity, defined below, that received funding).” This 2019 to 2020 comparative net income approach raised several significant concerns from the healthcare industry and appeared to run counter to prior PRF lost revenue guidance issued by the agency. HHS recognized and responded to these concerns in a separate October 22 policy memorandum, stating:

This decision to prohibit most providers from using PRF payments to become more profitable than they were pre-pandemic, in order to conserve resources to allocate to providers who were less profitable, has generated significant attention and opposition from many stakeholders and Members of Congress. 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.

As a result, the Notice of Reporting Requirements was simultaneously updated to reflect that lost revenues would be considered to be the negative difference between the 2019 and 2020 actual revenues from patient care. To the extent PRF payments have not been expended by year end, providers have an additional six months to claim against actual lost revenues from 2021 when compared to 2019.

While the changes are welcome clarification from HHS, and should permit a wider range of permitted uses for the PRF Payments, they are also a reminder that the legal guidance and reporting requirements continue to evolve around these significant government payments. Providers should work closely with their legal counsel as they develop their processes for compliance with the PRF reporting requirements and ready their organizations for audits or other scrutiny that will look closely at the use of PRF Payments and associated calculations and accounting methodologies.

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