LawFlash

CARES Act Relief Funds Offer Aid to Healthcare Providers, but Certifications and Overly Creative Use of Funds Are a Fraud Risk

23. April 2020

Medicare (and in the future Medicaid) providers that receive grant money under the CARES Act Relief Fund must pay close attention to the terms and conditions of the assistance and rigorously document how the funds are used to prepare for, prevent, and respond to COVID-19 to avoid potential future False Claims Act allegations.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, through the US Department of Health and Human Services (HHS), provides $100 billion in grants to healthcare providers to address expenses and losses related to the coronavirus (COVID-19) pandemic.

The HHS Public Health and Social Services Emergency Fund relief fund payments (Relief Funds), on top of the CARES Act Payment Protection Program (PPP) forgivable loans and the Medicare accelerated payments, offer welcome financial relief at a time when healthcare providers are under enormous strain from increased expenses and lost revenues due to COVID-19, but also pose a risk for government scrutiny for potential civil and criminal liability. Read our LawFlash about PPP risks.

As of April 23, a “Phase 3.5” coronavirus relief bill that includes an additional $75 billion for the CARES Relief Fund is expected to be signed into law. The appropriation language in the new law is the same as adopted in initial $100 Billion CARES Act appropriation.

DOCUMENTATION OF USE AND ADHERENCE TO TERMS AND CONDITIONS CRITICAL TO AVOID FCA LIABILITY

As healthcare providers receive and decide to use the Relief Funds, they should pay careful attention to the terms and conditions that apply to these grant funds and the requirement to certify to HHS and the Pandemic Response Accountability Committee future compliance with those terms and conditions.

Loose controls and inattention to or disregard for Relief Fund requirements tied to acceptance of Relief Funds now may make providers vulnerable to future allegations of fraud and violations of the False Claims Act (FCA) years later. When the COVID-19 crisis subsides, there is certain to be further government scrutiny, as well as significant activity from the qui tamrelators’ bar representing whistleblowers who hope for a portion of the recovery from FCA actions.

Relief Funds are meant to be used only to prevent, prepare for, and respond to coronavirus, and to reimburse the provider for healthcare related expenses or lost revenues attributable to coronavirus. The $100 billion in cash assistance is separate from the expansion of the Accelerated and Advance Payment Program (AAPP) announced by the Centers for Medicare & Medicaid Services in late March, which provides emergency funding and increased cash flow through short-term, interest-free loans to providers/suppliers based on historical Medicare payments. Read our LawFlash about the AAPP.

The Relief Funds have been allocated as follows:[1]

  • $50 billion for general distribution to Medicare providers
  • $10 billion for hospitals in “high impact areas”
  • $10 billion for rural health clinics and hospitals
  • $400 million for Indian Health Services
  • An undefined amount for the treatment of the uninsured, skilled nursing facilities, dentists, and some providers that solely take Medicaid.

It should be noted that, unlike the AAPP, healthcare providers need not pay back Relief Funds when they are used for permissible purposes. However, the government will audit at least some providers’ use of these funds. Improper use of funds or inadequate documentation, or a determination that the provider received funds to which it was not entitled, could lead to government recovery of funds and could expose providers to substantial risks.

TRANCHE ONE OF RELIEF FUND PAYMENTS AND ADDITIONAL ALLOCATIONS

HHS started to disburse an initial $30 billion first tranche, first initially to hospitals and, on April 10 and the week of April 13, continued providing that Relief Funds to providers based on a formula tied to a provider’s 2019 Medicare fee-for-service (FFS) payments. On April 22, HHS announced that it will begin distribution of an additional $20 billion to providers on April 24 so that the whole $50 billion distribution is allocated proportional to the providers’ share of 2018 “net patient revenue.”

The Relief Fund formula used for this set of payments is as follows:

  • The first $30 billion in payments were based on a healthcare provider’s share of total Medicare FFS reimbursements in 2019.
  • A healthcare provider can estimate its first payment by dividing its 2019 FFS payments (not including Medicare Advantage) by $484,000,000,000, and multiplying that ratio by $30,000,000,000.

The remaining automatic payment, to be made on April 24, will be based on revenue data that a provider submitted in CMS cost reports. HHS has said that providers that do not have adequate cost report data on file will be required to submit their revenue information to a portal opening this week linked on the HHS website in order to be eligible for the general distribution funds. Even if a provider receives this next wave of funds automatically, it will still need to submit revenue information to be verified by HHS. HHS has not yet identified what information will be required, but providers should expect that they will need to certify the accuracy of their information. Even though HHS may accept this information for current purposes, later questions regarding the accuracy of this information could lead to FCA exposure.

TRANCHE TWO (“TARGETED ALLOCATIONS”)

HHS also announced that $10 billion of the Relief Funds will be allocated to hospitals in areas that have been particularly impacted by the coronavirus, such as New York. This distribution will also take into consideration the challenges faced by facilities serving a disproportionate number of low-income patients, as reflected by their Medicare Disproportionate Share Hospital (DSH) Adjustment.

Initially, hospitals were required to apply for the funds by providing specific information via an authentication portal before 12:00 am Pacific Time on Thursday, April 23. Hospitals will be contacted directly to provide this information. The information required consists of (1) tax identification number; (2) national provider identifier; (3) total number of ICU beds as of April 10, 2020; and (4) total number of admissions with a positive diagnosis for COVID-19 from January 1-April 10, 2020. However, the deadline for hospitals to apply for the $10 billion in funds has been extended to 3:00 pm Eastern Time, Saturday, April 25.

An additional $10 billion of the Relief Funds will be allocated to rural health clinics and hospitals. Those funds will be distributed as early as the week of April 27 on the basis of operating expenses, using a methodology that distributes payments proportionately to each facility.

$400 million will be allocated for Indian Health Service facilities. The funds will be distributed as early as the week of April 27 on the basis of facilities’ operating expenses.

HHS also announced “further, separate funding” for providers, including skilled nursing facilities, dentists, and providers that solely take Medicaid. No details were available as of April 23.

Finally, HHS announced that “a portion” of the Relief Funds will be used to reimburse healthcare providers, at Medicare rates, for the coronavirus-related treatment of the uninsured. Every provider that has provided treatment to uninsured coronavirus patients on or after February 4, 2020, can request claims reimbursement through the program. Providers can register for the program on April 27, but no enrollment details have yet been provided. Once enrolled, a provider will need to check patient eligibility and benefits, submit patient information, and submit claims through an online portal. Providers will then receive payments via direct deposit.

ASSESSMENT OF INTENDED USE OF RELIEF FUNDS ESSENTIAL TO ACCEPTANCE

While HHS has already begun distributing the Relief Funds, it stated that, within 30 days of receipt, it will require providers to sign an attestation confirming receipt of the funds and agreeing to the Relief Fund Payment Terms and Conditions, which set forth requirements for acceptance of any funds, use of the funds, and documentation and reporting. The attestation further requires compliance with “any other relevant statutes and regulations.” In an apparent direct reference to the FCA, the attestation states that a provider’s “commitment to full compliance with all Terms and Conditions is material to the Secretary’s decision to disburse these funds to you.”

Providers will have 30 days from receipt to decide to accept the Relief Funds and agree to the Payment Terms and Conditions through an online portal. If a healthcare provider does not wish to agree to the Payment Terms and Conditions, it must reject the funds via the online portal and follow the portal’s instructions to return the funds to HHS within 30 days of receipt of payment. Failure to complete the attestation while not returning the payment within 30 days of receipt will be viewed as acceptance of the Terms and Conditions, audits, and any future documentation requirements.

TERMS AND CONDITIONS ON USE OF FUNDS

Eligibility. To qualify for a Relief Fund payment, a healthcare provider must certify that it billed Medicare in 2019 and provided testing or care after January 31, 2020, for individuals with possible or actual cases of COVID-19. The provider must also certify that it is not currently excluded from participation in federal healthcare programs and does not have Medicare billing privileges revoked. For almost all healthcare providers, that certification will be straightforward. But certifications related to the use of the Relief Funds may present greater challenge.

Use of the Funds. Relief Fund payments may only be used to prevent, prepare for, and respond to COVID-19 and to reimburse healthcare related expenses or lost revenues attributable to coronavirus incurred on or after January 31, 2020.

However, the payments cannot be used to reimburse expenses or losses that have already been reimbursed from other sources or that other sources are obligated to reimburse. While healthcare providers are not precluded from obtaining relief from both the Relief Fund and other sources (such as the AAPP and PPP), they should carefully document the expenses and reimbursements for which the funds are used to ensure that the funds were allocated for an appropriate use (which must be a COVID-19-related healthcare use) and that funds received from the Relief Fund are not used to reimburse expenses previously covered by another funding source. Providers that seek liability insurance coverage for COVID-19-related losses will also need to exercise care related to the use of Relief Funds.

The Payment Terms, reflecting longstanding policies in other federal appropriation laws, limit the use of the funds for lobbying, gun control, embryo research, and abortions. HHS has adopted many of the terms and conditions typically used in connection with federal grants. However, entities accepting the funding that do not typically receive federal grants will want to pay close attention to ensure that they understand all aspects of these provisions. For example, the Payment Terms prohibit the use of the funds to pay the salary of any individual above the Executive Level II salary cap (currently $197,300 per year). Also, whistleblower protections specifically apply to reporting of misuse of the Relief Funds.

Reporting Requirements. Providers that accept Relief Funds are required to maintain documentation of their compliance and shall submit reports “as directed by HHS.” The agency has not yet stated what specific reports will be required other than to say that any such reports shall be in such form, with such content, as specified by HHS in future program instructions.

In addition, providers that receive more than $150,000 in total funds under the CARES Act, the Coronavirus Preparedness and Response Supplemental Appropriations Act, the Families First Coronavirus Response Act, or any other Act primarily making appropriations for the COVID-19 response and related activities, are required to submit a report to HHS and the Pandemic Response Accountability Committee. This report must contain, among other things:

  • The total amount of funds received from HHS;
  • The amount of funds received that were expended or obligated for each project or activity;
  • A detailed list of all projects or activities for which funds were expended or obligated, including the name and description of the project or activity and the estimated number of jobs created or retained by the project or activity.

No Balance Billing. The Payment Terms include a requirement that any provider accepting Relief Fund payments certify that for all care for a possible or actual case of COVID-19, the provider will not seek to collect from the patient out-of-pocket expenses (e.g., co-payments) in an amount greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network provider.

CRITICAL REVIEW OF USE AND DOCUMENTATION NOW IS KEY TO AVOIDING FUTURE LIABILITY

As healthcare providers certify their qualification to access the Relief Funds, it will be critically important to monitor and document compliance with the Payment Terms and Conditions. As with all payments from the federal government, misuse of the Relief Funds or accepting funds to which one is not entitled could lead to allegations of fraud and liability under the FCA, which carries with it treble damages, as well as significant fines. HHS has cautioned providers that it will conduct significant antifraud and auditing work, which is underscored by the allocation of $6 million to the HHS Office of Inspector General for oversight activities related to the CARES Relief Funds.

For providers that receive the Relief Funds, but neither use those funds for permissible coronavirus related purposes, nor remit the money to HHS, relators might even allege there is reverse False Claims Act liability for knowingly retaining those amounts (i.e., refund obligations). Healthcare provider employees who suspect fraud or abuse may hope to seek a portion of any government recovery, which serves as a significant incentive to report suspected fraud, waste, or abuse to the government. Whistleblower attorneys are also motivated by the FCA provision granting the right to recover attorneys’ fees and expenses and, anecdotally, we have seen that whistleblower lawyers are already planning for the future actions related to the Relief Funds. The Department of Justice will also not hesitate to initiate criminal proceedings if it believes that a provider has misallocated funds or taken efforts to either provide false information to the government or conceal how funds were used.

As a result, providers will want to be vigilant in how the Relief Fund payments are allocated to address COVID-19 care and prevention, and related losses. Providers should consistently track expenses and payments tied to any Relief Funds, ensuring the funds are not used for expenses not already reimbursed from another source, including other COVID-19-related government aid programs. Such documentation should include a clear and detailed description of healthcare expenses or losses that are attributable to COVID-19. Some providers are creating a separate bank account to assist with the tracking and administration of these Relief Funds.

For providers that regularly receive government grants, such as academic medical centers, this compliance monitoring will be familiar, but will continue to be an important aspect of your compliance procedures, with particular attention to internal concerns raised by employees. For providers unfamiliar with federal grant compliance, this may be a new area requiring diligent attention and additional focus on compliance programs and procedures.

As with any government grant funding, if the funds are used inappropriately or a provider lacks supporting documentation, the government can request a refund of the funds and/or pursue a case under the FCA. Many providers have refunded grant payments or settled FCA allegations related to inappropriate expenses charged under federal grants, with significant investigation costs and penalties. Those same compliance risks will exist for any payment under the Relief Fund.

Accepting funds for which a provider is not eligible could also lead to liability. Indeed, HHS is already facing pressure to account for the disbursement and use of the Relief Funds, with the chairman of the Ways and Means Committee, Richard E. Neil, commenting in an April 22 press release, “[t]he Secretary has indicated that HHS will improve the transparency around the Provider Relief Fund. The agency must do better on this front. Accountability is crucial as the government implements the new COVID-19 response laws and distributes these huge sums of money.”

CORONAVIRUS COVID-19 TASK FORCE

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Boston
Mark Stein

Chicago
Megan R. Braden
Tinos Diamantatos 

Houston
Greg Etzel
Scott McBride
John W. Petrelli 

Miami
Alison Tanchyk

New York
Kelly A. Moore
Martha B. Stolley
Daniel B. Tehrani

Philadelphia
Meredith S. Auten
John C. Dodds
Lisa C. Dykstra
Rebecca J. Hillyer
Ryan P. McCarthy
Zane David Memeger
John J. Pease, III
Eric W. Sitarchuk

Washington DC
Douglas W. Baruch
Michele Buenafe
Giovanna M. Cinelli
Brad Fagg
Kathleen McDermott
Scott Memmott
Kenneth J. Nunnenkamp
Albert Shay
Jennifer M. Wollenberg
Howard Young


[1] As of April 23, HHS has not provided any details regarding the allocation of the additional $75 billion that is expected to be added to the CARES Relief Fund.