The CARES Act’s Impact on Healthcare Providers and the Healthcare Industry

The Coronavirus Aid, Relief, and Economic Security Act establishes mechanisms for relief that healthcare providers are anxious to access. This alert outlines those mechanisms.

Congress came together to pass the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as its Phase III coronavirus (COVID-19) response and economic stimulus package, focused on providing relief to the healthcare industry and to healthcare providers. President Donald Trump signed the bill into law on March 27, 2020, setting into motion a virtual frenzy for accessing the monetary relief the law provides.

In addition to direct checks cut by the US Department of Treasury to individuals, the law establishes several mechanisms for relief that providers are anxious to access. The CARES Act follows the Families First Coronavirus Relief Act (FFCRA), directed at providing relief to employees, which created two new laws: the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act. Elements of both the FFCRA and the CARES Act could be useful for providers to access for its own employee base, in addition to some benefits that will accrue directly because of the laws.

In general, the CARES Act provides three funding mechanisms:

• Small business administration (SBA) loans. Although these loans are intended to help physicians and smaller healthcare providers impacted by the emergency, they are not, however, limited to physicians and providers. Rather the SBA loans may be accessed by all small businesses that qualify.
• Direct grants to hospitals and healthcare providers. The CARES Act appropriates $100 billion for hospitals to cover expenses and loss revenue associated with the treatment of COVID-19.
• Reimbursement changes to the Medicare program. These include a 20% bump for professional services for COVID-19 patients, advanced payments, sequester relief, the elimination of reduced payments for clinical laboratory tests, and additional flexibility for providing telehealth services, to name only a few.

Providers should begin to take action now, while awaiting a myriad of further guidance on the many provisions highlighted below.

Direct Funding

The CARES Act appropriates $100 billion for hospitals to cover expenses and loss revenue associated with the treatment of COVID-19. Eligible healthcare providers include public entities, Medicare/Medicaid enrolled suppliers and providers, and for-profit and nonprofit entities specified by the Secretary of the US Department of Health and Human Services (HHS) providing diagnosis, testing, or care for individuals with possible or actual cases of COVID-19.

We believe accessing the $100 billion fund will entail an application process administered through HHS, or a Medicare contractor. While we await further guidance, we advise that providers should immediately begin to document all expenses and lost revenue associated with the treatment of COVID-19. Documentation may include description of clinics closed, redeployed staff, or costs associated with creating space for surge capacity and new ICU beds. Additionally, it may include documentation of lost revenue associated with elective surgeries and outpatient services by pulling documentation from the same months during fiscal year 2019.

Medicare Advanced Payments

The Centers for Medicare & Medicaid Services (CMS) quickly published guidance regarding Section 3719 of the CARES Act concerning access to the Accelerated and Advance Payment Program. This provision allows facilities to request up to a six-month lump sum or periodic payment as an advance based on net reimbursement represented by unbilled discharges to unpaid bills. Forms have already become available and providers may begin to access these dollars today. With regard to receipt of the Medicare accelerated payments, providers can refer to the CMS Fact Sheet.

Small Business Assistance Loans

The CARES Act, Section 1102, creates a new $349 billion Paycheck Protection Program for the period between February 15, 2020, through June 30, 2020, that applies to businesses with less than 500 employees. Accordingly, the SBA is authorized to provide 100% federally guaranteed loans up to a maximum to cover expenses, such as payroll support, paid sick or medical leave, mortgage, rent, health benefits, insurance premiums, and utilities. The loans require no collateral or personal guarantees, interest rates are capped at no more than 4%, and there is no recourse by the lender against loan recipients for non-payment unless the recipient uses the loan proceeds for unauthorized purposes.

Employee Retention Tax Credits

Section 2301 of the CARES Act provides employers access to a refundable tax credit against applicable employment taxes for 50% of qualified wages for each employee in each calendar quarter affected by the crisis (up to $10,000 per employee for all calendar quarters). Providers can take advantage of employee tax credit programs, as an alternative to the SBA Paycheck Protection Program, if their business exceeds the minimum to qualify.

To be eligible, employers must have carried on a trade or business in the 2020 calendar year and experienced in a quarter, either (1) a full or partial suspension of their business due to an order from an appropriate government authority limiting commerce, travel, or group meetings because of COVID-19; or (2) a significant decline in gross receipts as compared to gross receipts in the same quarter last year.

Section 2302 of the CARES Act defers payments of employer payroll taxes from the date of the act’s passage until January 1, 2021.

Medical Product Supplies

Among the numerous provisions directed at mitigating medical supply shortages, the CARES Act added a provision to the Public Health Services Act (Section 3103) that addresses liability protection during an emergency and adds to the definition of “covered countermeasures,” the production of personal protective equipment. This would apply to manufacturers and distributors during the public health crisis to further incentivize the production and distribution of face masks and respirators in short supply.

Medicare Changes

As noted, many of the changes applicable to providers occur via amendments to the Medicare statute as follows:

• Adjustment of sequestration. Section 3709 of the CARES Act exempts Medicare programs from the effects of sequestration from May 1, 2020, through December 31, 2020, for any sequestration order issued before, on, or after the date of the act. This will provide a 2% payment boost for a portion of 2020 to offset additional operating and other expenses encountered during the public health crisis.
•  Medicare hospital inpatient prospective payment system add-on payment for COVID–19 patients during emergency period. In an effort to adequately reimburse hospitals for the additional costs associated with treating beneficiaries with COVID-19, Section 3710 authorizes a 20% increase in the diagnosis-related group (DRG) weighting factor for individuals discharged with a COVID-19 diagnosis. The Secretary of HHS will identify such discharges using diagnosis codes, condition codes, or by any other necessary means. In addition, this payment increase is not required to take into account the budget neutrality provisions, which means the increased payments for COVID-19 discharges will not trigger any offsetting payment rate reductions.
• Exemption for telehealth services. Section 3701 modifies Internal Revenue Code provisions related to high-deductible health plans (HDHPs) with health savings accounts (HSAs) to allow coverage of telehealth services prior to when a policyholder reaches the HDHP deductible. Assuming that the HDHP modifies its coverage provisions, this should increase patient access to medical services.
• Inclusion of certain over-the-counter medical products as qualified medical expenses. The Internal Revenue Code provisions for HSAs, Archer Medical Savings Accounts, and Flexible Spending/Health Reimbursement Arrangements are modified to include over-the-counter medication without a prescription and certain menstrual care products as qualified medical expenses (Section 3702).
• Increasing Medicare telehealth flexibilities during emergency period. Section 3703 revises the Coronavirus Preparedness and Response Supplemental Appropriations Act provisions related to expanded use of telehealth under Medicare. Specifically, the CARES Act aligns the law with CMS’s current position on telehealth coverage for Medicare beneficiaries by removing the restriction that only established patients of a physician can receive covered services via telehealth.
• Enhancing Medicare telehealth services for federally qualified health centers and rural health clinics during emergency period. Under existing law, Federally Qualified Health Centers (FQHCs) and Rural Health Clinics (RHCs) are not permitted to serve as a distant site for telehealth consultations. Section 3704 temporarily allows FQHCs and RHCs to serve as distant sites, thereby enabling affiliated physicians to treat Medicare patients in their homes.
• Temporary waiver of the requirement for face-to-face visits between home dialysis patients and physicians. Section 3705 provides temporary relief to the requirement that physicians furnish a monthly face-to-face (in person) clinical assessment of home dialysis patients during the first three months of home dialysis and every three months thereafter.
• Use of telehealth to conduct face-to-face encounter prior to recertification of eligibility for hospice care during emergency period. Hospice organizations may now conduct face-to-face visits via telehealth, through means specified by CMS, for patients in their third benefit period and beyond. Section 3706 offers needed flexibility for professionals to conduct required face-to-face visits remotely to reduce COVID-19 spread and assist with potential staffing challenges. However, these face-to-face encounters can only be performed by physicians or nurse practitioners, and the CARES Act did not modify that requirement.
• Encouraging use of telecommunications systems for home health services furnished during emergency period. Section 3707 directs HHS to consider ways to encourage the use of telehealth services in home health treatment, including the use of remote patient monitoring. This provision does not change existing law, but rather directs HHS to promote use of telehealth for home health agencies in a manner consistent with plans of care for individual patients.
• Improving care planning for Medicare home health services. The CARES Act relaxes Medicare home health billing and documentation requirements. To that end, Section 3708 modifies the conditions of payment by expanding who can certify home health eligibility to nurse practitioners, clinical nurses, and physician assistants under the supervision of a physician. However, unlike other provisions in the act, this change is not limited to the Declaration of National Emergency period, and will allow greater flexibility and utilization of physician extenders and mid-level practitioners (subject to applicable state law) in the home care spectrum.
• Revising payment rates for durable medical equipment (DME) under the Medicare program through duration of emergency period. Although slated to expire on December 31, 2020, Section 3712 extends payments under the DME competitive bidding program through the duration of the public emergency period. For urban areas, the rate, which was supposed to be entirely the reduced competitive bidding rate, is now a blended rate of 75% at the reduced rate, and 25% at the full fee schedule rate.\
• Coverage of the COVID-19 vaccine under part B of the Medicare program without any cost-sharing. Section 3713 includes COVID-19 vaccines as a covered service, without the application of a deductible. This rule applies both with respect to fee-for-service Medicare and Medicare Advantage plans.
• Requires Medicare prescription drug plans and MA-PD plans to allow during the COVID-19 emergency period for fills and refills of covered part D drugs for up to a three-month supply. Allows for Medicare Advantage or Part D plan enrollees to obtain up to a 90-day supply of a Part D covered prescription drug during the emergency period, unless it is contraindicated by a safety review. The CARES Act authorizes the Secretary of HHS to implement the provisions of Section 3714 by program instruction.
• Providing home and community-based services in acute care hospitals. Section 3715 allows hospitals to be the setting for home and community-based services, generally permitted under Medicaid demonstration program waivers.
• Clarification regarding uninsured individuals. The reach of the provisions providing Medicaid coverage for COVID-19 testing for the uninsured, enacted as part of the FFCRA, are modified and expanded by Section 3716.
• Clarification regarding coverage of COVID-19 testing products. Section 3717 provides a clarification to the recently enacted provisions of Section 6004(a)(1)(C) of FFCRA by removing the limitation that coverage of in-vitro COVID-19 testing products be approved, cleared or authorized by the Food, Drug, and Cosmetic Act, Sections 510(k), 513, 515, or 564. This will allow for greater access and cost support for patients requiring testing for COVID-19.
• Amendments to reporting requirements with respect to clinical diagnostic laboratory tests. The CARES Act extends the periods for reporting private payment rates for certain clinical diagnostic tests under the Medicare program by one year. Section 3718 extends the non-reporting period from December 31, 2020, to December 31, 2021, while the reporting period is extended from January 1 through March 31, 2021 until January 1 through March 31, 2022. Additionally, the reductions set to go in effect based on Section 1834A of the Social Security Act are modified to reflect zero percent for 2021 (instead of 10%) and to delay the 15% reduction to 2022-2024.

Medicaid Changes

• Disproportionate Share Hospital (DSH) Supplemental Payment. Section 3813 delays the scheduled $4 billion reduction in Medicaid funding for DSH hospitals until November 30, 2020.
•  Medicaid Federal Matching Assistance Percentage (FMAP Boost). Originally passed as part of the FFCRA, Section 3720 increases the FMAP by an additional 6.2% to help fund state Medicaid programs.
• COVID-19 testing for the uninsured. Section 3716 modifies and expands Medicaid coverage for COVID-19 testing for the uninsured, enacted as part of the FFCRA. Individuals otherwise determined to be uninsured or that may not otherwise qualify for Medicaid, such as those who receive Medicaid for the treatment of breast and cervical cancer, are deemed uninsured for purposes of the law, and will qualify for coverage under Medicaid for COVID-19 testing and payment.

Provisions Affecting Employees

Section 2201 establishes a refundable tax credit for eligible employees, paid in cash, of $1,200 to individuals with adjusted gross income (AGI) of $75,000 or less ($112,500 or less for head of household filers) and $2,400 to married couples filing jointly with AGI of $150,000 or less. Individuals will also receive an additional $500 for each “qualifying child.”

The credit is gradually phased out for taxpayers with AGI over the $75,000/$112,500/$150,000 amounts, and eliminated for individuals with AGI of $98,000 and over, head of household filers with AGI of $136,500 and over, and married taxpayers with AGI of $198,000 and over. Nonresident alien individuals, anyone who is a dependent of another taxpayer, and estates and trusts, are not eligible for the credit. Eligible individuals and qualifying children must have a Social Security number to receive or be considered for payment purposes.

The CARES Act contemplates that the Internal Revenue Service (IRS) will principally administer the issuance of payments by looking to 2019 federal income tax returns to (1) calculate the payments based upon AGI, filing status, and number of dependents; and (2) identify the individual’s address and direct deposit information. If individuals have not filed their 2019 federal tax return, the IRS will utilize their 2018 tax return information, and in circumstances where an individual did not file a 2018 federal tax return, the IRS will utilize information from the Social Security Administration to determine eligibility.

No later than 15 days after the IRS distributes a payment (either electronically or by mail) it will mail a notice to the eligible individual stating the payment method and amount, and contact information for individuals to report any failures to receive the payment. In addition, the relevant governmental agencies shall conduct a public awareness campaign to provide information on payments to eligible individuals and to provide information to individuals who may not have filed a 2018 or 2019 tax return. The payments are not be subject to reduction or offset by any federal income tax or other liability the eligible taxpayer otherwise owes.

Student Loans

Federal student loan borrowers will not be required to make a payment through September 30, 2020 (Section 3513). During this time, no interest would accumulate on those federal loans (payment suspension applies only to loans held by the US Department of Education, not private loans). Regardless, loan borrowers should call their lender to verify eligibility.

Unemployment Insurance

The CARES Act extends unemployment insurance by 13 weeks and includes a four-month enhancement of benefits (Sections 2104, 2107). Unemployment compensation is available for those not eligible for regular unemployment insurance, including those who may have exhausted benefits.

Family Medical Leave Act (FMLA)

Although related specifically to the FFCRA, it is important to mention that paid FMLA leave under FFCRA is capped at $200 per day and $10K in the aggregate. Paid sick leave under the FFCRA is capped at $511 per day and $5,110 in the aggregate; this drops to $200 per day and $2,000 in the aggregate for sick leave taken to care for a family member or because of a school closing.

Philanthropy

All individual taxpayers, whether they itemize their deductions or not, can deduct up to $300 for cash contributions made in 2020 to organizations described in Internal Revenue Code Section 170(b)(1)(A) (Section 2204). While $300 is a relatively small amount, this provision is an important development for nonprofits because it represents a course correction from the Tax Cuts and Jobs Act (P.L. 115-97), which put the charitable contribution deduction out of reach for all but the top 10% of taxpayers. The new provision will help those nonprofits that traditionally have relied on contributions from lower- and middle-class donors for support, including many charities that provide direct services to the needy, houses of worship, and religious organizations. The provision excludes gifts to private non-operating foundations, supporting organizations, and gifts to establish new or maintain existing donor-advised funds.

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:

Washington DC
Michele Buenafe
Scott Memmott
Albert Shay
Howard Young
Jacob Harper

Houston
Greg Etzel
Scott McBride
Sydney Reed 

Boston
Mark Stein