Provider Relief Fund update: HHS drops requirement for providers to net attributable expenses

In the latest tweak to the rules for pandemic-related provider assistance grants, federal officials dropped an expense-netting requirement that could have cost hospitals.

A Nov. 2 update from the U.S. Department of Health and Human Services (HHS) dropped an earlier requirement about expense and revenue calculations that factor in to grants paid through the Provider Relief Fund (PRF).

The PRF contains $175 billion appropriated by both the CARES Act and the Paycheck Protection Program and Health Care Enhancement Act to cover providers’ healthcare-related unpaid expenses or lost revenues attributable to COVID-19. To keep the funds, providers must comply with reporting requirements.

The latest change to HHS reporting rules dropped a requirement that providers net expenses attributable to the coronavirus — and that aren’t paid for by other resources — from lost revenue attributed to the coronavirus.

The earlier policy would have reduced providers’ attributable lost revenue by what they were claiming for expenses, which are two separate matters, finance advisers said. And expenses attributed to COVID-19 already are netted for revenue.

“HFMA appreciates HHS correcting the issue related to netting lost revenue calculated in Step 2 from expenses attributed to COVID in Step 1,” said Chad Mulvany, director of healthcare financial practices, perspectives and analysis, for HFMA. “However, there are a number of remaining issues, like how providers should normalize their 2019 revenue so it provides an apples-to-apples comparison to 2020 for purposes of calculating lost revenue.”

HHS reiterated an earlier requirement that grant recipients determine lost revenue by comparing their 2019 revenue and expenses to actual 2020 revenue and expenses.

The requirement confused healthcare finance experts because hospitals and health systems are likely to have many expenses and revenue changes from one year to the next, beyond the effects of the pandemic. For instance, such a comparison would be complicated by health plan rate increases. Conversely, hospitals could look like they lost revenue in 2020 if they shut down any service lines.

More updates to reporting requirements

Separate updates to the PRF FAQs and reporting instructions included a first-time clarification on capital expenses. The new instructions require providers who use accrual or cash-basis accounting to use relevant depreciation amounts based on the equipment’s useful life, instead of the full purchase price. The policy likely will mean providers qualify to be reimbursed for a only fraction of the cost of equipment, such as ventilators, that they purchased specifically for the pandemic.

Previously, HHS had not addressed whether providers would owe interest on any repaid PRF grants.

The latest guidance said that not only is any accrued interest from returned grants owed back to the federal government, but such interest also would count as other revenue sources available to cover COVID-19-related expenses or to offset lost revenue.

The clarification may not be significant to providers since banks are offering such low interest rates, said Matthew R. Hutt, CPA, a partner with AAFCPAs.

A change that may grab the attention of critical access hospitals will bar cost-based Medicare providers from using PRF payments to cover costs attributed to COVID-19. The FAQs state that since Medicare payments are cost-based for those providers, there are no eligible expenses.

In instances where a ceiling is applied to the cost reimbursement and the reimbursed amount does not fully cover the actual cost due to unanticipated increases in providing care attributable to the coronavirus, the incremental costs that were not reimbursed are eligible for reimbursement under the PRF.

“It can be very difficult in some cases to be able to offset this,” Hutt said, referencing incremental costs that can emerge in those scenarios.

The provision may be significant enough to cause some providers that receive cost-based reimbursement to return funds, he said.

Other PRF provisions also clarified

The chance for PRF recipients to report before the end of the year on their expenses and revenue was eliminated, since full calendar-year-reporting is now required. The first chance they will have to report to HHS will be Jan. 15 through Feb. 15. Those with pertinent expenses and PRF spending in 2021 will have until July 31 to report.

Outstanding issues include details on the audits that providers could face based on their receipt of PRF grants and their reporting to HHS.