Latest HHS provider relief fund FAQs offer insight into what’s permissible under the Sept. 19 reporting requirements

• The U.S. Department of Health and Human Services recently provided responses to numerous questions related to the Phase 3 General Distribution.
• Some of the Phase 3 General Distribution instructions may provide more insight into what’s permissible under the Sept. 19 reporting requirements, according to HFMA’s Chad Mulvany.
• Related to the reporting requirements, it remains unclear in the expenses attributable to the coronavirus and lost revenue guidance sections of the FAQs what accounting basis should be used. 

Since I last provided an update on the U.S. Department of Health and Human Services (HHS)  provider relief fund FAQs, the agency has provided responses to numerous questions related to the Phase 3 General Distribution.

Many of these are included in the application materials. However, a couple of them are worth calling out. Why?  Because they may provide more insight into what’s permissible under the Sept. 19 reporting requirements: Given the Phase 3 distribution to organizations that have already received, more than 2% of their net patient service revenue will be allocated based on a provider’s patient care revenues minus their patient care operating expenses (e.g.,  lost margin). This is the same calculation in the second “step” (item 3) of HHS’s calculation in the Sept. 19 reporting requirements.

In the FAQs, HHS defines “operating revenues from patient care” as “net patient service revenue from the delivery of health care services directly to patients. Net patient service revenue” is defined as “gross charges for patient services delivered, minus contractual adjustments from all third party payors, charity care adjustments, bad debt, and any other discounts or adjustments necessary to arrive at net patient service revenue.”

In a previous FAQ, HHS clarified that while sales of prescription drugs are not included in the revenue calculation, “Patient care revenues do include savings obtained by providers through enrollment in the 340B Program.”

The FAQs define “operating expense from patient care” to be “the operating expenses incurred as part of the delivery of care, including salaries, benefits, medical supplies, contracted and/or employed physicians, interest, and depreciations. Operating expenses from patient care do not include any non-operating expenses, such as costs incurred on any rental property as well as contributions made, gains, and/or losses on investments.”

Takeaway

What’s novel about this is depreciation is not specifically called out in the Sept. 19 reporting requirements. Also, while those reporting instructions clearly allow for G&A expenses to be included in the calculation of lost revenues (e.g., lost margin), they are not specifically mentioned in the FAQs related to the Phase 3 distribution or Phase 3 distribution application instructions. Finally, while the Sept. 19 FAQs mention “finance charges” and costs such as “debt financing,” this may be one of the first times, if not the first time, HHS has used the word “interest.” While I think most assumed that finances charge and debt financing were code for interest, it’s probably good that it appears somewhere in their guidance — even if it’s in the actual reporting instructions.

• Related to the reporting requirements, it remains unclear in the expenses attributable to the coronavirus and lost revenue guidance sections what accounting basis should be used. Are providers reporting accrual basis revenues and expenses in accordance with U.S. Generally Acceptable Accounting Principles (GAAP), cash basis or some hybrid? If GAAP reporting is used, how are differences in timing and amount of recognition between standard setters (e.g., FASB for not-for-profits, FASB for private companies or GASB for governments) to be reconciled? I’m not sure the appearance of depreciation in the phase 3 application does anything to clear that up. But it could be interpreted as HHS is asking providers to follow GAAP for the lost revenue (margin) calculation.
• Finally, given HHS’s whipsaw approach to the FAQs and guidance, any clarity one attempts to derive from the Phase 3 application instructions and FAQs needs to be considered with a measure of caution. The one constant in all of this is that HHS’s guidance has been and will likely continue evolving.