Critical access hospitals will avoid Medicare cuts stemming from Paycheck Protection Program loans, Verma says

• CMS will not count Paycheck Protection Program loans against rural providers’ expenses when calculating Medicare payments, the agency’s administrator says.
• The announcement followed advocacy by hospitals and their allies.
• Four rural hospitals have closed since the start of the pandemic, supporters note.

Although some critical access hospitals (CAHs) may have heard from Medicare contractors that they needed to deduct federal coronavirus loans from their expenses reported to Medicare, that policy will not apply, according to CMS Administrator Seema Verma.

Verma recently tweeted that 1,350 CAHs should not expect loans from the Paycheck Protection Program (PPP) to be deducted from their expense-related Medicare payments.

“CMS does not intend for Paycheck Protection Program funds to impact Medicare payments to rural hospitals,” Verma wrote. “More guidance will be out soon that’ll explain how hospitals should report those funds on their Medicare Cost Reports.”

Deducting Medicare loans from Medicare cost reports would have cost rural hospitals millions of dollars in lost payments, advisers say.

“We consider this a victory for rural health,” Brock Slabach, senior vice president for the National Rural Health Association (NRHA), said in an interview. “This only applies to critical access hospitals because we’re the only ones who are paid under costs.”

MACs had issued warnings about loans

Slabach said some CAHs already had heard from Medicare administrative contractors (MACs) that they must subtract PPP loans from their salary and wage expenses when seeking future Medicare payments. However, CMS had not issued any public guidance on the issue.

Medicare patients encompass on average about 50% to 60% of CAH patient populations and associated costs, which are used to calculate Medicare payments, said Dave Snow, JD, an attorney for Hall Render.

“They’re basically cutting your Medicare reimbursement in half or taking back half of the CARES Act money,” Snow said. “That’s totally the wrong answer under existing law and cost report rules.”

The PPP loans, approved through the CARES Act, aimed to incentivize small businesses to keep their workers on payroll by forgiving the loans if workers were retained. Rural hospitals and other small hospitals cited the loans as a key tool for weathering the financial fallout from the COVID-19 pandemic.

As of Aug. 8, the Small Business Administration reported that 532,775 PPP loans were made to “health care and social assistance” entities, with those organizations receiving $67.8 billion, or 12.9% of total payments.

The clarification from CMS is expected soon because hospitals with fiscal years ending June 30 would have to use PPP loan information to complete their Medicare cost reports due Nov. 30, Snow said.

“Nobody is recognizing it as a reduction in costs under normal accounting through GAAP,” Snow said, referring to CAHs.

Hospitals and others push for favorable policy on PPP loan forgiveness

The clarification from Verma followed entreaties from a number of national groups, including NRHA, about the adverse financial impact of counting the loans against expenses. The National Rural Lenders Roundtable (NRLR) warned Verma in a letter that a Medicare labor cost offset could result in a loss of 70% to 80% of a rural healthcare provider’s PPP loan-forgiveness amount.

“Prior to this PPP funding, these rural healthcare providers were operating at the narrowest of financial margins,” NRLR wrote.

The lender group noted four rural hospitals have been forced to close since the start of the pandemic.

Sen. Susan Collins (R-Maine) wrote Verma in a July 29 letter, co-signed by two other senators, that “any effort to recapture or disallow loan forgiveness — which is what reports indicate the CMS interpretation would do — would defeat the goal of the PPP and threaten the livelihood of small providers amidst a global pandemic.”

The senators also wrote, “Recognizing that millions of jobs were at risk, we deliberately designed these loans to be forgivable so long as employers met the conditions set out in the law, and used the money to keep staff paid and employed.”