Three Key Things in Health Care

Congress reached agreement on the third round of coronavirus-related relief measures (totaling approximately $900 Billion) as this issue was being written. The relevant statutory language is part of the massive Consolidated Appropriations Act, 2021 (the “Act”) and was released on December 21, 2020. Passage by the House and Senate was swift, and approval by the President is expected. 

Although the relief package only adds $3 Billion in new money to the Provider Relief Fund, three provisos in the appropriations language deserve close attention from hospitals, health systems and other providers:

• Parent entities of multi-provider systems can reallocate Provider Relief Fund payments, including “Targeted Distribution” payments.

The Act states: Provided further, That for any reimbursement by the Secretary from the Provider Relief Fund to an eligible health care provider that is a subsidiary of a parent organization, the parent organization may, allocate (through transfers or otherwise) all or any portion of such reimbursement among the subsidiary eligible health care providers of the parent organization, including reimbursements referred to by the Secretary as “Targeted Distribution” payments, among subsidiary eligible health care providers of the parent organization except that responsibility for reporting the reallocated reimbursement shall remain with the original recipient of such reimbursement:

• This proviso reverses prior CMS guidance and now permits a subsidiary to transfer Targeted Distribution payments as well as General Distribution payments to its parent entity for reallocation across the parent’s other subsidiary providers.
• Curiously, the Act also reverses prior CMS guidance which allowed parent entities to report in cases where a transfer and reallocation is permitted. The Act requires reporting to be undertaken by the “original recipient,” which means the subsidiary if it attested to receipt of the payment.
• The Act does not define “subsidiary,” at least in this context. The most logical approach would treat any entity that consolidates with the parent for financial accounting purposes as a subsidiary. Other approaches (requiring subsidiaries to be wholly or majority owned by the parent entity, for example) would be too narrow, and would leave unaddressed certain types of entities (such as nonstock corporations, which can be controlled by a parent organization but which technically have no equity owners).
• Key Takeaway: The Act provides welcome flexibility to parent entities, permitting them to deploy Provider Relief Fund payments as they deem appropriate without regard to which subsidiary initially received the payment, but how much flexibility won’t be known until future guidance issues.
• Lost revenues can be calculated based on the difference between budgeted and actual revenue under certain circumstances.
  • As we detailed in two prior issues (published September 29 and October 27), CMS has issued conflicting guidance on how to calculate “lost revenues” for Provider Relief Fund purposes–a key concept in determining whether a recipient may have to repay unused funds.
  • In a nutshell, June guidance permitted lost revenues to be calculated using “any reasonable method of estimating . . . revenue,” including the difference between budgeted and actual revenue. September guidance shifted to a lost profits test. October guidance shifted back to lost revenues, but based on the difference in actual patient care revenues from 2019 to 2020.
  • The Act states: Provided further, That, for any reimbursement from the Provider Relief Fund to an eligible health care provider for health care related expenses or lost revenues that are attributable to coronavirus (including reimbursements made before the date of the enactment of this Act), such provider may calculate such lost revenues using the Frequently Asked Questions guidance released by the Department of Health and Human Services in June 2020, including the difference between such provider’s budgeted and actual revenue budget if such budget had been established and approved prior to March 27, 2020.
  • The Act restores the broader flexibility for measuring lost revenues against budgeted revenues from the June guidance, but this may be of little practical effect for providers that already returned Provider Relief Fund payments based on the “lost profits” guidance as there is no clear mechanism to use the revised methodology to get back any returned payments.
  • Providers with a June 30 fiscal year end may also be at a disadvantage under the revised methodology if they did not yet have “established and approved” budgets for the period beginning on July 1, 2020 prior to the March 27, 2020 deadline. Such providers may only be able to calculate lost revenues compared to budget for March-June and then have to use a prior year comparison for the period on and after July 1.
  • Key Takeaway: Going forward the lost revenue test will benefit hospitals and other providers greatly, but payments providers returned before the Act’s passage may not be recoverable and providers with a June fiscal year end might be at a disadvantage if they did not have approved budgets for the upcoming fiscal year prior to the March 27 deadline.
• The bulk of the remaining funds in the Provider Relief Fund are specifically earmarked for losses and expenses occurring in the third and fourth calendar quarters of 2020 and the first calendar quarter of 2021.
  • The Act states: Provided further, That of the amount made available in the third paragraph under this heading in Public Law 116–136, not 3 less than 85 percent of (i) the unobligated balances available as of the date of enactment of this Act, and (ii) any funds recovered from health care providers after the date of enactment of this Act, shall be for any successor to the Phase 3 General Distribution allocation to make payments to eligible health care providers based on applications that consider financial losses and changes in operating expenses occurring in the third or fourth quarter of calendar year 2020, or the first quarter of calendar year 2021, that are attributable to coronavirus.
  • This provision in part authorizes redeployment of funds recovered from health care providers after the date of enactment of the Act, which avoids leaving Provider Relief Funds unused. This maximizes the potential benefit of appropriated funds and is good news for providers.
  • The provision also appears to create a secondary measurement period with its own dedicated pool of relief funds.
    • Current guidance permits providers with unused relief funds to use those amounts to cover lost revenues incurred from January to June 2021 (albeit using the October lost revenue methodology noted above).
    • The Act dedicates 85% of the monies remaining in the Provider Relief Fund as of the date of enactment plus 85% of the payments returned by providers after enactment to be used for eligible expenses and lost revenues occurring from July 2020 to March 2021.
    • The purpose of this secondary measurement period is unclear. It does not limit use of payments already received by providers, but substantially limits the use of any new dollars pushed out by CMS after enactment.
    • The revised methodology for lost revenues (compared to budgeted) may only apply to a portion of this secondary measurement period (July to December) given that most providers with a December fiscal year end did not have approved budgets for calendar year 2021 prior to the March 27 deadline.
  • Key Takeaway: Permitting CMS to reallocate payments returned by providers after the Act’s enactment date will help to maximize the benefit of allocated Provider Relief Funds for providers, but further guidance from CMS is needed to better understand the purpose of the new secondary measurement period.