Hospitals warn of ‘devastating’ impact from CARES funds reporting change

Hospital Administration

Providers are urging HHS to reverse course on a reporting change required for them to use billions in federal COVID-19 relief funds, fearing it could force some providers to return the cash.

At issue is a change issued in September to the formula required for providers to account for lost revenue. But HHS has already delivered billions in aid to providers, drawing ire from those saying the ground has shifted only after accepting the funds under different terms.

“These changes would have devastating effects for many hospitals and health systems — particularly those in rural areas and serving vulnerable communities,” American Hospital Association CEO Rick Pollack said in his recent weekly column.

Pollack said HHS has “moved the goalposts” in his characterization of the change. He recently sent a letter to HHS pressing the agency to return to a previous iteration of the reporting requirements.

Defining ‘lost revenue’

The Coronavirus Aid, Relief, and Economic Security Act broadly outlines how the money, roughly $175 billion through multiple pieces of legislation, is supposed to be spent. But HHS has tried to iron out a more specific definition in guiding providers, which has caused concern.

In exchange for taking relief funds, providers have to adhere to certain reporting requirements. In short, the reports are a way for providers to show they’re in compliance with how the funds are meant to be spent.

The CARES Act says providers can use the grants on “health care related expenses or lost revenues that are attributable to coronavirus.”

In initial guidance issued by HHS on June 19, the 58-page FAQ explains that lost revenue means “any revenue that you as a health care provider lost due to coronavirus.” The provider relief funds were meant to be used to “cover any cost that the lost revenue otherwise would have covered,” HHS said.

The June FAQ goes on to say that lost revenue could be measured by calculating the difference between the previously budgeted revenue for March and April and the actual revenue recorded during that dismal period for providers. Or, HHS said, providers could calculate lost revenues by comparing revenues to the same period last year.

The current debate centers on how the agency now wants hospitals and providers to define “lost revenue,” marking a change from June.

In a Sept. 19 notice, HHS said it wants this figure expressed as a change in year-over-year operating income.

In that notice, HHS says that lost revenue is “represented as a negative change in year-over-year net patient care operating income.”

That led some industry lawyers to scratch their heads because revenue is obviously not operating income.

First off, and more generally, compliance experts say it’s unclear how to even calculate this figure based on HHS’ explanation. Tim Fry, an attorney with McGuireWoods, said more guidance is needed if this is the ultimate direction HHS chooses.

“We’re not talking about lost revenue anymore, we’re talking about lost profit,” Fry said.

But in reading between the lines, the concern is that HHS may think its relief packages were too generous and that’s why it’s using this new calculation.

“It does feel like the thinking has evolved,” Mara McDermott, vice president of McDermott+Consulting, said.

An HHS spokesperson said the department is committed to distributing the funds in a way that is not only fast, but fair, simple and transparent. As providers review these terms, “HHS appreciates their input and is considering their feedback,” the spokesperson said.

In AHA’s letter to HHS, Pollack called the new formula “simply unfair and unrealistic.” He said the lost revenue providers are able to claim under the new formula will be reduced, potentially causing some to have to return funds.

It would create an “administrative and accounting disaster,” Pollack said, noting that many hospitals were in the process of closing out their fiscal years when this change dropped.

The issues are separate from HCA Healthcare’s decision last week to return $1.6 billion in CARES grants and repay $4.4 billion in Medicare loans early. The for-profit operator said its conservative approaches and cost control efforts were largely successful, allowing the move.

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