Did You Receive Provider Relief Funds? Hot Topics for Recipients

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, allocated $100 billion under the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund (PRF), to be distributed to health care providers to help ease the financial burden related to COVID-19.

In April 2020, Health and Human Services (HHS) began distributing the first round of the Phase 1 general distribution, which included $30 billion to health care providers. The second phase of the general distribution was a $20 billion disbursement to approximately 15,000 additional providers. If your organization received a PRF distribution, you’ll want to review the topics below and visit the HHS CARES Act Provider Relief Fund FAQs to stay up-to-date on these and other frequently asked questions.

Health Care Related Expenses or Lost Revenues

Providers will be reimbursed for health care related expense or lost revenues that are attributable to coronavirus. HHS’s guidance has agreed that health care related expenses is a broad term and has given some examples of what might be included in this category:

  • Supplies used to provide health care services for possible or actual COVID-19 patients
  • Equipment used to provide health care services for possible or actual COVID-19 patients
  • Workforce training
  • Developing and staffing emergency operation centers
  • Reporting COVID-19 results to the government
  • Building or constructing temporary structures to expand capacity for COVID-19 patients
  • Acquiring additional resources to expand or preserve care delivery

Recipients may be reimbursed for any expenses regardless of when the award money was received as long as it was used for eligible expenses. HHS has said it would be highly unusual for providers to have incurred eligible expenses prior to January 1, 2020.

In addition, lost revenue can be considered for effects associated with fewer elective procedures, fewer outpatient visits, and other revenue foregone because of the provider’s concentration on COVID-19. Payments that the PRF covers for lost revenue must have been lost due to coronavirus complications. HHS suggest determining this amount by looking at similar month’s revenue in the prior year versus the current year. Another way may be to look at the current year budgeted revenue without COVID-19 and compare it to actual results and the difference be attributable to a loss due to COVID-19.

Cost Report Implications

Many recipients of both Provider Relief Funds and Small Business Administration (SBA) loans are required to file cost reports for their entities. This has raised questions on how these funds should be accounted for on the cost report. The Centers for Medicare and Medicaid Services (CMS) have determined that expenses do not have to be offset by the payments received through the Provider Relief Fund. In addition, CMS has stated that any SBA loan forgiveness should not offset expenses on the cost report. Both Provider Relief Funds and SBA loan forgiveness should be reported as income for informational purposes on the cost report. 

Balance Billing

There has not been clear guidance on balance billing for recipients of PR funds. Providers attested in the terms and conditions that they would not bill the patient out-of-pocket expenses beyond the in-network rate for presumptive and actual COVID-19 cases. HHS does not put any stipulations on what is billed to an insurance company; however, if the provider is out-of-network, they may not bill the patient in excess of what they would have billed had the provider been in-network. While HHS broadly views every patient as a possible case of COVID-19, they have made it clear that the prohibition for balance billing only applies to presumptive and actual COVID-19 cases. Further, HHS has defined a presumptive case to be one that a patient’s medical record documentation supports a diagnosis of COVID-19.

Accounting for Medicare Accelerated and Advance Program Payments

Many providers were eligible for and received accelerated or advance payments on Medicare claims that were expected to be filed in the future. These payments were set to be recouped starting 120 days after the advance payment was made. This recoupment would offset other Medicare claims that were filed and would be spread over a period ranging from 120 – 210 days, depending on the type of provider. This created some challenges in regards to proper accounting treatment. The AICPA has responded that these advance payments should be recorded as a refund liability that is reduced as the recoupments are made, if the entity has not adopted ASC 606. If the entity has adopted ASC 606, these payments would be considered a contract liability that would reduce as revenue was recognized in the future for Medicare claims, after the recoupment period had started. 

Change in Ownership

Given the ongoing economic disruption in the industry, changes in ownership amongst providers is increasingly common. As such, this creates questions based upon whether the funds received may be kept and expended or should be returned. The guidance suggests that if the transaction is a stock or membership purchase then the recipient is entitled to continue to use the funds, regardless of the new owner. However, if the transaction is an asset purchase, whether some or all of the recipient’s assets, the recipient should use the funds on qualifying expenses and lost revenues and return the excess. The money received from the PRF should not transfer to the new owner. Excess funds that have been returned by recipients will not be reissued to new owners. The new owners may apply for future funding. HHS plans to release more guidance in this area as it becomes available.

A clarifying point was made on July 30, 2020 that a parent must transfer a payment to any or all of its subsidiaries that qualified for the targeted distribution. The control and use of the funds must be utilized by the entity that was eligible, regardless of which entity actually received the payment.

Tax Implications

Businesses that received funding through the PRF will be required to report the funds as gross income under Section 61 of the IRS Code. These payments will not qualify as disaster relief payments under Section 139 of the Code. Tax exempt organizations will not be subject to tax on these funds, unless they were utilized to offset lost revenues or pay for expenses of an unrelated trade or business as defined in Section 513 of the Code.

Weaver is working directly with HHS and other agencies and will provide more information as more detailed audit and reporting requirements become available. For information, contact us.

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