Accounting and Financial Reporting

Federal assistance rule changes draw increasing hospital concern

October 5, 2020 4:02 pm
  • Issued Sept. 19, HHS rule changes for provider grants are drawing increasing concern from rural and safety net hospitals.
  • Some expect the changes will require those hospitals to pay back most of the federal COVID-19 assistance they received.
  • Discussion on the rules is ongoing, with provider feedback previously having led to beneficial changes.

Uncertainty over mid-September rule changes has led many lower-income hospitals to not spend their federal COVID-19 grants and left others scrambling to pay back money they spent.

A Sept. 19 notice from the U.S. Department of Health and Human Services (HHS) changed CARES Act Provider Relief Fund (PRF) reporting requirements from those outlined in a June 19 FAQ.

As part of those requirements, HHS initially defined lost revenue as “any revenue that … a health care provider lost due to coronavirus.” It stated that hospitals could “use any reasonable method of estimating the revenue during March and April 2020 compared to the same period had COVID-19 not appeared. … It also would be reasonable to compare the revenues to the same period last year.”

The new definition of lost revenue was “represented as a negative change in year-over-year net patient care operating income.” The new guidance also said that after covering the cost of COVID-19-related expenses, hospitals generally will be able to apply PRF payments toward lost revenue only up to the amount of their 2019 net patient operating income.

The American Hospital Association (AHA) wrote HHS a Sept. 25 letter warning about negative financial consequences for hospitals from the recent guidance and urging the agency to revert to the earlier guidance.

“The PRF funds have helped them continue to put the health and safety of patients and personnel first, and in many cases, ensure they are able to keep their doors open,” wrote Rick Pollack, president and CEO of AHA. “HHS’s Sept. 19 guidance jeopardizes this position and will come at the cost of access to care for patients and communities.”

Effects on rural hospitals

The significance of the changes has become clearer to a growing number of hospitals, including those in rural areas that have struggled in recent years to keep their doors open.

“We’re working through some of it now, and we’re seeing the problems with the language that is in there,” said Brock Slabach, a senior vice president with the National Rural Health Association (NRHA).

The issue is affecting rural critical access hospitals (CAHs) differently than hospitals paid under the Medicare prospective payment system because CAHs are paid based on their costs, which they won’t know until the end of their fiscal year. A large number of CAHs ended their fiscal years June 30 and are beginning to find they will owe PRF money back to the federal government.

“Hospitals with June 30 fiscal year ends were in the final process of closing their books and are now unable to do so and scrambling to understand how this unexpected shift in methodology will impact them,” Nancy Galvagni, president and CEO of the Kentucky Hospital Association, wrote in a Sept. 28 letter to HHS. “Some may even be put in a position of failing their bond covenants.”

One rural hospital estimated that the rule changes will require it to return almost 90% of its PRF funds  — $3.9 million out of $4.5 million, according to AHA.

Such concerns are among a large number of uncertainties about the federal assistance. Another is the point in a hospital’s financial statement at which Paycheck Protection Program loan forgiveness applies.

Other areas of confusion include how to account for fundraising, said Dave Macke, FHFMA, CHFP, director of healthcare reimbursement services for VonLehman, an accounting firm.

“It’s not third-party patient revenue, but you could make an argument that [it] is patient revenue,” Macke said.

The definition change could especially hurt hospitals that took aggressive cost-cutting steps in response to severe revenue losses stemming from bans on elective surgeries, hospital advocates say.

Safety-net hospitals seek reversal

The changes have raised similar concerns among urban safety net hospitals.

“We’re concerned the post-payment guidance is inconsistent with the department’s previous definitions of lost revenues and expenses,” said Shahid Zaman, a principal policy analyst with America’s Essential Hospitals (AEH). “This could result in essential hospitals [that are] confronting COVID-19 in their community having to return their PRF payments.”

Zaman highlighted the revised definition of lost revenues as a particular problem, noting it complicates comparing actual revenue to budgeted revenue for 2020 and includes expenses in the revenue calculation.

“Elements of the department’s guidance are burdensome, confusing and inconsistent, which could result in unreliable and nonuniform data being reported by hospitals,” Zaman said. “We believe HHS should withdraw this guidance and work with providers to issue guidance consistent with its previous definitions of lost revenues and expenses.”

AEH is formulating a detailed response to HHS.

Could HHS revise the guidance?

Slabach said HHS has been responsive to previous guidance-related concerns that hospitals have raised.

“We just started the conversation, so to speak,” Slabach said.

Although some believe HHS made the changes as a way to recoup some of the PRF funds it had allocated to hospitals, Slabach assumed that HHS thought the rule changes would help hospitals.

“I don’t think any rural hospital CEO expects to get a big windfall off of the pandemic at the government’s expense,” Slabach said.

But accommodating pandemic-related expenses only through the end of 2020, as described in the new guidance, will leave hospitals without federal help to cover potentially large pandemic-related responses during the winter, when COVID-19 cases may accelerate, he said.

AHA also is pushing for reversal of the PRF changes, including talking with congressional leaders, according to a Oct. 2 update. The group also urged hospitals to contact local congressional representatives and the White House about the issue.


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