Accounting and Financial Reporting

In partial win for providers, HHS revises COVID-19 grant reporting

October 26, 2020 1:46 pm
  • Updated guidance on the use of COVID-19 grants reverted to an earlier definition of lost revenue after provider pushback.
  • The continued requirement to use calendar-year reviews will create complications for many hospitals that use different fiscal-year time frames.
  • Among many remaining unknowns is how to define facility costs.

In response to pressure from providers and members of Congress, the Trump administration again changed reporting requirements for more than 170,000 providers that have received federal grants for weathering the COVID-19 pandemic.

On Oct. 22, the U.S. Department of Health and Human Services (HHS) issued documents (see: new notice of reporting requirements and reporting requirements policy update) detailing a range of changes to the reporting requirements for recipients of more than $100 billion in Provider Relief Fund (PRF) grants. Congress appropriated the funds to help providers survive the financial damage of pandemic-response costs and lost revenue from COVID-19-related government restrictions.

The PRF grants may be used sequentially for either:

  • COVID-19-related expenses
  • Lost revenue

The most significant change in the new guidance was to the definition of lost revenue. The latest change effectively reversed a Sept. 19 notice from HHS on CARES Act PRF reporting requirements and restored those outlined in a June 19 FAQ.

Initially, PRF distributions were based on revenue losses calculated by comparing March and April 2020 revenue to the same period in 2019 or to the organization’s budget.

That was changed in September from a focus on revenue changes to changes in profitability.

Providers responded by complaining to HHS that “everyone had already factored [the June approach] into their covenants, and they factored it into their spending plan, and everything was based on this, and now at the 11th hour you’re changing it,” said Matthew R. Hutt, CPA, a partner with AAFCPAs.

The Oct. 22 change means providers can compare actual revenue in 2019 and 2020, but in a change from the June guidance, the comparison will be based on calendar-year reporting.

“That’s more in line with the original intent” of the PRF funds, Hutt said in an interview. “It’s definitely in line with what people were asking for.”

Chad Mulvany, director of healthcare finance policy, strategy and development, for HFMA, also saw some positives.

“We’re still evaluating and still talking to our members and there are many provisions that still need to be clarified, but in general we think it’s a step in the right direction,” Mulvany said.

That was similar to the assessment of the latest guidance offered by Dave Macke, FHFMA, CHFP, director of healthcare reimbursement services for VonLehman, an accounting firm.

The recent change to the revenue definition will not help providers that have increased revenue over 2019, but it will be a boost for those that have experienced declines in revenue this year, Macke said in an interview.

Compared with the September guidance, “It takes away the impact of, ‘If your revenue dropped, what happened to your expenses?’” Macke said. “It takes that out of the mix.”

The reversion to the earlier understanding of how to determine lost revenue will cause a short-term scramble as providers once again revise their efforts to analyze how to meet PRF requirements, sources said.

Hutt said individual hospitals will need to run calculations on their own revenue and losses to determine how the change will affect the PRF grants they received and whether they will need to return any of the funding. 

“It could depend by area, where you were spending your money and where the costs are in relation to the revenue piece,” Hutt said. “It’s definitely something everybody should look at right away to see what impact this will have.”

Another positive development for providers in the latest guidance was the explicit authorization to report using whatever accounting method they normally use, such as cash basis or accrual basis.

Providers using cash-basis accounting — such as many physician practices — could have had large PRF underpayments because of delays in accounts receivable, Macke said.

Concerns for providers in the new guidance

The September changes also dictated that reviews of revenue and expenses be based on the calendar year instead of month-to-month changes. That change was not reversed in the Oct. 22 guidance and creates complications for hospitals using fiscal years not aligned to calendar years.

For instance, hospitals using the common fiscal-year-end of Sept. 30 would need to determine whether, under accounting standards, they face a barrier to recognizing revenue past Sept. 30 and what conditions they have met by that date, Hutt said.

The rules still require providers to report lost revenue by patient-care payer mix for 2019 compared with 2020.

“Not everybody is going to have that level of detail in their financial statements,” Macke said.

Also still included is language related to detailing non-COVID-19 expense items, even though the update states that payments are no longer linked to changes in such expenses.

Many unknowns remain

Among the large number of unknowns regarding PRF-grant reporting is what qualifies as expenses related to maintaining healthcare capacity.

Other missing expense definitions include facility costs.

“Does that include everything in the facility, is it certain costs, is there any limitation toward that? Those definitions aren’t that specific,” Hutt said.

HHS webinars on PRF funds have done little to explain reporting details, he said.

Hospitals have until June 30, 2021, to spend their entire PRF allotment. However, they must submit reports on 2020 costs and expenses related to their grants by Feb. 15. More detail could come closer to that date.

Also unclear is whether capitalized large-asset purchases — defined by Medicare as those larger than $5,000 — should be calculated based on the entire purchase price or current depreciation.

“Based on [PRF regulation] wording, I would take the whole purchase price because it says ‘expenses paid for purchase of,’” Macke said. “It’s silent [about] any kind of large purchase of a fixed asset that may be capitalized.”

Macke suggested that hospitals approach PRF-related expenses in a similar way to deciding what to include in a Medicare cost report.

“if you think the expense is legit and if they want to kick it out, then you have an argument,” Macke said.


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