Costing Managerial Accounting

How hospitals should capture COVID-19 costs to maximize grants from FEMA, CARES Act

May 4, 2020 2:59 pm
  • Finance leaders should set up project codes and payment codes for COVID-19 activities.
  • FEMA provides payment based on incremental costs related to a crisis.
  • Organizations should appoint a leader to holistically review all opportunities for relief.

Unless their organization has weathered a natural disaster like an earthquake, flood or hurricane, most finance leaders have never had to file a claim with the Federal Emergency Management Agency (FEMA), said Rick Kes, a partner and healthcare senior analyst for RSM.

But with $45 billion available from FEMA and $100 billion in the Coronavirus Aid, Relief and Economic Security (CARES) Act Provider Relief Fund, healthcare finance leaders need a plan for capturing COVID-19 pandemic-related costs as they seek financial relief. In March, FEMA published a list of eligible emergency protective measures that would be covered at a 75% federal cost share.

In this interview, Kes discusses how finance leaders can help their organizations accurately capture costs to ensure they get their full share of the provider relief available from the government.

HFMA: What types of costs should hospitals track to secure potential relief?

Kes: They should essentially track every cost and be as granular as possible. This includes everything from the time that staff are treating patients with COVID-19 to the direct costs of personal protective equipment (PPE) and new equipment. It also includes costs for temporary operating rooms (ORs) or for retrofitting existing ORs to be negative pressure rooms.

HFMA: Are there any costs that could easily be overlooked during this tracking process?

Kes: Probably smaller expenditures, like food for nurses and physicians working in isolation areas so they don’t leave and potentially contaminate other units. Maybe the costs of charging cords for patients’ cell phones so they can stay in touch with their families. It’s the things that are smaller dollars in nature but are incremental costs related to responding to the event. Although all these expenses might not be eligible for reimbursement, it is still important to cast a large net to ensure you are not missing expenses.

HFMA: How should leaders track costs?

Kes: They can set up a project code in the general ledger to monitor any cost related to COVID-19. They also can create a timekeeping mechanism to monitor the costs of employees who are responding to the emergency. Some hospitals are using automation in this process and creating specific pay codes for COVID activities.

Hospitals have always been fairly good at tracking costs as accurately as possible for the cost reports they file with CMS on an annual basis or for community benefit reports. I don’t feel like health systems will have a huge burden on them to track these costs. Many of them have the tools and resources available to do that. However, they might have a harder time evaluating whether those costs are eligible for reimbursement.

At the same time, smaller hospitals, physician groups, behavioral health providers and some other types of providers that don’t do this type of reporting might face more of a burden because they haven’t developed that internal skillset.

HFMA: What are some best practices for establishing cost centers for tracking purposes?

Kes: Start by setting up distinct cost centers and defining what will be included in each based on what is payable or reimbursable according to FEMA guidance.

You’ll also want to understand how FEMA has historically compensated for costs. They’re looking for what is truly an incremental cost as it relates to the emergency, not what you would have expended regardless of the emergency. This includes understanding the difference between routine overtime or premium pay and truly incremental payroll costs related to the response. Although HHS guidance is more vague, FEMA guidance is more specific on this point.

HFMA: What about tracking lost revenues to report to HHS as required to receive CARES funding?

Kes: According to their terms and conditions, payments from HHS can be used to pay for direct expenses as well as lost revenues. (Note: HHS has released high-level guidance on how to report lost revenues.)

However, some organizations are wondering if all of what is initially perceived as lost revenue truly is lost revenue. Is lost revenue simply the difference between what was projected in March or April and what the actual revenue is? If elective procedures get rescheduled for July, is that really lost revenue or just deferred revenue? Finance leaders need to think through that.

Compared with tracking costs, determining lost revenue is more of an art than a science.

HFMA: Any other advice?

Kes: Yes, you can’t use the costs that you used to get compensated from one program to then get compensated from another program. In other words, you can’t double-dip. That means you’ve really got to look at all of the different types of stimulus packages you might be exploring.

It’s important to have a leader take ownership of that. It doesn’t have to be the CFO or somebody with a C-level title, but it does need to be someone who will make sure the organization is thinking about these programs more broadly.

Note: This interview has been edited for length and clarity.


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