Blog | Medicare Payment and Reimbursement

Key hospital provisions and some questions requiring resolution from the CARES Act

Blog | Medicare Payment and Reimbursement

Key hospital provisions and some questions requiring resolution from the CARES Act

  • The CARES Act legislation provides a financial relief valve to hospitals responding to the COVID-19 pandemic.
  • It’s not uncommon to hear that 70% –75% of a hospital’s elective procedures have been canceled, which is unsustainable when at the same time prices are spiking for just about everything that could possibly be used to treat COVID-19, according to HFMA’s Chad Mulvany.
  • Hospitals will still lose, on average, $1,200 per COVID-19  case, even after the Medicare reimbursement bump on COVID-19 cases included in the CARES Act, according to one analysis.

The CARES Act legislation is important to hospitals across the country as their revenue crashes as a result of canceling elective procedures. On average, what I’m hearing and reading is something in the range of 70% –75% of elective procedures have been canceled, which is unsustainable when at the same time prices are spiking for just about everything that could possibly be used to treat COVID-19.

Hospitals are also scrambling to create inpatient, especially ICU, surge capacity anywhere they can, using any qualified staff available. One analysis suggests that even after the Medicare reimbursement bump on COVID-19 cases included in the CARES Act, hospitals will still lose, on average, $1,200 per case

5 ways the bill alleviates financial pressure for hospitals

The CARES Act attempts to alleviate this financial pressure in five ways, which are described below. As with any massive piece of legislation passed quickly, there are plenty of questions about each of the provisions that need to be resolved. The takeaway sections include some of the questions raised to date about each of the provisions.

1. Provides $100B to reimburse for COVID-19 expenses and lost revenue 

Hospitals and other eligible providers can be reimbursed from the $100B, which is available until expended, for funds related to lost revenue or expenses incurred to treat COVID-19. These funds will flow through the Public Health and Social Services Emergency Fund (PHSSEF). Recipients of payments shall submit reports and maintain documentation as the Secretary determines are needed to ensure compliance with the terms of eligibility for receipt of these funds. The funding shall be available for building or construction of temporary structures, leasing of properties, medical supplies and equipment,  including personal protective equipment and testing supplies, increased workforce and training, emergency operation centers, retrofitting facilities and surge capacity.

These funds may not be used to reimburse expenses or losses that have been reimbursed from other sources. To be eligible for a payment, an eligible healthcare provider shall submit to the Secretary of Health and Human Services (HHS) an application that includes a statement justifying the need of the provider for the payment and the eligible healthcare provider shall have a valid tax identification number. The Department of HHS shall, on a rolling basis, review applications and make payments under this paragraph in this Act. Within 60 days of passage of the legislation, the Secretary of HHS will report to Congress on the disbursement of funds to healthcare providers, summarized by state.


This is the most important provision for hospitals. And it also has the most questions that need to be answered immediately as finance staff are making decisions about how to capture the data that will be used to support an application. However, it is unclear as of 6:45 p.m. ET on March 30, based on  my read and the conversations that I’ve had with others in D.C., what the application and documentation requirements are. The legislation is silent on this, save leaving it up to the Secretary of HHS. Key questions that need to be resolved include:

Definition of revenue: How will HHS define “lost revenue” related to elective cases canceled in response to the COVID-19 pandemic? Additionally, the providers I spoke with last week are unsure as to how they will provide documentation to support something that didn’t happen. Obviously, they have the cases they canceled in March. As this rolls forward, how do they project? Absent any guidance from HHS, it’s probably going to be some combination of historical volume, budgeted volume or take the volume canceled immediately for the week after the guidance was released, project that out, despite that even that is not an accurate reflection of lost revenue because many surgeons and patients were already canceling given the headlines.

Expenses: The language states funds may not be used to reimburse expenses or losses that have been reimbursed from other sources. At the end of the day, all the surge expenses, or almost all of them, are ultimately patient care expenses. And to the extent that someone has insurance coverage that makes a payment for the case, that theoretically will need to be offset so the fund is only covering the loss on the case. Almost all systems have a cost center for capturing the direct expenses for this either at the entity or department level. The indirect expenses (e.g., time for the next couple of weeks for staff like the CMO who spends 50% of his days planning/adapting plans, IT staff transitioning employees home while maintaining firewalls, etc.) will be more challenging to document. And then how quickly you can aggregate this and submit a claim will be important. And it’s going to depend on how good your cost accounting system is, particularly if HHS will only reimburse for the portion of expenses not covered by an insurance payment. Those with good systems should have an edge over those who do not and be at the front of the line to claim as much of the payment as they’re entitled to. Those that don’t will likely be further back in line and could be at risk of not getting fully reimbursed.

Audit pressure: HHS is under tremendous pressure to get this funding to providers, yesterday. The agency should report to Congress on its progress starting within 60 days of final passage of the bill. Much like the EHR funding, but on a much bigger scale, I’m guessing the documentation requested during the application process and the amount of scrutiny of that documentation will be minimal. However, within three years, you will see a demand for accountability for those funds from Congress. So providers need to make sure that whatever they request they can support with ticked and tied documentation.

Small practices: I’ve seen reports stating physician practices were cut out of this. I’m not sure that’s correct as I could easily interpret “other eligible providers” to be physician practices. And I imagine that physician trade groups are now advocating for HHS to take the more expansive definition,  just to be safe. Where the practices did get left out is the legislation created a more generous advance payments program (described below) that gives hospitals an interest free loan from CMS for up to 12 months. Instead, physicians are only provided 210 days to repay the balance before CMS starts applying interest. Without the same flexible financing option that hospitals have to tide over until “business as usual” returns (and payments from the PHSSEF are disbursed), its likely we’ll see a wave of practice acquisitions or physicians seeking employment from health systems, health plans or the remaining independent mega-practices.  

2. Expands Medicare program that provides advance payments

For the duration of the crisis, expands the Medicare accelerated payment program for hospitals experiencing “significant cash flow problems” resulting from “unusual circumstances.” The program is available to acute hospitals (both IPPS and CAH) in the U.S. and Puerto Rico, children’s hospitals, cancer hospitals and hospitals in Maryland. Hospitals could request up to a six-month advanced lump sum or periodic payment from Medicare based on net payment represented by unbilled discharges or unpaid bills. They would be allowed up to 100% of the prior period payments (125% for critical access hospitals). Repayments on the no-interest loan would not start for four months, and hospitals would have at least 12 months to complete repayment. Details of the program are available here.


This is the vehicle that provides liquidity to hospitals and other providers while they wait for HHS to release the application for and process requests to access recovery funds.

3. Increase Medicare payment for COVID-19 cases

Provides a 20% increase to the MS-DRG weight for COVID-19 discharges. Discharges may be identified by use of diagnosis codes, condition codes or other means. The increase in payment for these cases will not be budget neutral.


The team at King and Spaulding held a webinar on March 27 to review the key points of the bill. One of the questions they raised, which is a good one: Is there an opportunity to rebill Medicare claims with COVID-19 as a primary or secondary diagnosis that were paid prior to passage of the legislation (or the MAC updating its claims processing system) to receive the increased payment?

4. Suspends Medicare sequester

The 2% Medicare sequester is suspended from May 1 through Dec. 31, 2020. The sequester then would be extended by one-year beyond current law (through 2030).


 Another question raised by King and Spaulding: Is the May 1 suspension start date for claims with a date of service on or after that date, or could you hold claims/rebill previously paid claims after May 1 and receive an additional 2% payment?  

5. Delays Medicaid DSH reductions

The Medicaid DSH cuts will go into effect on December 1, 2020 instead of May 23, 2020. (This item is self-explanatory and does not have a takeaway.)

Overall bill takeaway

The bill protects consumers from balance billing for services related to COVID-19 testing by requiring plans to pay the negotiated rate, or if there isn’t a negotiated rate in place, the provider’s list price. However, it doesn’t provide funding to “make the plans whole” on the back end for this or other losses they will likely incur. That may be addressed in a potential fourth round of relief legislation that House Speaker Nancy Pelosi is formulating. One of the items she intends to address in a next round of legislation is covering treatment for COVID-19 patients without cost sharing. That would be coupled with funding from the federal government for health plans to reimburse insurers for those costs, etc.

About the Author

Chad Mulvany, FHFMA,

is director, healthcare finance policy, strategy and development, HFMA’s Washington, D.C., office.


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