Best Practices to Navigate CARES Act Provider Relief Funding and Minimize False Claims Act Exposure

COVID-19 Update

On April 10, the U.S. Department of Health and Human Services (HHS) announced the immediate distribution of the first $30 billion of the $100 billion appropriated in the Coronavirus Aid, Relief, and Economic Security (CARES) Act for individuals and entities enrolled in Medicare Part A or Part B responding to the COVID-19 pandemic. On April 22, HHS announced the distribution of an additional $20 billion for Medicare-enrolled providers, along with additional planned distributions. These distributions have been previously covered by Manatt here. Each tranche of Provider Relief Fund (PRF) funding has been accompanied by shifting guidance from HHS about the terms and conditions (“Terms and Conditions”) on which potential recipients can apply for and retain these funds.1

While many providers have received the initial distribution of this funding by direct deposit, they should now take several steps to ensure that they can both accurately attest to their right to keep the funds and minimize exposure to government audits and False Claims Act (FCA) investigations, not to mention qui tam litigation, in the future. Both the CARES Act and HHS require that all recipients certify through an attestation that they meet various Terms and Conditions to obtain and retain the money, including, among others, that:

  • They provide or provided after January 31, 2020, diagnoses, testing, or care for individuals with possible or actual cases of COVID-19, a requirement derived from the language of the CARES Act itself; 
  • They will not bill out-of-network patients beyond the rate that would have been received for an in-network patient;
  • They lost revenue in March and April 2020 due to the COVID-19 pandemic; and
  • They will use the funds in compliance with the CARES Act language and other restrictions that apply to funds appropriated to HHS, including:
     
    • The funds will be used only to prevent, prepare for, and respond to coronavirus, and to reimburse the provider only for healthcare-related expenses or lost revenues that are attributable to coronavirus;
    • The funds will not be used to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse; and
    • The funds will not be used for restricted purposes, including executive compensation, lobbying, abortions, or unpaid federal tax liabilities.

These certifications (and others) may raise questions for some providers. In this newsletter, we propose best practices to address these questions about the PRF general distribution.2  In addition, it is important to note that developments are shifting on an almost daily basis, and providers should check the HHS PRF home page and provider portal for the latest guidance.

Key Issues for Providers

First, may providers who are unable to verify that they treated “possible” COVID-19 patients by verifying the presence of CDC-recognized symptoms rely on informal HHS guidance that “all” patients are possible COVID-19 cases?  As we discuss below, with some internal documentation, we believe that by citing HHS’ guidance, providers can minimize their FCA exposure resulting from signing the attestation even if they cannot prove they treated any possible or actual COVID-19 patients.

Second, how should a provider implement administrative and accounting controls in light of the prohibition on charging an out-of-network patient beyond what the patient would have paid in-network? How does the provider know what that rate is?  Ask the patient or the patient’s insurer?  Or look to its own in-network rates?  And if it looks internally, which rate does it use?  In this area, in the absence of further guidance from HHS, providers are cautioned to use reasonable judgment in arriving at the proper rate and ensuring that an out-of-network patient is not improperly billed, and to internally document such judgment.

Third, how should a provider address the significant accounting issues posed by the requirement to establish revenue loss and the restricted use of funds?. Below, we suggest best practices for providers to respond to the inevitable audits to verify compliance with these issues.

Why It Matters 

The CARES Act legislation moved through Congress and was enacted into law at record speed, and the initial tranche of funding was sent out to providers shortly thereafter. The goals were laudable – pump as much money as possible into the struggling healthcare system as quickly as possible. However, the CARES Act itself contains significant levels of oversight by new and existing enforcement bodies (see our prior newsletter here), and the early efforts by the government to speed these funds into the healthcare system could give way to audits, government investigations, and qui tam litigation. Providers can take steps now to minimize their exposure in the event of such scrutiny.

The False Claims Act. Under the FCA, providers may be held liable for false or fraudulent statements “knowingly” made in order to receive or retain money from the government. The term “knowingly” means the false claim or statement was made with actual knowledge, reckless disregard, or deliberate ignorance of its falsity. This includes falsely certifying compliance with some law or regulation in order to receive or retain payment from the government. The FCA provides for significant penalties, including substantial fines, treble damages, and attorneys’ fees, and it may be enforced by both the government and whistleblowers (known as relators) in qui tam actions, who are entitled to a share of any proceeds recovered.

Who is a “possible” COVID-19 patient?  With regard to the first requirement noted above, the language in the HHS-required certification seems clear enough: Providers must supply actual medical services to individuals with possible or actual cases of COVID-19 in order to obtain or keep the money they were given under the CARES Act. Recognizing the long incubation period for the coronavirus, the potential for carriers to remain asymptomatic, and the unique circumstances of controlling the spread of a pandemic, HHS has taken a broad view of  eligibility in an apparent effort to ensure that the maximum number of providers have access to these funds. HHS posted informal guidance in the form of General Distribution Portal FAQs:

To be eligible for the general distribution, a provider must have billed Medicare in 2019 and provide or provided after January 31, 2020[,] diagnoses, testing, or care for individuals with possible or actual cases of COVID-19. HHS broadly views every patient as a possible case of COVID-19. $50 billion will be disbursed in the General Distribution (emphasis added).

A similar statement appears on the PRF home page under a description of those eligible to receive the initial $30 billion in funding:

If you ceased operation as a result of the COVID-19 pandemic, you are still eligible to receive funds so long as you provided diagnoses, testing, or care for individuals with possible or actual cases of COVID-19. Care does not have to be specific to treating COVID-19. HHS broadly views every patient as a possible case of COVID-19 (emphasis added).

While intended to ensure that PRF funds can support a wide range of providers who have experienced lost revenues as a result of the pandemic, HHS’ guidance – which appears in different contexts in the FAQs and on its website, but not in the Terms and Conditions to which providers must attest – raises important questions about the extent to which providers may rely on such guidance to protect themselves from potential future investigations and lawsuits by federal authorities or, perhaps more likely, whistleblowers acting under the FCA, who may seek to hold them to a narrower interpretation of this requirement under the CARES Act.

Significantly, courts have held that the government’s “knowledge of the facts” underlying an alleged false claim can provide a defense to liability under the FCA. While there are slight variations, this aptly named “government knowledge inference defense” generally may be applied where two requirements are met: (1) the government agency knew about the alleged false statement(s) and (2) the provider knew the government knew. Under this framework, parties are not liable under the FCA for following the government’s explicit instructions, even if such instructions might contradict statutory language and thus arguably cause the submission of a false claim. This is especially true where contractors and other recipients of government funds have been up front and explicit with the government, informing the government of their intentions.

In this case, HHS has explicitly and openly informed providers on its website that they may retain funds received under the CARES Act, so long as they have cared for at least one patient after January 31, 2020. HHS appears to be telling recipients under the CARES Act – up front – how and when they may retain the funds in question. This overt instruction may provide a basis for the application of the “government knowledge inference defense” to avoid liability under the FCA for certifications that allegedly violate the plain language of the CARES Act and the related Terms and Conditions.

With that in mind, providers would be well-served to internally document their reliance on this language – and retain screenshots of relevant HHS website pronouncements, as they are constantly shifting. Such documentation would help substantiate this defense down the road, and may also be important in convincing the Department of Justice to seek dismissal of meritless qui tam claims under the FCA.

No surprise bills for out-of-network patients. Another key aspect of the PRF Terms and Conditions is that providers must certify that they will not charge an out-of-network patient beyond what that patient would have paid in-network. The stated reason for this condition is the real likelihood that established health plan networks would become overwhelmed by the COVID-19 crisis (as of course has happened in certain parts of the country and may still happen in others), forcing patients out-of-network. The condition is unclear, however, as to which in-network rate to use. Is it the patient’s in-network rate?  An out-of-network provider might not have access to that rate. Is it the provider’s own in-network rate with plans with which the provider is contracted?  If so, is it the lowest or the highest such rate?

In this area, in the absence of further guidance from HHS, providers are cautioned to use reasonable judgment in arriving at the proper rate and ensuring that an out-of-network patient is not improperly billed, and to internally document such judgment.

Accounting for lost revenue and use of funds. Perhaps the most critical area for providers accepting and using PRF funds lies in making sure the funds are accepted and used in conformance with the conditions set forth in the CARES Act and confirmed in the attestation in the Terms and Conditions. With regard to the second tranche of $20 billion in General Distribution Funds, there is a requirement that applicants establish that they lost revenue in March and April 2020. HHS has helpfully provided guidance that such losses can be established by comparing actual revenue in those months to actual revenue in prior years in those months, or by comparing actual revenue to a budget prepared prior to the COVID-19 crisis.

The trickier requirement relates to the provider’s future conduct – that is, the certification that the provider will properly use these funds. While it is unlikely that a provider would “knowingly” use the funds improperly, poor accounting and documentation procedures can lead to FCA liability under the “reckless disregard” or “deliberate ignorance” knowledge standard. Best practices to minimize the risk of this outcome, and to be better prepared for the inevitable government audits, could include:

  1. Depositing the funds in a segregated account
  2. Documenting that each expenditure of these segregated funds complies with the Terms and Conditions of the attestation, including:

    a. Proper use:

          i. The funds will be used only to prevent, prepare for, and respond to the coronavirus and

          ii. The funds will reimburse the recipient only for healthcare-related expenses or lost revenues that are attributable to coronavirus.

    b. Improper use:

          i. The funds will not be used to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse and

          ii. The funds will not be used for purposes generally prohibited by federal law, including executive comp, lobbying, abortions, or unpaid federal tax liabilities.

Conclusion

HHS’ efforts to quickly distribute the $100 billion in CARES Act PRF funds to providers responding to the COVID-19 pandemic also place new responsibilities on providers to carefully document the conditions of their receipt of the funding and to track how they use the funds. HHS continues to make new announcements about remaining allocations from the PRF and to update information on its website, compounding the burden on providers to stay abreast of evolving guidance. Additional announcements are likely to be forthcoming from HHS as the agency determines how to distribute an additional $75 billion in PRF funds, enacted by Congress on April 24 and not yet distributed.

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1 On May 7, 2020, HHS extended the deadline to attest to the Terms and Conditions from 30 to 45 days from receipt of the funds. https://www.hhs.gov/about/news/2020/05/07/hhs-extends-deadline-attestation-acceptance-terms-and-conditions-provider-relief-fund-payments-45-days.html

2 HHS also has issued Terms and Conditions applicable to other allocations within the PRF; this newsletter addresses only the $50 billion general distribution, although similar considerations apply to other distributions under the PRF.

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