Congress Passes CARES Act 3.5 to Replenish Certain CARES Act Funds, Establish COVID-19 Testing Fund

COVID-19 Update

This week, Congress passed and the President has now signed a $484 billion COVID-19 stimulus package, the Paycheck Protection Program and Health Care Enhancement Act (PPPHCEA). The bill has become known as “CARES Act 3.5” because it generally replenishes funding that was first established in the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act (P.L. 116-136), enacted on March 27. The bill also includes significant new funding to support coronavirus testing.

The key programs funded by the PPPHCEA are:

  • CARES Act Provider Relief Fund (PRF): An additional $75 billion to the CARES Act-established fund to support providers with expenses and lost revenue as a result of COVID-19. Other than increasing the amount of the fund, no changes were made with respect to how the Department of Health and Human Services (HHS) will distribute the funding. See page 2 for more information.
  • COVID-19 Testing: A new $25 billion fund for COVID-19 testing. Unlike the other provisions in the bill, this fund establishes new funding streams, which set out minimum funding levels for states and local governments (at least $11 billion, with a portion to be designated for so-called “hotspots”), the Centers for Disease Control and Prevention (CDC), the National Institutes of Health (NIH) ($1.8 billion), the Biomedical Advanced Research and Development Authority ($1 billion), the Food and Drug Administration ($22 million), and community health centers and rural health clinics ($825 million). It also specifies that up to $1 billion is to be used for “testing costs” for the uninsured. See page 2 for more information.
  • Small Business Programs: an additional $321 billion for the Paycheck Protection Program (PPP), of which $60 billion is reserved for smaller lending institutions; it also provides an additional $50 billion for the Disaster Loans Program Account, and an additional $10 billion for the Economic Injury Disaster Loan (EIDL) program. See page 5 for more information.

The bill also directs that up to $6 million be transferred for use by the HHS Office of the Inspector General to conduct oversight activities regarding all of the funds appropriated under the PPPHCEA.

Provider Relief Fund

The PPPHCEA appropriates an additional $75 billion for the $100 billion CARES Act Provider Relief Fund. The PPPHCEA appropriation mirrors the original CARES Act language, directing HHS to distribute the funds by grants or other payment mechanisms to healthcare providers for expenses or lost revenues attributable to COVID-19, and not reimbursable by other sources.

Since the CARES Act’s passage, there has been disagreement among healthcare stakeholders and within the Administration about how the funding should be distributed and for what purposes. These disagreements have held up distribution of the CARES Act funding; nonetheless, the PPPHCEA does not provide additional specificity with respect to the distribution or uses of the fund, which HHS is responsible for. HHS and the White House have described multiple potential uses for the PRF, including directing funds to providers (which includes providers other than hospitals) in areas particularly impacted by the COVID-19 outbreak, rural providers, Medicaid providers, and providers requesting reimbursement for the treatment of “uninsured Americans.” The new legislation leaves HHS with wide discretion to distribute the fund.

To date, HHS has distributed $30 billion of the fund to Medicare providers based on their share of total fiscal year (FY) 2019 Medicare fee-for-service payments. (For more information, see Manatt Insights’ analysis.) Another distribution—this time based on Medicare Advantage payments—is expected imminently. HHS also is soliciting information from providers so that it can target PRF payments to so-called hotspots. Details about the methodology for determining payments—or the total amount of funding to be released—have not yet emerged as of this writing.

COVID-19 Testing

The PPPHCEA adds $25 billion to the HHS Public Health and Social Services Emergency Fund for expenses to research, develop, validate, manufacture, purchase, administer, and expand capacity for both active infection and prior-exposure COVID-19 tests (i.e., molecular, antigen, and serological testing). The bill specifically allocates uses for the funding as shown in Figure 1 below and provides authority to transfer or merge funding among and across HHS accounts, with notice to Congress.

The PPPHCEA specifies that the funding may be used for grants for a range of testing supports including:

  • Testing Infrastructure and Supplies: For the rent, lease, purchase, acquisition, construction, alteration, revocation, or equipping of non-federally owned facilities to improve preparedness and response capacity at the state and local levels for diagnostic, serologic, or other COVID-19 tests or related supplies
  • Testing Production: For the construction, alteration, renovation, or equipping of non-federally owned facilities for the production of diagnostic, serologic, or other COVID-19 tests, or related supplies (as determined necessary by the HHS Secretary, to secure sufficient amounts of tests and related supplies)
  • Personal Protective Equipment (PPE) and Testing Supplies: For the purchase of medical supplies and equipment, including PPE and supplies to be used to administer tests (products purchased with the fund may be, at the Secretary’s discretion, deposited in the Strategic National Stockpile)
  • Workforce: For increased workforce and trainings, emergency operation centers, and surge capacity for testing

Click here to view Figure 1. Key Components of the $25B COVID-19 Testing Fund

HHS Reporting. Within 30 days of the bill’s enactment, the Secretary of HHS must submit to the House and Senate Appropriations committees and to the Senate Health, Education, Labor, and Pensions (HELP) and House Energy & Commerce committees a strategic testing plan to help states understand how the Secretary will increase domestic testing capacity (including testing supplies), and address disparities in all communities, and what resources are available to states, localities, and tribes. The report must be updated every three months until funding is expended.

The PPPHCEA also requires that HHS, in coordination with other agencies as needed, submit within 21 days of the bill’s enactment a report to Congress including demographic data (race, ethnicity, age, sex, geographic region, and other relevant factors of individuals tested for or diagnosed with COVID-19, to the extent such data is available). Similar reporting is required on a monthly basis for the duration of the emergency, and no later than 180 days after enactment, the Secretary shall report on the number of positive diagnoses, hospitalizations, and deaths as a result of COVID-19, disaggregated nationally by race, ethnicity, age, sex, geographic region, and other relevant factors.

Small-Business Programs

The bill appropriates an additional $381 billion for small-business loans and related expenses, which could support some small healthcare providers. The new provisions include:

  • Paycheck Protection Program: Appropriates an additional $321.335 billion to replenish funding for the CARES Act program (increasing total PPP appropriations from $349 billion to $670.335 billion).1 The bill requires that $60 billion of the loans be made by small, community-based financial institutions and credit unions.2
  • EIDL Grants Program: Appropriates an additional $10 billion to the Emergency Economic Injury Disaster (EIDL) grants program, to augment the $10 billion in funding provided under the CARES Act, which has already been expended.

Disaster Loans Program Account: Appropriates an additional $50 billion to augment the $562 million previously appropriated in the CARES Act, after the original funding ran out.

The funds provided for these loan and grant programs in the CARES Act were insufficient to meet the large need, and many small businesses were shut out with applications still pending. The additional appropriations give small businesses an opportunity to apply for and obtain funds to keep their businesses running.

1 The legislation also increases the authorization level of the PPP by $310 billion (from $349 billion to $649 billion), likely to account for the government’s payment of interest and fees on the PPP loans.

2 Specifically, $30 billion in loans made by Community Financial Institutions, Small Insured Depository Institutions, and Credit Unions with assets less than $10 billion, and $30 billion in loans made by Insured Depository Institutions and Credit Unions that have assets between $10 billion and $50 billion.Last night, the House passed a $484 billion COVID-19 stimulus package, the Paycheck Protection Program and Health Care Enhancement Act (PPPHCEA), after members returned to D.C. for a roll-call vote. The Senate passed the bill on Tuesday and President Trump is expected to sign it into law today.

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