Congress Alters Provider Relief Fund Rules of the Road

Manatt on Health

The Consolidated Appropriations Act, 2021 (the Act), which became law on December 27, includes $900 billion in supplemental appropriations to help address economic hardships wrought by COVID-19. The legislation adds $3 billion to the Provider Relief Fund—bringing told funding to $178 billion1—and makes a handful of key policy changes.

Allocation of Provider Relief Funds to Date. Prior COVID-19 relief legislation had left it to the Department of Health and Human Services (HHS) to decide how to distribute funds among provider recipients. Over time, HHS allocated funding via two primary distribution types shown in Figure 1: General Distribution payments to most provider types and Targeted Distribution payments to providers that meet specific criteria (e.g., hospitals in COVID-19 “hot spots”). HHS also allocated an unspecified amount of Provider Relief Fund dollars to reimburse providers for COVID-19 treatment services provided to uninsured patients. Based on allocations announced to date and the new infusion of $3 billion, HHS has approximately $25 billion left to distribute.

Figure 1. Provider Relief Fund Allocations to Date

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Allocation of Remaining Provider Relief Funds. In addition to adding new funds to the Provider Relief Fund, the Act requires HHS to distribute at least 85% of the unallocated balance of the Provider Relief Fund and any funds that HHS may recover from healthcare providers through a process that assesses providers’ financial losses and changes in expenses as a result of COVID-19 that occurred in the third and fourth calendar year quarters of 2020, or the first quarter of 2021.

Basing payments on these factors is the approach HHS took in its most recent allocation of funds. On December 16, HHS announced that it has begun to distribute approximately $24.5 billion in Provider Relief Fund payments under its Phase 3 General Distribution (“Phase 3”). A significant portion of Phase 3 payments are based on provider-submitted data related to lost revenues and expenses, but the application process accounted only for the first half of 2020 (January through June).

The new provision seeks to ensure that providers impacted by COVID-19 later in the year (e.g., providers that experienced a later surge that increased their COVID-19-attributable expenses) will receive a payment acknowledging any losses and expenses they experienced/are experiencing. The provision does not preclude providers that received payments earlier in the year from receiving additional payments under the new funding allocation.

In addition to providing clearer guardrails to HHS for distribution of the funds, this provision means that significant future allocations of the Provider Relief Fund will come from the Biden Administration. From a practical standpoint, HHS will need to solicit refreshed data from providers (and give providers ample time to submit the data), analyze the data and announce allocations—a process that will take longer than the less than two weeks remaining until Inauguration Day. The timing also would give the incoming Biden administration the ability to revisit HHS policies regarding how funds are distributed, and it possible that HHS does not exactly replicate the Phase 3 approach when distributing remaining funds.

Changes to Eligible Uses of Funds. The Act also includes a handful of provisions that modify HHS guidance regarding the reporting obligations Provider Relief Fund payment recipients must meet, and thereby the ways Provider Relief Fund payments may be used by recipients.

The legislation maintains the same two eligible uses of the Provider Relief Fund first established by the CARES Act: lost revenues attributable to COVID-19 and expenses attributable to COVID-19. It also maintains HHS’ discretion for defining the reporting requirements Provider Relief Fund recipients must meet; providers that fail to satisfy the reporting requirements will have to return all or a portion of the funding received.

However, the legislation makes two important changes to existing HHS guidance:

  • Providers may calculate lost revenues based on the guidance promulgated by HHS in June 30, 2020 Frequently Asked Questions (FAQs).2 This provision unwinds guidance HHS issued in October, defining lost revenues as the year-over-year change in actual revenues from patient care. As a result, providers now may use “any reasonable method” of calculating lost revenues, including comparing year-over-year actual patient care revenues as required by the October guidance3 or comparing 2020 budgeted revenues to 2020 actual revenues, as previously permitted by the June FAQ. (If providers use the latter approach, the budget must have been “established and approved” prior to March 27, 2020.)
  • With respect to Provider Relief Fund payments made to subsidiaries of a parent organization, the parent organization may transfer funds—including Targeted Distribution payments—within the “family.” HHS guidance to date allows for the redistribution of General Distribution, but not Targeted Distribution, payments.

Most provider organizations will be supportive of these changes, including the increased flexibility to distribute funding within an integrated delivery system.

Some providers may be disappointed that Congress did not also require HHS to reinstate a provision of September-issued reporting guidance that would have allowed providers with negative operating margins from patient care in 2019 to apply Provider Relief Fund dollars to lost revenues up to a net zero gain/loss in 2020 (essentially allowing struggling providers to “break even” in 2020).

In any event, stakeholders will continue to advocate for changes to HHS Provider Relief Fund guidance, such as extensions of the time period in which the funds may be used (currently, funds must be expended by June 30, 2021), and for additional funding in future rounds of COVID-19 relief that are expected to be considered this year.

1 The Provider Relief Fund was established by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116–136), which appropriated $100 billion; the Paycheck Protection Program and Health Care Enhancement Act added $75 billion (P.L. 116–139).

2 The FAQs, which HHS modifies regularly, are available here. The June 30 version included the following guidance: “You may use any reasonable method of estimating the revenue during March and April 2020 compared to the same period had COVID-19 not appeared. For example, if you have a budget prepared without taking into account the impact of COVID-19, the estimated lost revenue could be the difference between your budgeted revenue and actual revenue. It would also be reasonable to compare the revenues to the same period last year.”

3 This guidance was first promulgated on October 22, 2020; this updated, November 2 version includes a correction to a drafting error in the October 22 guidance.



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