On October 1, 2020, the Department of Health and Human Services (“HHS”) announced an additional $20 billion in new funding for providers through a Phase 3 distribution. Importantly, providers that previously received HHS Provider Relief Funds or already received payments of approximately 2% of annual revenue from patient care are eligible to apply. Eligible providers have until November 6, 2020 to apply for these Phase 3 Funds. However, the question from providers continues to be: Should I Apply for Phase 3 Funds?
The Provider Relief Funds have been fraught with uncertainty and frustration. Initially touted as a “no strings attached” relief payment, HHS quickly distributed the Phase 1 $20 billion in Provider Relief Funds (seemingly overnight) to providers that billed Medicare in 2019 without any initial application, proof of eligibility, or demonstration of need. While the funds came as an immediate relief to many providers, HHS required these providers to attest to receipt of the funds as well as a 10-page Terms and Conditions with multiple requirements. Notably, HHS required recipients to comply with certain HRSA grant requirements related to accounting of funds and record-keeping requirements.
Following the initial $20 billion distribution, HHS then made available an additional $30 billion in funds, but only for those providers that received an initial distribution. This was an application-based distribution and providers that received an initial distribution were essentially capped at a maximum of 2% of gross receipts from 2019. Providers were also required to provide information on lost revenues in March and April 2020 to justify eligibility.
HHS distributed additional funds through a Phase 2 general distribution to: those providers that were ineligible for Phase 1 distributions (e.g. Medicaid, CHIP, and dental providers); providers that did not receive funds equaling 2% of 2019 gross receipts; or providers that returned Phase 1 funds, but changed their mind and would like to receive Provider Relief Funds. Again, providers were required to submit an application for Phase 2 funds. Additionally, HHS capped Phase 2 distributions at 2% of 2019 total patient care revenues and required providers to attest to Terms and Conditions.
Now HHS has announced its Phase 3 general distribution, with an application deadline of November 6, 2020. HHS continually delayed the quarterly reporting requirements set forth in the original Terms and Conditions. However, HHS has continued to issue guidance notifying providers that they must be prepared to demonstrate (1) lost revenues, and (2) increased expenses attributable to COVID-19 in order to justify the receipt and use of these funds. On the heels of the Phase 3 general distribution, HHS recently issued clarifications on the Provider Relief Fund Reporting Requirements, which will begin on January 15, 2021.
Providers with more than $10,000 in Provider Relief Fund payments must report on the use of the funds through December 31, 2020. The reporting window will begin on January 15, 2021 and providers must complete reporting obligations for FY 2020 by February 15, 2021 through a portal designed by HHS. However, providers that have unexpended funds as of December 31, 2020, will have an additional 6 months to use the remaining funds through June 30, 2021. These providers must submit a second and final report no later than July 31, 2021.
With the deadline for Phase 3 looming and the recent reporting clarifications, here are some important considerations for providers that are determining whether to apply for Phase 3 funds:
- Per the IRS, providers must include all Provider Relief Funds in gross income. As such, providers must calculate increased tax liability due to the receipt of the Provider Relief Funds. Additionally, if the provider received a PPP loan, the provider may also have increased tax liability due to the use of the PPP funds and the nondeducibility of certain expenses paid for with PPP monies.
- The new reporting obligations will no longer focus on just April and May 2020. HHS now requires the provider to review year-over-year data comparing 2019 to 2020 in order to calculate changes in increased expenses and lost revenue attributable to COVID-19.
- When calculating increased expenses and determining lost revenues, providers must calculate and report other income and grants received such as PPP funds, EIDL, FEMA monies, grants from state and local governments, etc. Additionally, a provider’s lost revenue calculation will look at operating revenues from patient care services; the calculation cannot include shareholder or partnership payments.
- The Provider Relief Funds cannot be used to repay Medicare Accelerated/Advance Payments.
- HHS has made clear that providers that do not have or do not anticipate that they will have eligible expenses or lost revenue in excess of the Provider Relief Funds must return the funds. Providers must carefully calculate increased expenses attributable to COVID-19 and lost revenue due to COVID-19 in accordance with the new guidance issued by HHS.
- HHS has the right to audit providers’ use of the funds and calculation of increased expenses and lost revenue through a 3-year statutory lookback period.
- If the Provider Relief Funds were held in an interest-bearing account, the interest must be reported as “Other Assistance” and used towards a reportable use of funds. If the provider does not use the funds towards a reportable use, HHS requires the provider to return the unexpended earned interest.
- If the provider must return any unused portion of the Provider Relief Funds, the provider must also return any earned interest on the funds.
For more information on the HHS Provider Relief Fund Reporting Requirements, please visit our website at www.bmdllc.com. For more information on the HHS Provider Relief Funds, please contact Amanda Waesch at firstname.lastname@example.org or 330-253-9185.