On December 27, 2020, former President Trump signed the Consolidated Appropriations Act, 2021 (H.R. 133) (the “Consolidated Appropriations Act”), an appropriations and stimulus package that includes changes to the Public Health and Social Services Emergency Fund (“Provider Relief Fund”). The Consolidated Appropriations Act revises recipients’ reporting obligations and provides additional funding for future distributions.
The Provider Relief Fund was originally created through $175 billion in appropriations designated by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Paycheck Protection Program and Health Care Enhancement Act to reimburse providers for healthcare-related expenses and lost revenue attributable to COVID-19 (as discussed in previous client alerts). The U.S. Department of Health and Human Services (“HHS”), which manages the fund, has mainly dispersed payments to recipients through the Provider Relief Fund either through General or Targeted Distributions. As a condition to accepting payment, recipients are subjected to a variety of reporting obligations.
The Consolidated Appropriations Act makes three primary changes to the Provider Relief Fund. First, it broadens the term “lost revenue,” potentially allowing providers to keep more of their payments. Second, it permits recipients of Targeted Distributions to re-allocate payments to eligible subsidiaries. Third, it creates an additional General Distribution funding phase, requiring HHS to issue additional payments.
1. Definition of “Lost Revenue.” As a condition to accepting payment under the Provider Relief Fund, recipients must provide documentation demonstrating that payments were used to cover healthcare related expenses or lost revenue. HHS has at several points revised how “lost revenue” is defined. Pursuant to Post-Payment Notice of Reporting Requirements issued October 22, 2020, HHS previously defined “lost revenue” as “the difference between 2019 and 2020 actual patient care revenue.” The Consolidated Appropriations Act rejects this definition, and states “lost revenue” shall be defined as originally explained in HHS’ June 2020 Frequently Asked Questions, which defined “lost revenue” as “any revenue that [a recipient] as a healthcare provider lost due to coronavirus” and permitted recipients to “use any reasonable method” for estimating COVID-19 related “lost revenue.” The reversion to the prior definition of “lost revenue” grants recipients more flexibility, allowing, among other things, providers that established their budget prior to March 27, 2020 to calculate lost revenue based on the difference between a provider’s budgeted and actual revenue.
2. Flexibility for Parent Organizations Seeking to Re-Allocate Payments Among their Subsidiaries. The Consolidated Appropriations Act directs HHS to allow parent organizations to allocate Targeted Distribution payments among subsidiary eligible providers of the parent organization. Targeted Distributions are made to specific categories of providers (i.e. providers in COVID-19 High Impact Areas, Safety Net Hospitals, Skilled Nursing Facilities, etc.). Prior to the Consolidated Appropriations Act, HHS, in order to ensure that payments were used for HHS’ targeted purpose, did not permit parent organizations to allocate Targeted Distributions among subsidiary eligible providers. Note that while parent organizations may now re-allocate Targeted Distributions among their subsidiaries, the parent organization still remains responsible for reporting obligations.
While the Consolidated Appropriations Act does not define “subsidiaries,” HHS guidance pre-dating the Provider Relief Fund suggests that when a parent entity has a controlling interest in another entity, that other entity is a subsidiary of the parent entity. Therefore, under the Consolidated Appropriations Act, a hospital receiving payments under the Provider Relief Fund’s COVID-19 High Impact Area Targeted Distribution may be able to allocate such payments to subsidiaries such as clinics or certain outpatient providers.
3. Additional Funding and Guidance Regarding Any Forthcoming General Distributions. The Consolidated Appropriations Act allocates an additional $3 billion for the Provider Relief Fund. Further, it directs HHS to issue payments under a new successor General Distribution phase (see our prior client alert for a description of prior General Distribution phases), consisting of no less than 85 percent of (i) the unobligated balances available as of December 27, 2020, and (ii) any payments recovered from providers after December 27, 2020. In determining eligibility for such successor distribution, the Consolidated Appropriations Act requires HHS to consider “financial losses and changes in operating expenses occurring in the third or fourth quarter of calendar year 2020, or the first quarter of calendar year 2021, that are attributable to coronavirus.” The Consolidated Appropriations Act does not provide further specificity, deferring to HHS to provide further clarity on eligibility requirements. As of January 20, 2021, HHS has not yet provided such guidance.
***Please visit Goodwin’s Coronavirus Knowledge Center, where lawyers from across Goodwin are issuing new guidance and insights to help clients fully understand and assess the ramifications of COVID-19 and navigate the potential effects of the outbreak on their businesses.