So you got a payment from the Provider Relief Fund—now what?
The Provider Relief Fund (PRF) was established by Congress—through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)—to assist providers to prevent, prepare for and respond to the COVID-19 pandemic. Managed by the Department of Health and Human Services (HHS), nearly $120 billion of this $175 billion fund has been allocated and paid through various distributions. To date, payments have been distributed to:
- Health care providers who billed Medicare fee-for-service (FFS) in 2019 (General Distribution)
- Health care providers who conducted COVID-19 testing and treatment to patients who are uninsured (Uninsured Distribution)
- Hospitals in COVID-19 high impact areas (High-Impact Distribution)
- Safety net acute care facilities and children’s hospitals (Safety Net Hospital Distribution)
- Rural hospitals, clinics and health centers (Rural Distribution)
- Indian Health Service (IHS) hospitals, clinics and urban health centers (IHS Distribution)
- Certified skilled nursing facilities (SNFs) with six or more beds (SNF Distribution)
Additional distributions are underway, including for Medicaid providers who were not eligible for the General Distribution and dentists.
Key Steps for Accepting General Distribution Payments
Most ACOFP members will have received a General Distribution payment, which generally consisted of two payments. The first payment was initially based on the provider’s share of total Medicare FFS payments in 2019 (Round 1). A Round 2 payment was provided to eligible providers so that the total amount received in both Round 1 and Round 2 payments was equal to the lesser of 2 percent of the provider’s gross patient revenues in 2018 or the provider’s lost revenues in March and April 2020.
Providers have to take several steps to accept and retain the money received:
- Within 90 days of receipt of payment, attest to the payment received.
- Agree to the Terms and Conditions of the payment.
- Submit revenue information, including the most recent tax return and lost revenues in March and April 2020.
A few important things to note about these steps:
- If a provider fails to attest to the payment and Terms and Conditions, the provider will be deemed to have attested to and accepted the Terms and Conditions.
- The revenue information submitted should be the provider’s most recent tax return (2017, 2018 or 2019). There currently is no specific deadline by when providers must submit this information.
- Providers may use any reasonable method to calculate lost revenues in March and April 2020, including comparing budgeted and actual revenue or comparing actual revenues to the same period in the previous year.
Key Considerations for Accepting (and Retaining) General Distribution Payments
It is critically important that providers assess and take into consideration the following key items, which are described further below:
- Ensuring compliance with each of the requirements listed in the Terms and Conditions (Round 1, and if applicable, Round 2)
- Ensuring lost revenues and increased expenses due to COVID-19 exceed the payment received
- Ensuring the payment received is used for permissible costs and expenses and are not reimbursed or paid for from another source
- Complying with subsequent HHS reporting requirements
Terms and Conditions
The Terms and Conditions outline several important requirements, including:
- The payment will only be used to “prevent, prepare for and respond to the coronavirus”
- The recipient will submit reports to HHS as needed to ensure compliance
- The recipient will maintain appropriate records and cost documentation and submit copies of such records and documentation upon HHS’s request
- The recipient will not bill patients in an amount greater than the patient’s in-network amount
Note that failure to comply with any term or condition may result in recoupment of some or all of the payment received.
Ensuring Lost Revenues/Increased Expenses Exceed the Payment Received
While HHS only requests lost revenue information for March and April 2020, providers do not need to be able to prove at the time they accept the payment that lost revenues and increased expenses exceed the payment amount. Instead, if at the end of the COVID-19 pandemic, providers have leftover money that they cannot use on permissible expenses or losses, then they will have to return the remaining money to HHS. Essentially, providers can count lost revenues and expenses incurred prior to March 2020 (within reason) and after April 2020 (until the end of the pandemic), so long as those expenses and losses were attributable to COVID-19.
Permissible Expenses and Uses of Payment Received
According to HHS, some permissible uses of payments include:
- Health care expenses attributable to coronavirus:
- Supplies used to provide health care services for possible or actual COVID-19 patients
- Equipment used to provide health care services for possible or actual COVID-19 patients
- Workforce training
- Developing and staffing emergency operation centers
- Reporting COVID-19 test results to federal, state or local governments
- Building or constructing temporary structures to expand capacity for COVID-19 patient care or to provide health care services to non-COVID-19 patients in a separate area from where COVID-19 patients are being treated
- Acquiring additional resources, including facilities, equipment, supplies, health care practices, staffing and technology to expand or preserve care delivery
- Using payments to cover lost revenue so that providers can respond to the coronavirus public health emergency by maintaining health care delivery capacity. Such uses include:
- Employee or contractor payroll
- Employee health insurance
- Rent or mortgage payments
- Equipment lease payments
- Electronic health record licensing fees
It is important to note that there is a direct prohibition on “double-dipping,” meaning providers cannot use other funds received for the same purpose as funds received from the General Distribution. For example, providers may not use money from the Small Business Administration’s Paycheck Protection Program and the General Distribution payment to cover the same payroll expenses, health insurance costs and rent payments.
Complying with HHS Reporting Requirements
HHS has stated that it will be requiring payment recipients to submit future reports on the use of funds received. HHS will notify recipients of the content and due date(s) of these reports. No additional information or guidance is currently available, but providers should keep this in mind and document how the payments received are used.
Potential Tax Consequences
According to the Internal Revenue Service (IRS), PRF payments to non-tax-exempt entities can be included in gross income and subject to income tax. Specifically, the IRS states that PRF payments to a business, even if it is a sole proprietorship, are not “qualified disaster relief payments.” Qualified disaster relief payments are amounts paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living or funeral expenses incurred as a result of a qualified disaster, so long as the expense is not covered by insurance or is otherwise compensated or reimbursable.
Tax-exempt health care providers generally are not subject to tax on PRF payments. The IRS states that 501(c) health care providers are generally exempt from federal taxation, but PRF payments may be subject to tax if the payment reimburses the tax-exempt provider for expenses or lost revenue attributable to an unrelated trade or business.
The PRF has undergone and continues to undergo many changes. HHS has steadily released additional information and guidance, which has at times been inconsistent with prior messaging. As noted, more information is expected, including on the reporting requirements.
In addition, we understand that many ACOFP members did not receive a meaningful payment, or at least an amount that sufficiently offsets the severe financial impact of COVID-19.
ACOFP is closely monitoring new developments concerning PRF requirements and working diligently to advocate for necessary changes, including additional payments to solo, small and rural family medicine physician practices, and reversing the IRS decision that PRF payments will be subject to taxation as gross income.