The US Department of Health and Human Services (HHS) recently announced that it will make $25.5 billion available in new COVID-19 relief funds to providers through the Health Resources and Services Administration (HRSA). To that end, HRSA will disburse $17 billion in Phase 4 payments remaining from the CARES Act Provider Relief Fund (PRF) to a “broad range of providers” based on lost revenues and expenses between July 1, 2020 and March 31, 2021.
This comes at the urging of healthcare system advocates calling for the release of such remaining funds as providers deal with pressures from the surge of the delta variant. An additional $8.5 billion in American Rescue Plan (ARP) Act payments will be made to providers that serve Medicaid, CHIP, and/or Medicare patients in rural areas. Healthcare providers will use a single application to apply for both programs beginning on September 29, 2021.
The announcement of the release of these welcomed funds came along with more detail regarding HRSA’s payment distribution methodology for prior Phase 3 distributions and a 60-day “grace period” for providers who are unable to meet the September 30, 2021 deadline for reporting the use of PRF money during the period April 10, 2020 to June 30, 2020.
Phase 4 Distribution – $25.5 billion in Combined CARES Act and ARP Act Funds
According to the HHS Secretary, this distribution aimed to assist “providers who have endured demanding workloads and significant financial strains amidst the pandemic.” Notably, however, PRF Phase 4 payments will be determined based upon lost revenues and expenditures between July 1, 2020 and March 31, 2021, and do not fully account for expenses associated with the recent delta variant surge experienced by many providers. HHS indicated that it was committed to supporting healthcare providers it deems to have “the most need,” which it describes as “smaller providers,” by reimbursing their lost revenues and expenses at a higher rate compared to “larger providers.” Healthcare providers that serve Medicaid, CHIP, and/or Medicare patients may qualify for a “bonus payment” from the PRF Phase 4 funds at the generally higher Medicare rate based on the volume and type of services provided. HRSA will use existing Medicaid, CHIP, and Medicare claims data in calculating these payments, according to HHS.
Likewise, the separate ARP Act funds will be used to make payments to providers based on the amount of Medicaid, CHIP, and/or Medicare services they provide to patients who live in rural areas as defined by the HHS Federal Office of Rural Health Policy. These payments will be generally based on Medicare reimbursement rates.
The portal for applications for relief fund payments under both acts opens on September 29, 2021. Importantly, in connection with the application for additional funds, PRF recipients will be required to notify HHS of any merger with, or acquisition of, another healthcare provider during the period in which Phase 4 funds can be used to ensure that funds are being used for patient care. Providers who report a merger or acquisition “may be more likely to be audited to confirm their funds were used for coronavirus-related costs,” according to HHS. This application reporting requirement may intimate greater scrutiny in other audits evaluating the use of prior phases of PRF payments.
Phase 3 Distribution – Greater Transparency and Reconsideration Opportunity
HRSA released a summary of its Payment Calculation Methodology used in determining Phase 3 payment amounts for providers in connection with the HHS announcement for Phase 4 PRF payments. The HRSA payment calculation methodology provides a detailed, step-by-step, summary of the process used to determine the Phase 3 PRF payments from the data that was submitted by providers in their applications. HRSA indicates that certain payment “caps” not associated with its standard formula were imposed on approximately 20% of provider applicants due to certain outlier data elements (e.g., where revenue or expenses from a single quarter were greater than 50% of total annual revenue, or for new providers in 2019 or 2020).
Stating the agency was “developing a structured process to review and reconsider PRF Phase 3 applications and payment determinations,” the HRSA Phase 3 summary includes an invitation for providers to request “reconsideration” of the agency’s calculation for the provider. HRSA provider support has an 800 number and an email address for notifications when additional information becomes available regarding the reconsideration process, which it notes will be limited to the availability of funds.
Phase 1 PRF Reporting Deadline Relief
Healthcare providers that cannot meet the September 30, 2021 deadline for the first PRF reporting period will have a 60-day grace period to come into compliance with their PRF reporting requirements based on the impositions of the recent delta variant surge and natural disasters. HRSA strongly encourages providers to meet the September 30 deadline, notwithstanding the grace period. No recoupment or other enforcement actions will be initiated during the grace period, which begins on October 1, 2021 and ends on November 30, 2021. The deadline remains unchanged for both the reporting and use of the Phase 1 funds. HRSA has instructed healthcare providers to return unused funds as soon as possible after submitting their report, noting that all unused funds must be returned no later than 30 days after the end of the grace period (December 30, 2021). Other details on the PRF Reporting Portal are available in HRSA’s 70-page Guide Book first published on August 16, 2021.
More Reporting and Transparency to Come
The additional relief payments are welcomed as is the greater transparency into the methodology used by HRSA to allocate prior PRF distributions (following the initial Phase I distribution which was not based upon an application but rather based on 2019 Medicare revenues). HRSA’s detailed methodology illustrated a significant reliance on the data furnished by providers in PRF funding applications, which when combined with the pending reporting requirements, emphasizes the need for careful attention to such submissions. The OIG has ongoing audits relating to the PRF funds, and additional scrutiny can be anticipated.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Mark B. Stein
Lauren Z. Groebe
Brian M. Jazaeri
W. Reece Hirsch
 Audit of CARES Act Provider Relief Funds—Payments to Health Care Providers That Applied for General Distribution Under Phases 1, 2, and 3 (announced in May 2021). Expected issue date – 2022.
Audit of HRSA's Controls Over Medicare Providers' Compliance with the Attestation, Submitted-Revenue-Information, and Quarterly Use-of-Funds Reporting Requirements Related to the $50 Billion General Distribution of the Provider Relief Fund (announced in Oct. 2020). Expected issue date - 2021