Published November 3, 2020

Provider Relief Fund Update: HHS Revises Ambiguous Reporting Requirements Again and Again

Please noteThis article has been updated to include discussion of the relevant October 28 and November 2 FAQs posted to the Provider Relief Fund website

On October 22, the Department of Health and Human Services (HHS) issued revised instructions regarding permitted uses of Provider Relief Fund (PRF) payments. The legislation creating the PRF restricts its use to “healthcare related expenses or lost revenues that are attributable to coronavirus” and requires recipients to report on their use of funds.

Back in September, HHS published initial reporting requirements. At that time, the agency narrowly defined “lost revenues” for which PRF payments could be used, limiting it to negative change in year-over-year patient care operating net income. (This was surprising, given HHS’ previously published FAQs indicated a recipient could estimate lost revenue by any reasonable method.) HHS defended its interpretation of statutory language, claiming it would be inequitable to allow some providers to be more profitable in 2020 than 2019. HHS made an exception for providers that were unprofitable in 2019, permitting them to use PRF funds to break even in 2020.

Members of Congress and stakeholders roundly criticized HHS’ interpretation, insisting providers should be permitted to apply PRF payments against all lost revenues without limitation. In response, HHS announced on October 22 that providers can use PRF funds in 2020 to cover the difference between their 2019 and 2020 actual patient care revenue with some adjustments for COVID-related expenses. Subsequently, HHS clarified that the revenue calculation does not require an adjustment for COVID-related expenses

COVID-Related Expenses

More specifically, the revised instructions direct a provider to first total its COVID-related expenses for 2020. HHS has historically maintained a broad definition of COVID-related expenses to include all amounts incurred for “both direct patient care and overhead activities related to treatment of confirmed or suspected cases of coronavirus, preparing for possible or actual coronavirus cases, maintaining healthcare delivery capacity which includes operating and maintaining facilities, etc.” Also, HHS has advised that PRF payments may be used to support COVID-19 vaccine distribution.

However, regarding the use of PRF funds to purchase capital equipment, HHS’ latest guidance states, “Providers who use accrual or cash basis accounting may report the relevant depreciation amount based on the equipment useful life, purchase price, and depreciation methodology otherwise applied. Providers may report an expense for items purchased with a useful life of 12 months or less if in accordance with their existing accounting policies.”

To prevent double-dipping, a provider cannot use PRF funds to cover any expense that another source has reimbursed or is obligated to reimburse.[1] This includes amounts forgiven under the Paycheck Protection Program; funds received for coronavirus-related testing activities; FEMA relief funds; other local, state, or tribal government assistance; and paid claims against business insurance policies. Also, PRF funds cannot be used for expenses associated with patient care services that a payer is obligated to reimburse (e.g., Medicare, Medicaid, and CHIP payments for COVID-19 vaccinations).

HHS advises recipients to “identify their healthcare related expenses, and then apply any amounts received through other sources, such as direct patient billing, commercial insurance, Medicare/Medicaid/Children’s Health Insurance Program (CHIP), or other [types of government assistance] that offset the healthcare related expenses. [PRF] payments may be applied to the remaining expenses or cost, after netting the other funds received or anticipated to offset those expenses.”

HHS provides the following instructions to providers that receive cost-based reimbursement (e.g., critical access hospitals):

Under cost reimbursement, the payer agrees to reimburse the provider for the costs incurred in providing services to the insured population. In these instances, if the full cost was reimbursed based upon this method, there is nothing eligible to report as an expense attributable to coronavirus because the expense was fully reimbursed by another source. In cases where a ceiling is applied to the cost reimbursement and the reimbursed amount does not fully cover the actual cost due to unanticipated increases in providing care attributable to coronavirus, those incremental costs that were not reimbursed are eligible for reimbursement under the Provider Relief Fund.

We’re carefully considering the impact of this guidance and will follow up with additional thoughts regarding the impact on cost-reimbursed providers.

Lost Revenue

Once a PRF recipient has totaled its COVID-related expenses not otherwise reimbursable, it next calculates the difference between its 2019 and 2020 actual patient care revenue (i.e., gross charges for patient services delivered, minus contractual adjustments from all third-party payers, charity care adjustments, bad debt, and any other discounts or adjustments) using its normal method of accounting (cash or accrual basis).[2] HHS explains that “‘[p]atient care’ means health care, services and supports, as provided in a medical setting, at home, or in the community. It should not include: 1) insurance, retail, or real estate values (except for SNFs, where that is allowable as a patient care cost), or 2) grants or tuition.” Excluded from revenue is the sale of pharmaceuticals and medical supplies (DME, prescription glasses, and contacts) as well as cafeteria, gift shop, and parking receipts.

HHS goes further to note that “other assistance received” is to be reported “as operating revenue and used in the calculation of year-over-year change in patient care related revenue.”

Those recipients with remaining PRF funds after accounting for 2020 COVID-related healthcare expenses and lost revenue may use those monies to cover COVID-related expenses and lost revenues for the first half of 2021. The calculations will remain the same, except the comparison will be between January through June of 2019 and 2021 actual patient care revenue.

All PRF recipients (except those that received $10,000 or less in aggregate payments) must report on 2020 COVID-related expenses and lost revenue by February 15, 2021. The on-line portal through which reporting must be accomplished will be open by January 15, 2021. Reporting for the first half of 2021 must be completed by July 31, 2021. HHS has not yet provided any instructions regarding the return of any unused PRF funds.

Here’s an example of HHS’ “new math”:

Assumptions Amount Reference
Total PRF Funds received $75M A
CY 2019 actual revenue from patient-care-related sources $500M B
Jan – June 2019 actual revenue from patient-care-related sources $250M C
CY 2020 actual revenue from patient-care-related sources $450M D
Jan – June 2021 actual revenue from patient-care-related sources $240M E
CY 2020 expenses attributable to COVID[3] $5M F
Jan – June 2021 expenses attributable to COVID3 $2M G


2020 Reporting (Due February 15, 2021)

Description Amount Formula
CY 2020 lost revenue $50M H = B – D
CY 2020 expenses attributable to COVID $5M F
PRF expended in 2020 $55M I = F + H


2021 Reporting (Due July 31, 2021)

Description Amount Formula
1H 2021 lost revenue $10M J = C – E
1H 2021 expenses attributable to COVID $2M G
PRF expended in 2021 $12M K = G + J
PRF owed back to HHS $8M L = A – (I + K)

HHS promises to provide directions for returning unused funds prior to the July 31, 2021, reporting deadline. Note, however, that HHS will require a recipient that holds PRF payments in an interest-bearing account to return the accrued interest associated with the amount returned to HHS. The agency “reserves the right to audit [PRF] recipients in the future to ensure that payments that were held in an interest-bearing account were subsequently returned with accrued interest.” More broadly, HHS “reserves the right to audit [PRF] recipients in the future and collect any Relief Fund amounts that were used inappropriately.” Also, HHS clarifies that interest earned on PRF distributions is considered a reportable revenue source.

While HHS’ decision to use actual patient care revenue as the measure of lost revenue (as opposed to patient care operating net income) is a win for providers, it is not a complete victory. Guidance published by HHS last summer indicated a provider could use any reasonable method to measure lost revenue, including comparison of budget to actual. HHS states in the October 28 FAQs, however, that a recipient cannot use 2020 budgeted net revenues as a basis for reporting lost revenue, despite the fact budgeted revenues are a more accurate measure for providers expanding or contracting services.

Scenario 2019 Actual Net Revenue 2020 Budgeted Net Revenue Budgeted Net Revenue Change 2020 Actual Net Revenue Max PRF Claim for 2020 Lost Revenue
Opened a new hospital-based outpatient center in 12/19 $100M $110M 10% $100M $0
Closed OB services in 12/19 $100M $90M -10% $80M $20M

Other year-to-year business changes (e.g., A/R reserve methodology changes, provider additions) would require one to normalize patient revenue to produce an accurate comparison. As the instructions stand today, however, a provider must measure lost revenue using actual patient revenue for each year.

With HHS’ “expanded” definition of lost revenue, more providers may find themselves potentially eligible for the $20 billion in Phase 3 funds announced on October 1.[4] In distributing Phase 3 funds, HHS will first identify those qualifying applicants that have not yet received an amount equal to 2% of the applicant’s patient care revenue. After making those applicants “whole,” HHS will distribute any remaining funds to applicants whose COVID-related expenses and lost revenues exceed PRF payments received to date. HHS has not specified the criteria it will use in distributing “leftover” Phase 3 funds, but any provider that believes it will exhaust its PRF payments in 2020 would be well-advised to apply by the November 6 deadline.

Reporting Entity

The October 22 revised instructions also refine the definition of reporting entity:

Entity (at the tax identification number (TIN) level) that received one or more PRF payments, or an entity that meets the following criteria: (1) is the parent of one or more subsidiary billing TINs that received General Distribution payments, (2) has providers associated with it that were providing diagnoses, testing, or care for individuals with possible or actual cases of COVID-19 on or after January 31, 2020, and (3) is an entity that can otherwise attest to the Terms and Conditions.

Prior to this clarification, there were questions regarding a parent organization’s ability to re-distribute or report on General Distributions for which a subsidiary had completed the required attestation or if the parent organization itself had not received a PRF payment. Those questions now have been answered in the affirmative, but HHS also repeated its directive that parent organizations cannot redistribute or report on Targeted Distributions received by any of its subsidiaries.

HHS’ recent FAQs also “green light” the allocation of overhead expenses to subsidiaries:  “[P]roviders that already have a cost allocation methodology in place, may allocate normal and reasonable overhead costs to their subsidiaries which may be an eligible expense if attributable to coronavirus and not reimbursed from other sources.”

The FAQs also identify the entity responsible for reporting on the use of General Distribution payments in the event of a change of ownership following receipt of those funds. Regarding Targeted Distributions, HHS again states the recipient is responsible for reporting, regardless of any change in ownership.

If you have questions about Provider Relief Funds or need guidance with any COVID-19-related matters, visit the PYA COVID-19 hub, or contact a PYA executive below at (800) 270-9629.

[1]   Additionally, a recipient cannot use PRF payments to pay any direct salary at a rate in excess of Executive Level II (currently $197,300), exclusive of fringe benefits and indirect costs. HHS explains that “[t]he limitation only applies to the rate of pay charged to PRF payments and other HHS awards. An organization receiving PRF may pay an individual’s salary amount in excess of the salary cap with non-federal funds.”

[2] Note that a recipient still must report revenue information even if its COVID-related expenses exceed the amount of PRF payments it received.

[3] Assumes capital equipment expense inclusion is limited to accumulated depreciation of the equipment for the reporting period.

[4] Medicare, Medicaid, CHIP, dental and behavioral health providers, and assisted living facilities

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