FAQs Continue to Provide Additional Guidance for Providers Evaluating the Retention of CARES Act Provider Relief Funds: The Question of Materiality and the Importance of Recordkeeping and Corporate Documentation

The most common question among providers concerns the retention of CARES Act Provider Relief Funds (the “Relief Funds”) distributed by the Department of Health and Human Services (“HHS”) as part of its initial General Distribution.  Arnall Golden Gregory has issued multiple regulatory alerts outlining the Relief Funds, as well as alerts focusing on compliance measures designed to address both audit and False Claims Act risks inherent in both the use and retention of the Relief Funds.¹   Guidance is certainly sparse, due in part, to the lightning speed in which the Relief Funds were issued to providers – though evolving on a daily basis.

Although the speed with which the monetary relief was provided was certainly welcomed, it left providers without the firm guidance necessary to fully evaluate, much less calculate, the amount associated with their increased health-care related expenses or more perhaps even more difficult, lost revenue attributable to the coronavirus not reimbursed from other sources.  Indeed, providers have not yet seen the end of the coronavirus, and likely have not received, and may never receive, all anticipated reimbursements, making the calculation of the full extent of their COVID-19 related expenses or losses difficult, at best.  Moreover, as the Country re-opens and CDC anticipates the continuing emergence of hot spots, the end of this pandemic may not come for many months yet.

Fortunately, HHS continues to update its Frequently Asked Questions (“FAQs”), most recently addressing changes of ownership.²  As part of those FAQs, on May 20, 2020, HHS responded to a question concerning the 2019 sale of a physician practice and particularly whether the seller could return that portion of the payment attributed to the part of the practice it no longer owned.  In its FAQ, HHS responds that a provider may not return a portion of Relief Funds, but went on to state that “[g]enerally, if a provider anticipates that its COVID-related lost revenue or increased expenses will be materially less than the value of the Provider Relief Fund payment received, the provider should reject the entire General Distribution payment and submit the appropriate revenue documents through the General Distribution portal to facilitate HHS determining their correct payment.”  (emphasis added).  HHS’ reference to materiality is appropriate in light of the current difficulties in fully calculating COVID-19 related expenses and losses, as discussed above.  Although those providers not applying for additional funds have been granted an additional 45 day extension to attest to the Relief Funds terms and conditions,³   a 90 day time frame may still prove insufficient, particularly if providers have not yet incurred all related expenses or exhausted all sources of available reimbursement.

HHS’ materiality qualifier is also appropriate given its May 6, 2020, FAQ response that it “does not intend to recoup funds as long as a provider’s lost revenue and increased expenses exceed the amount of Provider Relief funding a provider has received,” noting its ability to audit Relief Fund recipients in the future.  In its totality, HHS’s May 6, 2020 FAQ implies that the government is focused on the use (or misuse) of Relief Funds, rather than the current retention of funds that are not materially less than the provider’s COVID-19-related lost revenue or increased expenses.  This conclusion is further supported by the Office of Inspector General’s (“OIG”) Strategic Plan: Oversight of COVID-19 Response and Recovery, in which the OIG’s two objectives for its goal of protecting funds reference audits designed, in part, to recover Relief Funds that are misspent or diverted from their intended purpose.⁴

As AGG has consistently stated, documentation demonstrating that the provider used the Relief Funds to “prevent, prepare for and respond to” COVID-19 or for “lost revenue” will be paramount in defending either an audit or a referral to a government entity for investigation. As a threshold issue, it is important that the provider maintain (or develop) bookkeeping and recordkeeping that clearly delineates between non-COVID-19 and COVID-19 expenses and lost revenue.   For example, the provider should track COVID-19 related labor costs (including contract and temporary labor); equipment and medical supply costs (not only for actual COVID-19 patients but also increased costs to protect against potential COVID-19 transmission); and unplanned capital expenditures, including for construction of temporary structures or alternative sites, as well as other COVID-19 related costs.⁵   The provider should also identify a reasonable method for identifying lost revenue related to COVID-19 – and document this method within its books and records. HHS has advised that a provider may use a “reasonable” method of estimating lost revenue – including comparison of budget against actual, or actual year-over-year results for the same period.  If neither of those methods is available, the provider should consider what it does have available in its records to substantiate the lost revenue – and why that method / that data will provide a reasonable estimate of COVID-19 related lost revenue. Importantly, the provider’s methods must consider that Provider Relief Funds may not be used to reimburse expenses or losses that have been reimbursed from other sources, or that other source are obligated to reimburse.⁶   This obligation adds to the complexity of the regulatory response to the pandemic – and to the urgent need for the provider to work closely with its advisors and counsel to carefully consider and monitor the frequent additions and adjustments to the various responses.

Finally, in addition to tracking expenses and other costs, and identifying lost revenue, it is equally important that providers retaining the Relief Funds document the evaluation of their specific situation.  AGG recommends that this documentation take the form of corporate minutes summarizing the action taken by the provider with respect to the Relief Funds, including but not limited to: the provider’s evaluation of its use of the funds (including the bookkeeping and recordkeeping) and – where applicable – the determination of whether the received Relief Funds are materially in excess of related expenses or lost revenue; the provider’s specific evaluation and decision to comply with the terms and conditions related to the Relief Funds applying the guidance existing as of the provider’s attestation date;  and the specific direction by the provider to timely submit all necessary reports related to the Relief Funds.

As difficult as it may seem to react to the constant change related to the Provider Relief Funds, Paycheck Protection Program administration, return to work decisions and the host of other current (and developing) government responses to the pandemic, it is vital that each provider not only monitor these changes, but document its decision process. Audits and investigations are sure to extend well past the pandemic’s uncertainties. It is in the provider’s best interests to act now to respond to those future inquires.

[1] See, the AGG COVID-19 Resource Center: https://www.agg.com/news-insights/coronavirus/

[2] See, “Recent CHOW? New CHOW-Related Guidance on Provider Relief Funds”, https://www.agg.com/news-insights/publications/recent-chow-new-chow-related-guidance-on-provider-relief-funds/ and https://www.hhs.gov/sites/default/files/provider-relief-fund-general-distribution-faqs.pdf

[3] See, HHS Announces 45-Day Compliance Deadline Extension for Providers at https://www.hhs.gov/about/news/2020/05/22/hhs-announces-45-day-compliance-deadline-extension-for-providers.html

[4] See, https://oig.hhs.gov/about-oig/strategic-plan/COVID-OIG-Strategic-Plan.pdf

[5] In calculating these costs, it is important to recognize that not all patients must be diagnosed with an actual or even presumptive case of COVID-19, as HHS has repeatedly stated that it broadly views every patient as a possible case of COVID-19.  That being said, it would be beneficial for each provider to collect and maintain all clinical and laboratory documentation for patients treated or evaluated for COVID-19, regardless of the patient’s classification.

[6] The term and conditions applicable to a provider’s retention of the Provider Relief Funds include a certification by the recipient that the funds will not be used to reimburse expenses or losses that have been reimbursed from other sources, or that other source are obligated to reimburse. See, https://www.hhs.gov/sites/default/files/terms-and-conditions-provider-relief-20-b.pdf