Phase 3 Funding FAQs Provide Additional Clarity to Funding Opportunities

Many providers have been eagerly awaiting more information related to the new Phase 3 Funding opportunity, which the Department of Health & Human Services (HHS) announced on October 1, 2020.  After a few days of silence following the initial announcement, HHS posted “Frequently Asked Questions” to its web site, which, among other things, helped clarify new eligibility requirements and the formula for calculating Phase 3 payments.  Below are some of the more significant FAQs; however, we recommend providers read all FAQs in their entirety.  Also, all providers should note that HHS is strongly encouraging all who are eligible to apply as soon as possible.

Who Is Eligible for Phase 3 – General Distribution?

To be eligible to apply, the applicant must meet all of the following requirements:

1. Either

  • Must have either (i) directly billed their state Medicaid/CHIP programs or Medicaid managed care plans for health care-related services during the period of January 1, 2018 to March 31, 2020, or (ii) own (on the application date) an included subsidiary that has either directly billed their state Medicaid/CHIP programs or Medicaid managed care plans for health care-related services during the period of January 1, 2018 to March 31, 2020; or
  • Must be a dental service provider who, as of March 31, 2020, has either (i) directly billed health insurance companies for oral health care-related services, or (ii) owns (on the application date) an included subsidiary that has directly billed health insurance companies for oral health care-related services; or
  • Must be a licensed dental service provider who does not accept insurance and has, as of March 31, 2020, either (i) directly billed patients for oral health care-related services, or (ii) who owns (on the application date) an included subsidiary that does not accept insurance and has directly billed patients for oral health care related services;
  • Must have billed Medicare fee-for-service during the period of January 1, 2019 and March 31, 2020;
  • Must be a Medicare Part A provider that experienced a change in ownership that was approved by the Centers for Medicare & Medicaid services by August 10, 2020 and billed Medicare fee-for-service during the period of January 1, 2019 and March 31, 2020;
  • Must be a state-licensed/certified assisted living facility as of March 31, 2020;
  • Must be a behavioral health provider who, as of March 31, 2020, has either (i) directly billed health insurance companies for health care-related services, or (ii) owns (on the application date) an included subsidiary that has directly billed health insurance companies for health care-related services; or
  • Must be a behavioral health provider who does not accept insurance and has, as of March 31, 2020, either (i) directly billed patients for health care-related services, or (ii) who owns (on the application date) an included subsidiary that does not accept insurance and has directly billed patients for health care-related services; or
  • Must have received a Targeted Distribution payment.

2. Must have either (i) filed a federal income tax return for fiscal years 2017, 2018 or 2019 if in operation before January 1, 2020 or quarterly tax returns for fiscal years 2020 if operations began on or after January 1, 2020 or (ii) be an entity exempt from the requirement to file a federal income tax return and have no beneficial owner that is required to file a federal income tax return. (e.g. a state-owned hospital or health care clinic); and

3. Must have provided patient care after January 31, 2020; and

4. Must not have permanently ceased providing patient care directly, or indirectly through included subsidiaries; and

5. If the applicant is an individual that was providing patient care have gross receipts or sales from providing patient care reported on Form 1040, Schedule C, Line 1, excluding income reported on a W-2 as a (statutory) employee.

What Will Be the Methodology/Formula Used to Calculate Provider Payment in Phase 3?

Providers will be paid a percentage of their change in operating revenues from patient care minus their operating expenses from patient care. HHS will calculate payments for providers that began providing patient care partway through 2019 or in 2020, and, therefore, do not have data from all of the requested quarters, based on the applicant’s financial information that is available and data from the same type of provider as the applicant.

The actual percentage paid to providers will be in part dependent of how many providers apply in Phase 3, and will be determined after the application deadline. Payments will also take into account funds received as part of previous Targeted Distributions. Providers that have not yet received and kept a payment that is approximately 2% of annual revenue from patient care as part of the General Distribution will receive at least that amount as part of their Phase 3 payment. Providers that began providing patient care in 2020 will be paid approximately 2% of patient care revenue based on the applicant’s reported financial information for those months in 2020 that they were in operation.

How Will Phase 3 Payment Be Calculated for Providers that Began Operations Part Way Through 2019 or in 2020 That Do Not Have Complete Financial Information from 2019 or the First Quarter of 2020?

HHS will calculate the percentage of change in operating revenues from patient care minus operating expenses from patient care for providers that began operations partway through 2019 or in 2020, and, therefore, do not have data from all of the requested quarters, based on the applicant’s financial information that is available and data from the same type of provider as the applicant. Providers that began operation in 2020 will be paid approximately 2% of patient care revenue based on the applicant’s reported financial information for those months in 2020 that they were [in] operation.

Are Providers that Received Payments under Phase 3 of the General Distribution Limited to Using These Funds to Cover Coronavirus-Related Losses or Increased Expenses Experienced During the First Two Quarters of Calendar Year 2020?

No. The Terms and Conditions require payment recipients to certify that funds will only be used to prevent, prepare for, and respond to coronavirus, and will only reimburse the recipient for health care-related expenses or lost revenues that are attributable to coronavirus. The Terms and Conditions do not place limits on which quarters these funds must be applied to cover eligible losses or expenses provided that funds are expended by July 31, 2021, per reporting guidelines. HHS is collecting information on the losses and expenses associated with the first two quarters of 2020 for purposes of making additional General Distribution payments to those providers with demonstrated financial need.

Is a Health Care Provider Eligible to Receive a Payment from the Phase 3 – General Distribution even if the Provider Received Funding from the Small Business Administration’s (SBA) Payroll Protection Program or the Federal Emergency Management Agency (FEMA) or Has Received Medicaid HCBS Retainer Payments?

If the health care provider otherwise meets the criteria for eligibility, receipt of funds from SBA and FEMA for coronavirus recovery or of Medicaid Home-and Community-Based Services (HCBS) retainer payments, does not preclude a health care provider from being eligible for Phase 3 – General Distribution; however, the health care provider must substantiate that the Provider Relief Fund payments were used for increased health care related expenses or lost revenue attributable to COVID-19, and those expenses or lost revenue were not reimbursed from other sources or other sources were not obligated to reimburse.

Providers can access instructions on how to apply here.  The application portal, which opened October 5, 2020, is available here.

For more information, please contact Hedy S. Rubinger or Alexander B. Foster.

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