When the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted nearly a year ago, it offered something of a lifeline to healthcare organizations on the frontlines of the COVID-19 pandemic. The $175 billion in the Provider Relief Fund from the CARES Act and other relief has been critical for providers as they've navigated the unprecedented public health and business challenges brought on by coronavirus.
Yet in the 900 pages of the CARES Act, just three pages are devoted to outlining how funding for provider relief is to be distributed. The Department of Health and Human Services (HHS) has had considerable authority and leeway in implementing a funding and distribution program. The industry has spent the last 10 months monitoring shifts and changes in regulations and requirements.
Even with the changes to date, it's safe to assume more adjustments are coming, along with increased public scrutiny and regulatory oversight. A webinar hosted by Buchanan Ingersoll & Rooney and Grant Thornton on Feb. 3, 2021, offered a deep dive into the latest developments and insights on navigating these challenges.
"CARES Act for Healthcare Organizations: A Practical Guide to Navigating Legal and Financial Issues and Complying with Mandatory Reporting and OIG Audits" detailed best practices providers can utilize as they navigate the next chapter in CARES Act funding and compliance. Here are four key takeaways from the webinar.
- Expect to be Audited
Many providers may have recently received Phase 3 funding and are within the 90-day window in which to determine if they'll accept the funds or not. Understanding the limitations for using that money – and the reporting requirements that come with it – are key to avoiding any surprises.
If we've learned anything from the Troubled Asset Relief Program and past aid packages, it's that audits will occur. HHS and the oversight entities created by the CARES Act will carefully track funds and, as resources permit, investigate potential fraud to ensure that federal dollars are used properly. Moreover, providers that received more than $150,000 in funding through the initial distribution will need to file detailed quarterly reports no later than 10 days after the end of each calendar quarter. Those that received more than $750,000 will be automatically audited beginning in the fiscal or calendar year in which the provider spends the funds. There are several reporting details that may trigger increased regulatory scrutiny.
- The Terms & Conditions are Broad – But Critical
For providers that plan to accept Phase 3 funds or have accepted past funding, the attestation creates a requirement to adhere to the terms and conditions stipulated by HHS. These terms and conditions vary for each funding source, but the general tenants between the three funding phases are similar. The terms and conditions require that the recipient provides, or provided after Jan. 31, 2020, diagnoses, test, or care for individuals with possible or actual cases of COVID-19. That is a stricter funding threshold than many state relief packages. Additionally, the terms state that these funds can only be used for healthcare-related expenses or lost revenue that are attributable to COVID-19.
It's important to note that "healthcare-related expenses" and "lost revenue" are broadly defined by HHS and include many costs and services some providers may not think of. Costs related to additional training, COVID-19 reporting, building temporary structures for COVID-19 care or testing, and additional janitorial staffing likely fall within the definition. Less obvious examples of lost revenue include revenues lost due to fewer outpatient visits, cancelled elective procedures, and increased uncompensated care.
- With Audits, the Best Defense is a Good Offense
Providers face significant regulatory repercussions and False Claims Act liability should they fail to meet the stated reporting requirements or improperly use the funds. As organizations accept and allocate funds and plan for additional regulatory oversight and audits, there are several proactive best practices to consider:
- Enhance compliance programs to account for COVID-19 considerations
- Maintain clear, organized, and accessible books and records
- Create an oversight committee to ensure you're meeting all compliance obligations to file quarterly reports as well as prepare for audits
- Implement funding utilization measures such as creating segregated bank accounts and general ledger accounts for CARES Act funds
- Follow Title VI civil rights considerations.
The specific external audit implications will vary depending on a number of factors, including whether the organization is a not-for-profit or for-profit organization. Providers need to stay current on the most recent definitions and updates to reporting requirements when it comes to financial reporting and compliance.
- Consider the Broader Business Implications of CARES Act Funding
In addition to the minutiae of reporting and compliance considerations that come with accepting economic stimulus money from the Provider Relief Fund and other sources, it's important to take a step back and consider the broader business implications. One area to focus on is the operational and financial impact the funds will have on a provider's bottom line. Depending on the type of funding received and the amount, the funding likely impacted short-term liquidity and will affect future cash flows. Likewise, the funding could impact debt covenants, creating uncertainty with lender/borrower agreements and calculations.
Currently, it looks as though M&A activity in the healthcare sector is beginning to rebound following an understandable slowdown in the COVID world. This is another broader business area to consider with regard to economic stimulus funding in terms of valuation, balance sheet strength and strategic alignment. Finally, it's important to consider the public perception and branding impact of receiving funds. The media and the general public may think differently about some providers that choose to accept funds – or return them.
A True Partner in Navigating COVID-19 Relief Funding Compliance
When confronted with new, unprecedented challenges, as is the case with COVID-19, the CARES Act, and evolving executive, legislative, judicial, and enforcement priorities, providers should consider retaining experienced counsel to help manage these difficulties. Healthcare providers have been hit particularly hard by the pandemic. Having legal counsel by your side throughout the crisis can help you deter, detect and prevent issues before they occur. And in the event that concerns escalate and perhaps involve regulatory scrutiny or commercial disputes, experienced attorneys will be invaluable to problem-solving and resolution.
At Buchanan, our coordinated team of healthcare lawyers, compliance program veterans, former federal investigators and prosecutors, seasoned commercial litigators, criminal defense attorneys, and widely respected government relations professionals can help providers with the full gambit of COVID-19-era concerns and considerations. From daily crisis counseling, to CARES Act compliance, to investigations and litigation defense, we've done it all in the COVID world. We view our healthcare clients as top-priority partners in managing the myriad issues arising from the pandemic and are fully committed to helping them create and maintain robust compliance programs to ensure their continued business success.
Click here to view the recording of the webinar
Originally Published by Buchanan Ingersoll, February 2021
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.