Here's why hospitals want more time to repay their Medicare loans

Dozens of hospitals signed a recent letter to Congress asking, among other things, for more time to repay their accelerated Medicare loans.

Some of those hospital companies, however, had already repaid the money, and even those that haven't don't anticipate needing to pay the 4% interest that gets tacked on once the initial repayment periods end.

Of the $107.3 billion the Centers for Medicare and Medicaid Services distributed to healthcare providers and suppliers under the COVID-19 Accelerated and Advanced Payments Program, the agency recouped 53% by the end of November. That includes 55% of the $98.8 billion distributed to Part A providers, mostly hospitals, and 28.7% of the $8.5 billion distributed to Part B providers and suppliers, mostly medical groups.

Healthcare finance experts say most hospitals and health systems have carefully accounted for the accelerated Medicare payments and won't have problems shouldering the repayments, which automatically come out of their Medicare reimbursements.

"I've had some clients pay it off entirely right around the time recoupment started, so they haven't had to deal with this," said Aparna Venkateswaran, senior manager with Moss Adams. "Those providers that were anticipating this and trying to plan for it, it's not really going to impact them because they've incorporated it into their cash flow analysis."

The hospital industry has more pressing needs it wants the government to address, such as delaying scheduled Medicare reimbursement cuts, getting additional Provider Relief Fund dollars as COVID-19 continues to batter them and reinstating 340B eligibility for facilities that fell out of the program during the pandemic.

"Even though we got money in 2020, 2021 was harder and more intense than anything we've ever seen," ProMedica CEO Randy Oostra said.

Nevertheless, hospitals—both on their own and through their powerful lobbying arms—are asking Congress to halt advance payment collections for six months. After that, they want recoupment to account for just 25% of their Medicare claims for the following year.

"It's really a cash flow issue and a cash flow crunch," said American Hospital Association CEO Rick Pollack. "We're still dealing with the pandemic. We're simply asking that, once again, we change the payment schedule to provide us with more relief and flexibility."

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Some large health systems are paid in full

The current recoupment terms, which Congress relaxed in 2020, start at 25% one year after the initial payment, lasting for a period of 11 months. After that, recoupment increases to 50% for six months. If it's not all paid off after those 29 months, the agency tacks on a 4% interest rate.

In a letter sent to President Joe Biden and congressional leaders on Jan. 19, hospitals and health systems made a number of asks, including for a loan repayment delay. The letter acknowledges that many providers had already fully repaid the money.

"Halting the repayment process for one year will allow those providers needing additional resources to keep the cash on hand to help finance the increased costs they are currently experiencing," the letter says. "All funds will be repaid."

Some of the signers, including Presbyterian Healthcare Services in Albuquerque, New Mexico, and Atlanta-based Piedmont Healthcare, already were paid up.

Other large systems not on the letter, such as Rochester, Minnesota-based Mayo Clinic, Spectrum Health of Grand Rapids, Michigan, and investor-owned HCA Healthcare, headquartered in Nashville, Tennessee, also have repaid their loans.

"Health systems, generally speaking, they were very aware of the fact that they were going to have to pay this money back so they were planning for it," said Rick Kes, healthcare industry senior analyst with RSM.

Repayment starts one year from the date a provider received a loan. That means repayment schedules vary and could explain why some have made more progress than others.

Toledo, Ohio-based ProMedica, which also signed the letter, received about $300 million in advance payments and anticipates completing repayment during the second half of the year.

Other providers still in cash crunch

On the other end of the continuum are those hospitals without the means to give back the advance payments they received.

Snoqualmie Valley Hospital, a critical access hospital about 30 miles east of Seattle, still has to repay about $7 million of its initial $10 million in accelerated Medicare reimbursements, said Chief Financial Officer Patrick Ritter. That might not sound like a lot, but $7 million is nearly 20% of the hospital's 2020 net patient revenue. Recoupment will grow to half of the hospital's Medicare payments in April, he said.

"That's going to have a significant impact on cash flow and days cash," Ritter said. "We're still in a crunch for nurses and employees."

Snoqualmie Valley Hospital's volumes haven't yet recovered to 2019 levels. The hospital's endoscopy unit is even closed for about a month because of a statewide elective procedure suspension. Even so, Ritter expects all the money to be paid back before the interest kicks in.

Much of how hospitals fared during the pandemic has depended on their financial strength prior to the crisis. Snoqualmie Valley Hospital, for example, had money problems well before COVID-19 struck. The hospital's operating loss margin exceeded 10% in 2017, 2018 and 2019. In 2020, it was north of 20%. Ritter explained that Medicare payment cuts from budget sequestration have resulted in the hospital being paid below the cost of providing services. Snoqualmie is also a competitive market, with multiple hospitals in close proximity.

Detroit's Henry Ford Health System, one of the companies calling for relaxed recoupment, has been badly strained during the pandemic. Its hospitals have been near capacity, and a worker shortage forced it to temporarily eliminate about 120 beds. The health system's operating margin was just 0.1% in the nine months ended Sept. 30.

Henry Ford Health System still has to repay about $270 million of its initial $400 million in advance Medicare payments. Withholding just increased to 50%, Chief Financial Officer Robin Damschroder said. The extension is important because the health system never expected the pandemic to be as severe as it was during the final quarter of 2021, when it spent tens of millions on travel nurses, pay raises and bonuses.

"When you talk about liquidity, the accelerated Medicare payments have been essential for the stabilization of our liquidity so we don't have to draw on expensive credit lines," Damschroder said.

Henry Ford Health System had a weaker balance sheet than some of its peers even before the pandemic. The company had 146 days cash on hand at the end of 2019, compared to the national median of 169.5, according to Merritt Research Services.

Days cash, an important liquidity metric, measures the number of days an organization could fund its operations using its cash reserves. Accelerated Medicare helped bump Henry Ford Health System to 206 days cash in 2020, still below the national median of 236.4.

The Mayo Clinic, by contrast, had 270 days cash on hand at the end of 2019. Although the system returned its accelerated Medicare reimbursements, it doubled the amount it stored in "highly liquid" funds to about $3 billion in 2020, bringing its days cash to 348 at the end of the year. Spectrum Health had 230 days cash on hand at the end of 2019, which increased to 246 the following year.

"The health systems I know who have paid the money back in full are people pre-COVID who had 250 plus days," Damschroder said. "If you have 300-plus days cash on your balance sheet, you're probably not wanting to keep the government's money."

Medicare Part A providers also include hospice and home health providers, nursing homes, dialysis providers and rural health clinics. Part B providers include physicians and durable medical equipment suppliers.

While hospitals received the lion's share of the accelerated Medicare funds, almost $1.8 billion went to home health agencies and $1.3 billion to hospice providers as of Nov. 30. Both sectors had repaid almost 38% as of that date. National Association for Home Care and Hospice members have not aired concerns to the group's leadership about recoupment, said spokesperson Tom Threlkeld.

Another $1.3 billion went to kidney dialysis providers, 46% of which had been repaid as of Nov. 30. Fresenius Medical Care, one of the country's largest dialysis providers, received about $1 billion. Fresenius Medical Care, which declined to comment, disclosed in a financial filing it had paid back about $623 million as of Sept. 30. Competitor DaVita disclosed in a recent financial filing that it had returned both the accelerated Medicare payments and the federal grants it received in 2020.

Most of the Part B advance payments went to physician groups, which did not request relaxed repayment terms in a wish list to congressional leaders sent through their trade association on Jan. 28.

Medical Group Management Association members haven't expressed much concern about loan repayments, largely because group practices set aside money in preparation, said Claire Ernst, director of government affairs. Moreover, MGMA members made a greater use of the Paycheck Protection Program loans, which can be forgiven, and the Provider Relief Fund, she said.