Rural hospitals are concerned that CMS could count forgivable small-business COVID-19 relief loans against future Medicare reimbursement.
Rural hospitals, which were financially vulnerable before the COVID-19 pandemic, argue a possible CMS policy on how they are required to report costs could effectively force them to pay back most of their forgiven Paycheck Protection Program loans to the Medicare trust fund. The debate mirrors a current congressional fight over tax deductions for other small businesses that received PPP loans.
However, CMS said a Medicare Administrative Contractor sent out an inaccurate communication to providers, and that earlier guidance should be disregarded.
"CMS is reviewing the issue of adjusting Medicare cost reports to offset COVID-19 relief payments, including Paycheck Protection Program payments. We are working with Medicare Administrative Contractors and others to update our policy and will make that public soon," a CMS spokesperson said.
Many community-owned rural hospitals weren't initially eligible for the PPP program, but the Small Business Administration made an exception to allow them to apply in April. But now, they are concerned that the loans they took out as lifelines could cause CMS to cut future Medicare payments.
CMS generally pays part of critical-access hospitals' operating expenses including labor costs, rent and utilities. The payments are based on hospitals' share of Medicare patients. Medicare cost reports help determine how much of those expenses CMS will pay.
Rural hospitals first found out that they may be penalized for PPP loans in future Medicare payments in a recent notice from at least one Medicare Administrative Contractor. The notice stated that critical-access hospitals will have to subtract their forgiven PPP loans from their expense totals to "prevent the duplication of benefits from the federal government."
A CMS spokesperson said the prior communication is inaccurate, and said the agency has asked MACs to alert providers who received faulty information of the error and inform them that guidance would be forthcoming.
The National Rural Health Association argues the initial interpretation essentially requires hospitals to pay back the loans in the form of reduced future payments. NRHA technical assistance specialist Tommy Barnhart said hospitals' decisions to take out the loans or choose to keep staff on payroll may have been different had they known the expenses would be deducted from future Medicare payments.
"We do not believe that the intent of Congress, nor the president, was for the SBA's PPP to fund the Medicare trust fund," NRHA CEO Alan Morgan wrote to CMS.
A bipartisan group of lawmakers have called on CMS to clarify their position. In the past week, Sens. Susan Collins (R-Maine), Marco Rubio (R-Fla.), Jeanne Shaheen (D-N.H.), Michael Bennet (D-Colo.), John Kennedy (R-La.) have written to CMS Administrator Seema Verma.
Collins, Rubio and Shaheen said that as authors of the PPP law, the initial policy determination would be "directly contrary to congressional intent."
"We strongly believe that any effort to recapture or disallow loan forgiveness — which is what reports indicate the CMS interpretation would do — would defeat the goal of the PPP and threaten the livelihood of small providers amidst at global pandemic," the three lawmakers wrote on July 29.
In a separate letter dated Tuesday, Bennet and Kennedy said CMS' initial decision "is directly contradicting the president" after President Donald Trump signed an executive order on Monday directing HHS and CMS to create and test a new value-based payment model for rural providers.
Colorado Hospital Association director of public policy Amber Burkhart said the association believes CMS has discretion not to require PPP loans to count against hospitals' future Medicare reimbursement.
"Rural hospitals have been using loans to meet critical payroll needs and keep their doors open. It would be unthinkable for them to have to repay them," Burkhart said.
NRHA lobbyist Maggie Elehwany said one potential solution would be for CMS to classify forgiven PPP loans as grants instead of loans.
The contentious debate over PPP expense deduction mirrors a debate lawmakers are having over tax deductions for other small businesses. Congress explicitly clarified that forgiven PPP loans would not count as taxable income. However, laws have been silent on whether businesses can still get tax deductions for expenses they paid with forgiven PPP funds. Normally, wages are deductible expenses.
The Internal Revenue Service decided in April that businesses can't deduct PPP-paid expenses from their taxes. The decision was made to prevent a double tax benefit, the IRS said.
Key lawmakers leading committees with jurisdiction over tax issues decried the IRS guidance, but Congress hasn't clarified the issue yet.
For rural hospitals' similar dilemma, Guidehouse partner Dave Mosley said the dispute ultimately comes down to what Congress meant by the law and how CMS chooses to interpret it.
"This moves beyond the letter of the law to the spirit of the law, and the spirit is a moving target," Mosley said.