Hospitals wrangle with fractured federal COVID-19 aid system

When millions in federal COVID-19 relief dollars started rolling in, St. Charles Health System in Bend, Ore., quickly created a tiger team of administrators, accountants and revenue cycle managers to devise a compliance game plan. Now, three accountants are working part-time to tackle the issue.

Halfway across the country in rural Arkansas, Magnolia Regional Medical Center’s entire administrative team is just three people. Part of the hospital’s accounting staff was furloughed until mid-May. Magnolia CEO Rex Jones said leadership has talked about tracking funds and is gathering information, but hasn’t adopted a formal plan.

“There are so many emails from everyone and their brother about different grants, and about what’s available in the grants, and their stipulations and requirements,” Jones said. “Having it all in one place would be great.”

The federal government has in recent weeks pumped hundreds of billions of dollars into the industry in a desperate, unprecedented bid to stem providers’ bleeding balance sheets. The funds are administered through a fragmented hodgepodge of federal agencies, and each funding stream has its own requirements and restrictions. Hospitals have had to make quick decisions on applications and compliance, and some were better equipped for the challenge than others.

The most direct, wide-ranging source of hospital aid comes from a $175 billion provider grant fund Congress created to offset coronavirus-related losses and expenses. Hospital executives generally appreciate that the funding has gone out quickly, but some say it barely made a dent in their losses.

St. Charles Chief Financial Officer Jennifer Welander said the system received $14.5 million from the CARES Act's provider relief fund, but that barely covered two weeks of operations considering the system at its lowest point in late April lost between $800,000 and $1 million per day due to volume reductions.

Large, for-profit systems have been tight-lipped about how much revenue they have lost, but have disclosed some grant receipts.

“We bolstered our balance sheet and liquidity with some support from the CARES Act, but (it was) not sufficient,” Tenet Healthcare Corp. CEO Ronald Rittenmeyer told investors on May 5. Tenet publicly disclosed receiving at least $345 million in CARES Act grant funds.

The funds came with strings attached. Hospitals receiving grant money had to attest that they wouldn’t balance-bill patients for COVID-19 care, and they can’t double-dip with expenses that are reimbursed from other sources. Each tranche of grant funds has its own set of conditions to follow, and HHS has tweaked the requirements several times with little notice.

While large systems with sophisticated compliance procedures were better prepared to track funding uses, ensuring compliance is more challenging for smaller hospitals. Consultants who work with providers have said many are largely scrambling to meet the terms instead of declining to comply and returning the money.

To ensure that it adheres to the balance-billing ban, St. Charles retooled its electronic health record system to build in identifiers for COVID-19 patients so the services undergo special review by the billing department before bills are sent to patients. Welander said the health system’s team works with payers to ensure claims are adjudicated correctly. If providers balance-bill COVID-19 patients, they could be vulnerable to False Claims Act litigation for violating the grant terms.

The $175 billion is a significant amount, but hospitals don’t get all of the funds. The American Hospital Association estimated that only 44% of early rounds of grant money went to hospitals and health systems. The AHA recently estimated that hospitals overall could face a $203 billion hit over four months, which means the grant funds spread out to all provider types won’t fill the gap.

That leaves hospitals and health systems to look elsewhere to shore up their balance sheets. One option that hospitals could opt into was the Medicare accelerated payment program, which the CARES Act expanded.

In the span of roughly a month, CMS distributed $60 billion in advances to 21,000 providers for Medicare Part A payments and $40 billion to 24,000 providers and suppliers in Part B before it put the program on hold. CMS said the program was suspended because provider grant money with more attractive terms had started to be distributed.

Unlike the provider relief grants, Medicare advances have to be repaid. And if hospitals don’t pay back the money in 13 months, interest begins accruing at a rate of 9.625%.

Chelene Whiteaker, senior vice president of government affairs at the Washington State Hospital Association, called the advances “lifelines” for rural hospitals in cash flow crises, but some small hospitals said they are wary of using the funds.

Magnolia said it is treating its accelerated payment as an emergency line of credit because it is worried about repaying the money, especially since the hospital has operated in the red in recent years. Neosho Memorial Regional Medical Center in Chanute, Kan., said it is also reluctant to use the advance it requested, and supports a lobbying push in Congress to forgive the loans. Pullman (Wash.) Regional Hospital CFO Steve Febus said the hospital plans to use its accelerated payment as a “measure of last resort.”

Even if hospitals are reticent to use the funds, they’re still desirable to have on hand. WhidbeyHealth, a critical-access hospital in Coupeville, Wash., has had difficulties receiving a $9 million accelerated payment it was approved for in early April. CEO Ron Telles said the finances would allow the rural hospital to plan ahead for a potential future resurgence in coronavirus cases.

For not-for-profit hospitals that do see significant influxes of COVID-19 patients, reimbursement is available through states via the Federal Emergency Management Agency. The CARES Act bolstered FEMA’s Disaster Relief Fund by $45 billion. But the funds will move much more slowly than the grants and Medicare advances, and are limited to use for healthcare-related expenses.

“They’re really opposite approaches. The CARES funds were just based on HHS depositing money and providers being asked about compliance and documentation, and FEMA is reimbursing expenses,” said Robert Reeves, partner at EY.

Stamford (Conn.) Health had treated nearly 600 COVID-19 patients as of late May, and the hospital is tracking funds for FEMA reimbursement. In preparing for its surge, Stamford incurred expenses to transform hospital space into additional intensive-care units, recommission an old hospital building, screen employees for COVID-19 and house quarantined employees as well as to buy personal protective equipment.

“We are tracking costs right now. It’s an ongoing process, but nothing beyond what we are capable of pulling together,” said Stamford CFO Michael Veillette.

Nick Diamond, a consultant at Avalere, said even though FEMA extended the deadline to apply for funds, it makes sense for providers to quickly give states notice that they plan to request funding. Requests can be updated later if needs change. The COVID-19 pandemic is a different disaster than the floods and hurricanes FEMA typically responds to, and the pandemic’s severity can vary over time in different locations.

“The current situation is unique. FEMA has a decent amount of discretion in the prescribed funding bucket to make use of disaster relief,” Diamond said.

Small hospitals that didn’t see a surge in COVID-19 patients but saw revenue nosedive due to a reduction in elective procedures had the option to apply for small-business assistance provided in the CARES Act. Rural hospitals successfully lobbied to allow community-owned hospitals to get grant funds when the forgivable small-business loan program was refilled in April.

Paycheck Protection Program loans can be forgiven if the hospitals use at least 75% of the money for payroll costs, including retaining or quickly rehiring employees and maintaining salary levels. The rest can be used to pay mortgages, rent and utilities.

Jones said Magnolia Regional worked with a local bank to get a small-business loan in April. The forgivable loan allowed Jones to bring back employees from furlough, and doubled the hospital’s cash on hand. “Our ability to sleep at night improved tremendously,” Jones said.

Neosho said that as of early May it was still working through the PPP application process and gathering data, as the hospital did not qualify for the program before regulators tweaked the rules to allow some rural hospitals to apply.

But only very small hospitals qualified for the program. Pullman Regional Hospital, which has 25 total beds, narrowly failed to qualify for the PPP loan because primary- care and specialty practices owned by the hospital boosted Pullman’s employee count above the 500-employee threshold.

Midsize hospitals that are too big for the Paycheck Protection Program may qualify for a new loan program through the Federal Reserve if they have up to 15,000 employees or $5 billion in annual revenue.

However, some hospitals aren’t too enthusiastic about pursuing the loans because they limit compensation for highly paid employees and must be repaid. Businesses accepting corporate relief loans would have to freeze compensation for all employees making more than $425,000 and agree to pay cuts for employees making more than $3 million.

The funds are subject to extensive oversight, and the Federal Reserve has said it will disclose the names of each recipient and the amounts borrowed.

Pullman would qualify for the midsize business loans, but ran into issues with debt limitations and decided the hospital didn’t need to take on any more debt, Febus said.

Welander said St. Charles doesn’t qualify for the Main Street Lending Program because of restrictions on borrowers’ total debt, but noted that the program wasn’t very attractive anyway.

“We are sitting in a stable position from a liquidity standpoint, and we don’t need more loans,” Welander said.

Stamford is also looking to avoid long-term debt, Veillette said. “Unless they are forgivable, they are not something we are going to participate in. We are not looking to add another liability,” he said.

Even though much federal funding is already distributed, there is likely more to come. The Federal Reserve has not said how it will spend much of the funding for loans it received in the CARES Act, and HHS has yet to announce how it plans to spend $75 billion in provider grant money. Congress is working on subsequent legislation that could provide more support for hospitals.

Some hospitals lean on experienced accounting departments or consultants to track new developments, while the most vulnerable providers may not have the resources to make the most of each funding stream.

“We have more work to do to help rural hospitals do what they need to do to access these funds,” the Washington State Hospital Association’s Whiteaker said.

DATA: Providers and suppliers who received CMS accelerated and advance payment loans