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HHS changes revenue calculation for keeping COVID-19 relief funds

HHS again has changed the rules regarding how to document Provider Relief Fund grants and it could cause headaches for healthcare stakeholders.

HHS recently released reporting guidelines that changed how healthcare providers are supposed to calculate lost revenue from the COVID-19 pandemic, complicating accounting for more than$100 billion in grant funds.

Prior guidance from HHS had indicated that healthcare providers could calculate lost revenue by comparing 2020 revenue with budgeted revenue or with revenue from 2019, but the new notice says providers have to use net operating income instead. The document also puts a cap on how much lost revenue providers can claim.

Both of these changes are sending providers back to the drawing board as they figure out how to account for Provider Relief Fund grants and insulate themselves from False Claims Act liability and other potential consequences.

Revenue figures would have been simple to report, consultants and accountants who work with providers said, but net operating income is a more complex calculation that takes expenses into account.

“When you start adding in all of these expenses over course of the year, you are diluting what would have been a single metric. Will it always work out the same way? No,” said Polsinelli healthcare operations chair Colleen Faddick.

The guidance would also cap lost revenue providers can claim to their net 2019 gain, or net zero if the provider had a negative net operating income last year.

The formula limits providers to their 2019 financial performance if they want to qualify for the grant funds to help with lost revenue, Faddick noted.

“That’s not how healthcare providers want to operate,” Faddick said.

The net operating income measure could be an issue if a provider recently added a service line or opened a new unit that was expected to bring in new revenue streams compared with last year.

Providers had 90 days to decide whether to keep the funds, and guidance has continually changed since the first funds were distributed in April. HHS has regularly updated a frequently asked questions document about the grants, including a June 19 update that said lost revenue could be calculating using comparisons with budgeted revenue or 2019 revenue.

“We are concerned that the detail that will be required to show ‘a negative change in year-over-year net operating income,’ may be very challenging and time-consuming for many providers to calculate and, more importantly, document,” said Butler Snow health law practice group leader Mark Garriga.

Washington Council Ernst & Young Principal Heather Meade said the use of the net operating income metric penalizes hospitals that took quick action to cut costs as volumes plummeted.

“For those that quickly took action to be stable, that is going to weigh against you in the new formula, but hospitals that allowed the bleeding to continue can collect more grant funds,” Meade said.

HHS could still release new guidance to further elaborate on the reporting process, as the portal won’t open until early 2021 and funds are still being distributed.

“It would not surprise me if the 2021 rollout didn’t add something else to this,” Weaver and Tidwell Partner Anna Stevens said.

Polsinelli attorney Ross Sallade called HHS’ decision to delay the opening of the portal from Oct. 1 to next year an “olive branch” to give providers more time to figure out the new reporting methodology.



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