HHS Extends Deadline for Medicaid, CHIP, and Dental Providers to Apply for $15 Billion Phase 2 Distribution

The US Department of Health and Human Services (HHS) has been tasked with distributing $175 billion of CARES Act Provider Relief Funds to hospitals and healthcare providers involved with responding to the coronavirus.  HHS has already distributed $50 billion during a Phase 1 general distribution targeted at Medicare providers.

HHS is currently accepting applications for a Phase 2 distribution of $15 billion targeted at Medicaid, Medicaid managed care, Children’s Health Insurance Program (CHIP), and dental providers who did not receive a Phase 1 distribution.  Funding is approximately 2% of reported revenue from patient care for the 2017, 2018, or 2019 tax year.

Eligibility criteria and steps for applying can be found on the HHS website in detail.

This Phase 2 distribution is not automatic.  Eligible providers must complete an application on the HHS website to qualify for a distribution of this funding.  The application deadline has been extended from August 3, 2020 to August 28, 2020.  There is a two-part application process. Providers must first validate their tax ID number.  Once validated, they will need to apply for funding and submit various tax, financial, and operational data.

Once funding is received, recipients have 90 days to attest that they received funding and accept the terms and conditions.  Providers applying for and receiving this funding should carefully review the terms and conditions in their entirety.  Providers who cannot accept the terms and conditions must return the funds within 90 days or they will be deemed to have accepted them.

HHS has an FAQ page which they have been continually updating to clarify the terms and conditions and other aspects of the program.

Some commentary:

• The funds can be used on increased healthcare related expenses attributable to coronavirus such as supplies, equipment, workforce training, developing/staffing emergency operation centers, reporting COVID-19 test results to federal, state, and local governments, building/constructing temporary structures to expand capacity, and to acquire additional resources (facilities, equipment, supplies, healthcare practices, staffing, technology) to expand or preserve care delivery.
• The funds can also be used to reimburse lost revenues attributable to coronavirus. “Lost revenues” can be revenue losses due to fewer outpatient visits, canceled elective procedures/services, and increased uncompensated care.  The funds can be used to cover any cost that the lost revenue otherwise would have covered, so long as that cost “prevents, prepares for, or responds to coronavirus.”  The way this is worded seems to imply that only reimbursement of lost revenues that cover eligible expenses are appropriate.
• HHS encourages using funds replacing lost revenues to cover: employee or contractor payroll, employee health insurance, rent/mortgage payments, equipment lease payments, and electronic health record licensing fees.
• Salaries in excess of $197,300/annualized are not an eligible expense. While not explicitly excluded, it stands to reason that payment of dividends or distributions to owner-employees already earning in excess of this amount would not be an eligible use of funds.
• Providers cannot double count expenses for the Provider Relief Fund reimbursed from “other sources,” and the HHS FAQs makes it very clear that this includes PPP loan forgiveness.
• Expenses incurred prior to receipt of funds, but not prior to January 1, 2020, can be counted. Providers can use the Provider Relief Funds for as long as they have eligible expenses or lost revenue.  If any funds remain “at the conclusion of the pandemic” that cannot be used, they must be returned to HHS.
• Providers receiving this funding must consent to HHS publishing their business name, city, state, and amount of funding awarded publicly on the CDC website. This data could potentially allow third parties to estimate their gross receipts and/or patient revenues.
• Providers will be required to submit documents to substantiate that the Provider Relief Funds were used for increased healthcare-related expenses or lost revenue attributable to coronavirus and that those expenses or losses were not reimbursed from other sources and other sources were not obligated to reimburse them. HHS released a notice on July 20, 2020 definitively indicating that providers receiving payments in excess of $10,000 total will be subject to future reporting requirements.  Detailed instructions will be released by HHS by August 17, 2020, but are not yet available.  A reporting system will become available on October 1, 2020, with initial reports on expenditures due within 45 days of December 31, 2020.
• The terms and conditions indicate that providers who receive $150,000 or more in aggregate coronavirus funding are subject to additional quarterly reporting requirements (per section 15011 of the CARES Act). HHS is meeting these quarterly reporting requirements on behalf of providers who are subject to them at this time.  However, these providers will still be required to submit future reports substantiating use of funds, details of which are forthcoming.