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“Document, document, document” is key to compliance
INSIGHT ARTICLE |
In 2020, the health care industry saw billions of dollars in stimulus payments through the Provider Relief Fund (PRF) to provide some assistance and help from the financial effects of the pandemic. However, the rollout also presented challenges to many health care providers as they attempted to determine how to meet the PRF’s terms and conditions.
The PRF was established through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Within the CARES Act, Congress established that PRF funding would be used to compensate health care providers for unreimbursed expenses as well as lost revenue incurred as a result of the pandemic.
More clarification needed
Throughout 2020, the U.S. Department of Health and Human Services (HHS) provided guidance in the form of terms and conditions, frequently asked questions (FAQs) and reporting guidance to attempt to provide a framework for PRF recipients. The guidance provided by HHS did evolve over time. For instance, in September HHS defined lost revenue as a decline in year-over-year operating margin. This was quite different from what many in the industry thought the calculation was intended to be: top line lost revenue. Then in October HHS released revised reporting requirements that defined lost revenue as actual calendar year 2020 revenue as compared to actual calendar year 2019 revenue. This clarification was still not what many health care providers were hoping for, as previous HHS guidance had led them to believe that lost revenue could be based on a comparison of actual revenue to budgeted or forecasted revenue.
In December, Congress passed the Consolidated Appropriations Act, 2021 (the Act) to provide even further clarification The Act did two things related to the PRF of interest to health care providers: It again changed the calculation of lost revenue, to permit a budget to actual calculation in addition to a year-over-year actual to actual calculation; and it allowed providers that are parent organizations of subsidiaries that received targeted distributions to allocate those distributions to other eligible health care providers within the organization.
For many PRF recipients, the change to the lost revenue definition and the flexibility to allocate targeted distributions allowed them to proceed into 2021 with a bit more financial certainty. Previously, providers found themselves in a predicament when lost revenue was defined as calendar year 2020 versus calendar year 2019. Although some providers experienced revenue growth in 2020, many were not growing as fast as they had budgeted for because of the effects of the pandemic. This slower revenue growth contributed to profitability concerns as the higher budgeted revenues drove decisions around higher expenditures.
One thing that health care providers and their auditors will have to consider in 2021, and potentially beyond, is the guidance issued within HHS’s FAQs subjecting PRF funds to compliance audits. Nonfederal entities (states, local governments, Native American tribes, institutions of higher education, and nonprofit organizations) are required to consider PRF funding in determining the need for an audit in accordance with 45 CFR Part 75, Subpart F. This process and determination may be more familiar to nonfederal entities than to commercial (for-profit) entities, many of which have never received federal financial assistance. Commercial entities that receive $750,000 or more in annual awards will have two options to address the compliance audit requirement:
- Financial related audit of the award conducted in accordance with Government Auditing Standards (GAS)
- An audit in conformance with the requirements of 45 CFR Part 75, Subpart F
Many in the health care industry believe that most commercial entities will elect a GAS audit. A complicating factor with the GAS audit option is that there is little guidance available at this time. Commercial entity recipients of PRF funds know that an audit will be required, but they do not know when the audit must be completed. HHS and the American Institute of Certified Public Accountants have discussed audit timing and many other unanswered questions. Hopefully through those efforts we will see guidance issued in the coming weeks or months.
Many providers, especially commercial entities, continue to ask what they can do now. The following are a few considerations:
- Ensure that you have reviewed the terms and conditions of the PRF grants as well as all of the HHS FAQs and reporting guidance.
- Document, document, document. Document methodologies, approaches, rationale and assumptions contemporaneously, and ensure your documentation of your entity’s compliance with the terms and conditions of the PRF grants is easy to follow and “auditable.”
- Discuss with your accounting firm their information needs and capacity to timely complete these compliance audits.
This article was written by Rick Kes and originally appeared on 2021-05-19.
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