By A.J. Hurst, CPA
We would all be challenged to find an organization at this point that has not been impacted by COVID-19. Most healthcare providers have felt the far-reaching impacts of the pandemic. Many of our provider clients have seen, among other impacts, forced closures and reduced patient visit volume on top of adapting procedures to protect the safety of their workforces, patients and workplaces. It goes without saying that no industry has been more critical to our fight against the pandemic than healthcare.
The U.S. government recognized the need to provide additional resources and incentives to healthcare providers to ensure the maintenance of the nation’s healthcare efforts, from hospitals providing critical care to COVID-19 patients to urgent care and similar providers conducting COVID-19 screenings and testing. These organizations have been on the front lines of the fight against COVID-19, all while having to maintain a healthy and properly staffed workforce. The U.S. government provided funds in the form of various financial relief packages to help ensure that these organizations can operate effectively.
The CARES Act – Paycheck Protection Program Loans
Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), financial relief was provided through the Paycheck Protection Program (PPP) loan program. Although not unique to the healthcare industry, the PPP helped many healthcare entities maintain their workforces. The ability of healthcare entities to not only continue to maintain a workforce critical to the front-line effort against the pandemic but to also continue to employ individuals has had a great impact on the health and safety as well as the financial welfare of many in our country.
PPP payments are structured as loans with an expectation of forgiveness after all applicable forgiveness criteria are met. Generally, a healthcare entity would record income when the loan is forgiven, assuming forgiveness of the PPP loan.
The CARES Act – Provider Relief Fund
The CARES Act also provided relief specifically to healthcare providers under the CARES Act Provider Relief Fund. The Provider Relief Fund included $178 billion distributed over three phases. Beyond general distributions, the program included targeted distributions specifically allocated to, among other providers, those providers in high-impact areas, rural areas and skilled nursing facilities. Payments under the Provider Relief Fund are effectively grant payments without repayment requirements. However, healthcare entities should be careful to follow all terms and conditions of receiving the payments to avoid noncompliance issues.
CMS Funds: Accelerated and Advance Payment Program
Additionally, the Centers for Medicare & Medicaid Services (CMS) made funds available under the Accelerated and Advance Payment (AAP) program. Under the AAP, Medicare and Medicaid providers received payments totaling $106 billion during 2020. Repayment will be in the form of a reduction in reimbursements from Medicare to the providers receiving payments.
Initially, providers were to make repayments on advances received beginning in August 2020. However, in October 2020 repayment terms were extended to begin one year after the initial payment was issued. After the first year, Medicare will automatically recoup 25 percent of Medicare payments otherwise owed to the provider or supplier for eleven months. At the end of the eleven-month period, recoupment will increase to 50 percent for another six months. The final 25 percent or any additional unpaid amounts will be recouped after the six-month period ends. The delay in the initial repayment term was instrumental for many organizations that needed additional cash flow to effectively operate in the 4th quarter of 2020. Healthcare providers will begin to repay these amounts as a reduction in Medicare reimbursements in March 2021, and therefore should prepare now for any potential impact to cash flows as a result of repayment.
Consolidated Appropriations Act – More Relief
In December 2020, the U.S. government passed the Consolidated Appropriations Act, which included the second significant COVID-19 economic stimulus bill. The new bill includes provisions for additional relief funds for healthcare entities, as well as changes to processes and programs that are far-reaching within the industry. Additional information related to the impact of the Consolidated Appropriations Act on healthcare entities is expected in the coming weeks. Although additional funds will be available for providers, the significance of any financial relief specific to healthcare entities will be much less than the initial relief programs earlier in 2020.
Continued financial performance improvement is expected for healthcare entities as vaccines become available and are distributed. However, this general trend may be offset by the current significant COVID-19 surge being experienced in the U.S. Organizations should continue to evaluate cash flows and any additional expected impacts. With or without additional governmental assistance programs, healthcare entities will continue to be crucial to the front-line battle against COVID-19.
The Frazier & Deeter Healthcare Group will continue to monitor and share information as more details about the implementation of the December relief programs begin.
About the Author
A.J. Hurst is the Vice Chair of Frazier & Deeter’s National Healthcare Industry Group. He serves as a Senior Manager for the firm’s clients and as an internal technical accounting and audit resource within Frazier & Deeter’s Audit practice. He is also the former Chair of the Training & Development Subcommittee of the firm’s Technology practice and his articles have appeared in industry publications such as the Journal of Accountancy.