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So You Got Your CARES Check, What’s Next? Preparing for Potential Audits Under Provider Relief Fund Awards

In the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress allocated $175 billion in funding for hospitals and other health care providers that are fighting COVID-19. Of that amount, the Department of Health and Human Services (HHS) has allocated $50 billion for the Provider Relief Fund.

That money has been distributed to providers in two tranches: HHS paid the first $30 billion based on the provider’s Medicare fee-for-service payments received in 2019; HHS started paying the remaining $20 billion based on an allocation to ensure that a provider’s total allocation of the $50 billion fund is proportionate to its 2018 net patient revenue. All providers who received Medicare fee-for-service reimbursements in 2019 were eligible for the distribution of funds, even those who ceased operations as a result of the COVID-19 pandemic. Although providers did not have to apply for funding under the initial $30 billion tranche and the funds are not considered loans, the receipt of funds did come with Terms and Conditions (T&Cs). Providers are required to attest to having received Provider Relief Fund payments and accept the T&Cs.

Providers receiving funds under the second tranche of payments are required to accept T&Cs that are nearly identical, and should be prepared for auditors
to ask questions some day about their compliance with these T&Cs.

Among the T&Cs applicable to all Provider Relief Funds is a statement that: “Recipient agrees to fully cooperate in all audits the Secretary, Inspector General, or Pandemic Response Accountability Committee conducts to ensure compliance with these Terms and Conditions.” While neither HHS nor any Inspector General (IG) or other oversight body has yet issued guidance on the form or substance of any planned audit activity, providers should start preparing now for the possibility that they will be audited. Such preparation should involve a provider:

  • Understanding the requirements under the T&Cs and recognizing the areas of compliance most likely to be audited; and

  • Ensuring that it has documented compliance with the requirements.

  • Primary Compliance

  • Requirements Under the T&CS

  • Certification of Eligibility to Receive Funds

By accepting the funds, a provider certifies that it is eligible under the requirements, and specifically that it: billed Medicare in 2019; has provided testing or treatment after January 31, 2020, to actual or prospective COVID-19 cases; is not excluded from participation in Medicare or  other federal healthcare programs; and does not have its Medicare billing privileges revoked.

Use of Funds

There are broad parameters around the use of the Provider Relief funds and, generally, a provider may use funds only “to prevent, prepare for, and respond to” COVID-19 and to reimburse the provider for losses attributable to COVID-19. Some examples of coverable expenses are: building or construction of temporary structures, leasing of properties, medical supplies and equipment including personal protective equipment and testing supplies, increased workforce and trainings, emergency operation centers, retrofitting facilities, and surge preparation. The T&Cs specifically state that a provider may not use the funds to recover on losses that another source has, or is obligated to, reimburse. There is also a prohibition on balance billing, and providers should not balance bill any patient for COVID-19 related care or bill for more than the patient would have been charged by an in-network provider. Implicitly, providers may also not use the funds for a purpose wholly unrelated to COVID-19 (e.g., personal use; transferring the funds to a third party for non-COVID-19 purposes).

Reporting

The T&Cs require that a provider submit reports as required by the Secretary of HHS. Therefore, the nature and timing of provider reporting is subject to further guidance. However, the T&Cs specify what appears likely to be the primary reporting mechanism: quarterly reporting from providers that receive more than $150,000 in COVID-19-related relief funding. Within 10 days after the end of each calendar quarter, such provider is required to submit a report to the Secretary of HHS and the Pandemic Response Accountability Committee, detailing: the amounts it has received and spent or obligated; and a list of all projects and activities on which funds were spent or obligated. The provider must also describe each project or activity, and report the number of jobs it has created or retained (if applicable) and detailed information on the sub- contracts and sub-grants that the provider awarded using the funds, including the information required under the Federal Funding Accountability and Transparency Act of 2006.

Recordkeeping

A provider that receives Relief Fund payments is required to maintain its records and financial documentation in accordance with specified provisions of the HHS grant regulations: 45 C.F.R. §§ 75.302 and 75.361-75.365. Though the full details of those financial documentation requirements are beyond the scope of this article, they generally require that federal award recipients: separately identify federal money received and expended, and the associated programs; accurately account for the financial results of each federal award; keep records that adequately reflect the source and use of funds under federal awards; establish an effective system of control over federal funds; track expenditures versus budget on each program; and establish written procedures for payments made under the federal award and determination of allowable costs.

A federal award recipient generally must maintain all required financial and other documentation relating to the award for a period of at least three years. A recipient must allow HHS, Inspectors General, and the Comptroller General to access all records relating to the award for audit or other examination purposes as long as the records are maintained.

Unless qualified by subsequent HHS program instructions, providers should operate on the assumption that all financial documentation and recordkeeping requirements of 45 C.F.R. §§ 75.302 and 75.361-75.365 apply to their receipt and use of the Provider Relief funds.

Preparing for Potential Audit

A provider that accepts Provider Relief payments should prepare for potential audits by HHS or other oversight bodies by:

  • Closely tracking the requirements associated with the funds and

  • Ensuring that it has documented its compliance with those obligations.

    From a financial management standpoint, a provider will need to provide accountability for the use of the funds to ensure compliance with the conditions imposed on the payment. In order to ensure that it has an auditable trail, each provider should:

  • Segregate funds from an accounting perspective to track the direct and indirect and application of the funds to the Provider Relief program;

  • Separate the Provider Relief payments from other sources of payments or funds for similar services to ensure they are segregated and avoid potential overlap;

  • Set up separate general ledger codes for each funding program or each grant for each entity tax ID number;

  • For direct expenses, identify separate cost centers for losses and other costs attributable to COVID-19;

  • For indirect expenses, identify and document an appropriate allocation methodology to distribute indirect departmental expenses to COVID-19 accounts;

  • Develop and document a methodology to identify lost revenue as a result of COVID-19, including:

    • Accounting for known cancellations of elective procedures or visits;

    • Determining revenue based on decreased admissions;

    • Reviewing year-over-year revenue decrease; and

    • Understanding any trends in recent revenue to determine if there was an increase or decrease that was occurring before COVID-19.

A provider should also have a documented recordkeeping and record- retention policy that is applicable to payments received and obligated or expended. All staff who are responsible for receipt, obligation, and spending of the funds should be trained on the basic compliance obligations under the T&Cs and the recordkeeping and record- retention requirements applicable to financial and other documentation.

Anticipating Provider Relief Fund Audits

Though HHS has not yet provided guidance on the form, frequency, or strategy for audits under the program, there are certain possibilities that can be anticipated at this stage. On one hand, HHS or an Inspector General may target audits based upon the information provided in quarterly reports and focus on, for example, the largest recipients, the recipients who have potential reporting anomalies, or some combination thereof. If HHS has more widespread concerns about fraud or misuse of funds, it could also enact a form of random auditing that would reach a wider range of providers. Given the fairly broad latitude that providers have been given regarding the use of funds, it may be the case that HHS will only audit where it has actionable concerns about egregious violations of the T&Cs — and given the size and scope of the program, HHS’ resource constraints may dictate that approach.

A final issue to consider is the potential role of whistleblowers in enforcing the requirements of the T&Cs. Especially if accepting Provider Relief funds may serve as a predicate for liability under the civil False Claims Act (an issue that will no doubt be litigated in the near future), private party enforcement may be a major element in identifying potential cases of non-compliance. If that occurs, a provider receiving an audit request may not know whether the inquiry is routine, or has more serious potential concerns behind it.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 217

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