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Hospitals Wrestle With Scope of Relief Aid as Audits Loom (Corrected)

May 26, 2020, 10:16 AMUpdated: June 1, 2020, 8:06 PM

Hospitals and health-care providers making use of federal relief aid during the pandemic should prepare themselves for eventual audits, even as they grapple with how the funds may be used, attorneys say.

Congress appropriated $175 billion under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help providers fighting the crisis. The law permits use of the funds to cover health-care expenses and lost revenue attributable to Covid-19, but it provides little guidance as to how far those funds will spread.

What exactly is meant by those terms is the “$64,000, or maybe $64 million, question,” said Elizabeth F. Hodge, of counsel with Akerman LLP in West Palm Beach, Fla., whose practice focuses on health-care compliance and regulatory issues.

That lack of clarity could leave recipients vulnerable to second guessing after the atmosphere of crisis has been replaced by a sober accounting of the costs, attorneys say.

Future scrutiny of how providers have spent the funds is a “near certainty” because of how much money the government is pouring into the system, said John E. Kelly, a health-care attorney at Bass Berry & Sims PLC.

“Any time this amount of money goes out the door, the government is going to want to understand how it’s being spent,” he said. “And it’s going to put a tremendous amount of responsibility on the entities that are accepting and using it. They’re going to have to justify it.”

Audits Ahead

Given the amount of money at stake, government scrutiny could come more quickly than most expect, especially in areas where an anticipated Covid-19 surge didn’t occur, said Kim Stanger, a health-care partner with Holland & Hart LLP in Boise, Idaho.

“It would be easy for the government to start ratcheting down a little bit, and say, ‘Well wait a minute, it wasn’t really intended for this use, or that use,’” he said.

The changing nature of guidance from the Department of Health and Human Services on relief fund use makes the threat of regulatory scrutiny more daunting, Hodge said.

That’s because the guidance relied upon for a given decision may later be superseded by a new pronouncement, she said.

The HHS didn’t immediately respond to a request for comment on whether it is planning further guidance.

Eligibility

The HHS says in provider relief fund FAQs that funding recipients will have to “substantiate that these 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.”

Attorneys say the scope of Covid-19-related expenses and lost revenue still isn’t clearly defined.

The conservative approach would be to focus on the kinds of expenses that are listed in the CARES Act itself and to use the relief funds to pay for those expenses only, Hodge said.

Such expenses could include purchases of personal protective equipment, the costs of building temporary structures to house coronavirus testing units outside existing hospitals, or the costs of leasing additional space to help separate patients who have Covid-19 from those who don’t, she said.

Other expenses that would probably qualify include the cost of hiring additional nurses to care for Covid-19 patients or additional custodial staff to boost hygiene efforts related to the disease, she said.

Hodge added that some expenses could be risky to cover with federal relief funds, including those associated with a previously planned capital expense, such as a new electronic health records system.

Lost Revenue

Just as murky is the question of using relief funds to make up for lost revenue attributable to Covid-19.

The inclusion of lost revenue in the CARES Act suggests Congress intended to extend relief to providers beyond those directly involved in the front lines of the Covid-19 crisis, to those that are reeling from the forced cancellation of elective procedures, according to Julia Tamulis, a member with Bass Berry whose practice focuses on health-care regulatory issues.

The statute doesn’t make clear how to calculate lost revenue, but HHS guidance includes suggestions as to how it might be done, Tamulis said.

One likely acceptable method could be comparing this year’s revenue to last year’s, according to Meenakshi Datta, global co-leader of Sidley Austin LLP’s health-care practice. Another method could be based on anticipated revenue for the current year.

But given the ambiguity of the statutory language and the lack of clear guidance from HHS, keeping clear documentation of the reasoning behind the chosen method will be essential, she said.

That documentation acts both as a compass for the organization in working through how to use relief funds and a source of protection in the event of scrutiny from regulators, Datta said.

Ensuring Compliance

Attorneys say health-care providers should ensure they have a robust compliance program in place that includes keeping records of how they’re using the funds.

“If a provider is audited for how they’ve used relief funds, it’s important to remember they’ll be judged under the lens at the time of the audit,” Hodge said.

“Hindsight is always 20-20, and that’s why it’s so important to create a record and be able to show how things were when decisions were made.”

A robust compliance program is an essential part of preparing for the time of auditing, Kelly said. That means a program that assesses the allowable uses of relief funds for the business, communicates that assessment throughout the organization, tracks how the funds are used, and documents everything, he said.

Attorneys also say providers need to stay vigilant and monitor for new guidance, despite the rapid pace at which federal regulators are changing it.

That will help ensure that their use of the funds matches the latest rules, Stanger said. He added that current HHS guidance says funding recipients must agree to comply with future regulations.

“So you’ve really got to stay on top of the ongoing guidance to make sure you’re complying as you go along,” he said.

(Updates May 26 story to correct a comment from Tamulis in the 20th paragraph to note the presence of HHS guidance)

To contact the reporter on this story: Christopher Brown in St. Louis at ChrisBrown@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Alexis Kramer at akramer@bloomberglaw.com

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