HHS Announces $20 Billion in New Phase 3 Provider Relief Funding

On October 1, 2020, the U.S. Department of Health and Human Services (HHS), through the Health Resources and Services Administration (HRSA), announced $20 billion in new funding for providers on the frontlines of the Coronavirus pandemic. Under this Phase 3 General Distribution allocation, providers that have already received Provider Relief Fund (PRF) payments will be invited to apply for additional funding that considers financial losses and changes in operating expenses caused by the Coronavirus. Previously ineligible providers, such as those who began practicing in 2020, will also be invited to apply and an expanded group of behavioral health providers confronting the emergence of increased mental health and substance use issues exacerbated by the pandemic will also be eligible for relief payments.

HHS has already issued over $100 billion in relief funding to providers through prior distributions. Still, HHS recognizes that many providers continue to struggle financially from COVID-19’s impact. For eligible providers, the new Phase 3 General Distribution is designed to balance an equitable payment of 2% of annual revenue from patient care for all applicants plus an add-on payment to account for revenue losses and expenses attributable to COVID-19.

Further, HHS recognizes constraints such as the stay-at-home orders and social isolation have been particularly difficult for many Americans. Behavioral health providers have shouldered the burden of responding and confronting this expanded challenge triggered by the pandemic. While some Medicare or Medicaid behavioral health providers have already received prior General Distribution payments, others have not. Working with the Substance Abuse and Mental Health Services Administration (SAMHSA), HRSA developed a list of the nation’s behavioral health providers now eligible for funding, which includes, for example, addiction counseling centers, mental health counselors, and psychiatrists.

Eligibility

HHS is making many providers eligible for Phase 3 General Distribution funding, including:

• Providers who previously received, rejected, or accepted a General Distribution PRF payment. Providers that have already received payments of approximately 2% of annual revenue from patient care may submit more information to become eligible for an additional payment.
• Behavioral Health providers, including those that previously received funding and new providers.
• Healthcare providers that began practicing January 1, 2020 through March 31, 2020. This includes Medicare, Medicaid, CHIP, dentists, assisted living facilities and behavioral health providers.

Payment Methodology – Apply Early

All eligible providers will be considered for payment against the below criteria:

1. All provider submissions will be reviewed to confirm they have received a PRF payment equal to approximately 2% of patient care revenue from prior general distributions. Applicants that have not yet received PRF payments of 2% of patient revenue will receive a payment that, when combined with prior payments (if any), equals 2% of patient care revenue.
2. With the remaining balance of the $20 billion budget, HRSA will then calculate an equitable add-on payment that considers the following:
   • A provider’s change in operating revenues from patient care;
   • A provider’s change in operating expenses from patient care, including expenses incurred related to Coronavirus;
   • Payments already received through prior PRF distributions.

This distribution will not be an automatic processing of requests as the previous rounds were.  HHS is urging all eligible providers to apply early.  Applying early will help to expedite HHS’s review process and payment calculations, and ultimately accelerate the distribution of all payments.

All payment recipients will be required to attest to receiving the Phase 3 General Distribution payment and accept the associated terms and conditions.

Application Deadline

It is anticipated that providers can begin applying for funds on Monday, October 5, 2020.  Providers will have until November 6, 2020 to apply for Phase 3 funding.  HHS’ priority is to ensure as many providers as possible have an opportunity to apply.

What does AAFCPAs Advise?

• If you have not previously received a PRF distribution, consider whether your organization qualifies for the Phase 3 funding.
• If you have received prior general distributions, consider the following:
  • Were the prior distributions less than 2% of the prior year patient revenue? If they were, you can apply for a Phase 3 distribution to bring the total distributions up to 2% of patient care revenue.
  • Has there been a decline in operating revenues from patient care or increase in operating expenses from patient care in excess of 2% of the prior year patient revenue? If either is the case, you should consider applying for an additional distribution.
• Keep in mind that the use of PRFs are allowable for healthcare related expenses attributable to Coronavirus that another source has not reimbursed and is not obligated to reimburse.

PRF payment amounts not fully expended on healthcare related expenses attributable to coronavirus are then applied to lost revenues, represented as a negative change in year-over-year (calendar year 2020 compared to calendar year 2019) net patient care operating income (i.e. patient care revenue less patient care related expenses for the entity) net of the healthcare related expenses attributable to Coronavirus that have been reimbursed.  Providers may apply PRFs toward lost revenue up to the amount of their 2019 net gain from healthcare related sources.  Recipients that reported negative net operating income from patient care in 2019 may apply PRF amounts to lost revenues up to a net zero gain/loss in 2020.

• Providers may utilize PRFs through June 30, 2021.
• Consider the Single Audit requirements. Reporting entities that expended $750,000 or more in aggregated federal financial assistance in 2020 (including PRF payments and other federal financial assistance) are subject to Single Audit requirements.
• Our opinion is that this portal will be on a first-come-first-served basis so you should apply early.

HRSA has not provided details on what information needs to be submitted with the application or definitions of the change in operating revenues and expenses. We are monitoring this situation very closely and will provide additional updates as new information becomes available.

If you have any questions please contact: Matt Hutt, CPA, CGMA at 774.512.4043, mhutt@aafcpa.com; or your AAFCPAs Partner.