Hospitals, Policy, Legal

Providers anxious about reporting requirements surrounding how they spent CARES Act funds

Providers must report how they spent funding received via the CARES Act by Sept. 30, but they are still grappling with questions related to what expenses need to be reported amid shifting government guidance.

Providers that received federal relief funds in the early months of the Covid-19 pandemic have until Sept. 30 to report how they used the money. But the murkiness of the reporting requirements has made this seemingly straightforward exercise quite complicated.

The Provider Relief Fund, distributed under the Coronavirus Aid, Relief, and Economic Security Act passed last year, is intended to support providers who have lost revenue while facing rising expenses as a direct result of the pandemic. So far, about $178 billion has been allocated through the fund. Providers receiving more than $10,000 are required to report their funding use in different phases. The first phase, with the deadline of Sept. 30, applies to all providers who received funds from April 10 to June 30 of last year.

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But there are several factors related to the reporting that is causing providers anxiety.

Not only are there concerns surrounding whether they have calculated their expenses correctly, but questions also remain about what expenses can be considered “Covid-related,” said Mark Polston, healthcare partner at law firm King & Spalding and former deputy associate general counsel for litigation for the Centers for Medicare & Medicaid Services.

For example, certain medical supplies, like gowns, masks and gloves, will be used for Covid care, but they will likely also be used for other purposes.

“So how do you calculate what the proposition of your [Covid] costs [are] that are associated with gowns, masks and gloves,” said Polston in a phone interview. “[How do you know] that that’s the portion…related to the coronavirus versus the portion of money you spent on masks, gloves and gowns that are not related to [the virus], that are just your baseline expenses.”

Consequently, providers are devising their own methodologies to try to calculate what those Covid-related expenses are compared to the baseline. It is not clear if the government is going to audit those methodologies vigorously, he added.

Shifting government guidelines have worsened the issue.

In early 2020, the government created a Frequently Asked Questions section for the Provider Relief Fund, where initially they told providers to adopt a broad understanding of what can be considered pandemic-related expenses — essentially anything that helps keep the doors of a facility open, Polston said.

But that statement is no longer part of the FAQs, raising questions as to how broad the interpretation of expenses should be.

“At Spectrum Health, one of our top challenges has been the changing federal guidelines pertaining to what is, and is not, eligible for CARES Act funding and how to account for the dollars,” said Celeste McIntyre, senior vice president, corporate controller at the Grand Rapids, Michigan-based health system, in an email. “Significant financial resources have been spent with consultants and accountants to interpret the regulations.”

Though the government has clarified some initial questions, guidelines are often updated and enhanced.

“With more than 61 pages of FAQs being modified and updated, organizations need to check frequently for new requirements,” McIntyre said.

Accounting for CARES Act funding use is made all the more complicated when multiple entities are involved like in the case of a merger or acquisition.

“[These deals now raise] bigger, more concerning questions,” King & Spalding’s Polston said. “If the target [of the merger of acquisition] utilizes the funds for expenses or lost revenues, how does the acquiring company know whether the funds were used appropriately?”

Even though M&A activity had continued through the pandemic, a higher level of due diligence is needed, as accounting for CARES funding also needs to be examined.

But regardless of the questions that remain, the Sept. 30 deadline is looming, and providers need to take concrete steps to account for their spending of federal funds as best they can with the information they have now. Polston suggests approaching the exercise assuming that your organization will face an audit.

This means thinking in advance about how your organization will complete the report and how you will defend the methodologies you used to report your funds.

“There is a sense in the industry this program is so enormous, and these reports are so extensive, and the number of providers that are going to be reporting is so high that you can kind of hide in the weeds,” Polston said. “That only if you stick out is this going to a be a problem for you. And I think that’s a false sense of security.”

Photo: Julia_Sudnitskaya, Getty Images