Under the CARES Act enacted in March, many hospice providers nationwide received federal relief funding to provide monetary support as they reeled from the fallout of the coronavirus pandemic.
As the U.S. Department of Health & Human Services (HHS) distributed millions of often unsolicited dollars from the Public Health and Social Services Emergency Fund, legal rules and restrictions surrounding the ways hospices could use federal pandemic funds remained unclear, leaving many organizations questioning whether or not they should accept the federal dollars.
Automatic payments began rolling in, and uncertainty grew over what to do with the unsolicited funds as the pandemic placed a slew of financial pressures on hospice organizations. As the HHS outlined in CARES ACT provider relief funding terms and conditions, the main criteria stipulates that the health care related expense or loss of revenue be attributable to the coronavirus. The general nature of the conditions has challenged hospices working to define which expenditures meet the criteria and which do not amid unclear federal guidance.
“As part of the CARES Act, VITAS Healthcare received $18.2 million a month or so ago,” said Kevin McNamara, president and CEO of Chemed Corp. (NYSE: CHE), the parent company of hospice provider VITAS Healthcare, at last week’s Jeffries Virtual Healthcare Conference. “It compensated for those types of struggles, such as hospice admission drops. The funds were something that just came into us, we did not make any type of application for it. Basically, all hospice companies got it based on what their Medicare billings were as a part of the larger group.”
Hospices can directly correlate many expenses to the the pandemic’s impact, including paid time off for staff with childcare needs or those under quarantine after exposure, rising prices of personal protective equipment (PPE) supplies, technology expenses of increased telehealth utilization, and decreased admission rates from referring sources. Other trickle-down expenditures leave some hospices in a murky area when it comes to allocating funds received from the CARES Act. As the questions mount, providers continue to call for more specified federal guidance, voicing concerns on various platforms.
“Despite receiving a lot of [frequently asked questions (FAQs)], there has not been a lot of formal guidance from the government about what these relief fund standards really mean and how to interrupt the terms and conditions,” said Husch Blackwell’s Hospice & Palliative Care attorney, Meg Pekarske in a JD Supra podcast on legal issues faced during the pandemic. “The HHS’s FAQs are a fairly informal method and answers can change frequently. It can be difficult to predict where your hospice falls on a risk continuum basis when there are no yes or no answers.”
With much uncertainty hanging in the balance, several larger hospice companies debated whether to spend the CARES Act funds or return them, with some ultimately deciding on the latter to avoid potential risk. Ambiguity remains as to whether unspent funding must be returned, what the return process might look like, and what situations call for funds to be returned.
Home health and hospice provider The Pennant Group (NASDAQ: PNTG) received nearly $9.9 million in CARES Act relief funds for which the company did not apply. The company remains uncertain as to whether they will keep or return the funds, holding the money in a segregated account while they assess the amount of revenues lost due to the pandemic, CFO Jennifer Freeman indicated in the company’s first quarter earnings call.
Encompass Health (NYSE: EHC) received $237 million in federal relief payments, but likewise has not decided whether or not to accept the funds as they work to untangle the web or rules and restrictions attached to the program.
LHC Group (NASDAQ: LHCG) is also segregating $87.5 million in CARES Act dollars while the company evaluates the associated rules.
“You should return or refund an erroneous amount or an amount you think was received in error,” said Hush Blackwell attorney Andrew Brenton in the JD Supra podcast episode. “Also, if you anticipate that your qualifying losses and expenses are going to be materially less than your relief fund amount, then HHS states to return it. As far as the logistics of returning payments, HHS has not as of right now set up a mechanism by which you can return a partial relief fund amount. So, you either accept it all, or you reject and return it all. Even though at this point the specifics on that are unclear, you’re going to want to prepare to return anything unspent.”
According to Brenton, relief fund payments can be rejected through an attestation portal, returned through an organization’s bank if electronically received, or return checks if received via mail. Alternatively, hospices can submit revenue information through a distribution portal evaluated by the HHS, which uses the information to correct errors in over-funding. Deadlines for submitting the information or attestations have fluctuated since the funds’ initial release, but current HHS guidelines state a return date within 90 days of receipt. Acceptance of funds is assumed if an organization does not correspond within the 90-day period.
Timing additionally comes into question when accepting relief funds, as the HHS has not yet narrowly defined timeframes for which the funds must be used. However, a sunset on spending is expected on the horizon, especially as states reopen. As hospice organizations work to evaluate an array of urgent financial needs, accepting COVID relief has come with concerns about tracking spending and utilization of those funds, causing many to more closely monitor their spending policies.
Tracking revenue information is crucial for hospices anticipating further need as the pandemic continues, as the HHS requires organizations to submit this information for consideration of additional relief funds. With questions remaining, hospices are proceeding with caution when allocating CARES Act relief funds.
“Applying a defensive mindset with these funds takes substantial documentation,” said Bucky High, managing director at Crowe LLP, a consulting and accounting auditing firm in the podcast. “Ensuring the documentation is correct involves having policies and procedures in place to govern and record, and that’s ultimately what is going to be the basis for which you release these funds into operations. Even without specific written guidance from the HHS, if you’re keeping that substantial documentation, additional efforts should be minimal, and it becomes more of a reporting and compliance exercise.”