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How is the COVID-19 pandemic affecting healthcare reimbursements?

April 21, 2020 Article 10 min read
Chris Walski Denise Leonard
As our healthcare system sees its first infusion of COVID-19 emergency relief, uncertainty abounds about planning for and anticipating future revenue. Here’s what you need to know now.
Doctor sitting at a desk, writing on a tablet.

The challenge of projecting revenue for healthcare organizations — a tough job in the best of times — has been magnified considerably by the national COVID-19 health crisis. As costs for staffing and medical supplies skyrocket and revenue drops precipitously, healthcare finance leaders are attempting to stay on top of federal and state regulations and relief measures which seem to change by the day.

Here’s what you need to know about federal relief and stimulus options available to healthcare providers in the short term and key steps to optimize your financial position when the crisis subsides.

Relief through the CARES Act

Since the March 27 passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, healthcare providers and finance leaders have been on pins and needles to learn how the Department of Health and Human Services (HHS) would allocate the funding that Congress freed up to stabilize the finances of our nation’s healthcare infrastructure.

The Centers for Medicare & Medicaid Services (CMS) quickly rolled out its plan to expand its Accelerated and Advanced Payment Program. (See this CMS fact sheet for step-by-step instructions on how to apply.) As of April 4, CMS had approved $51 billion in short-term loans, which are open to all Medicare Part A providers and Part B suppliers. Hospitals can receive up to six months of payments at 100% of preemergency levels (critical access hospitals get 125%), and all other providers can receive up to 100% of three months of payments. Applications are routed through Medicare Administrative Contractors (MACs), which are directed to provide payments within seven business days of receiving the request.

Tracking how these funds are used will prove crucial.

In addition to these loans, Congress added $100 billion of relief funds to the Public Health and Social Services Emergency Fund but left it up to HHS to determine how to allocate those funds. On April 10, HHS announced it was disbursing an initial wave of $30 billion based on providers’ share of 2019 Medicare fee-for-service (FFS) reimbursements. Hospitals, nursing homes, home health, and hospice agencies are among the providers receiving the “initial rapid distribution” of payments. The first automatic payments (made via Optum Bank with “HHSPAYMENT” as the payment description) were deposited into accounts on April 10, and payments will continue for up to two weeks via Automated Clearing House. Providers who normally receive a paper check for reimbursement from CMS will receive their emergency grant money via check.

A second and third distribution from the $100 billion fund will occur over the next few weeks. CMS indicates that future distributions will be directed to entities that predominately serve Medicaid populations, including most skilled nursing facilities (SNFs) and other senior care organizations, as well as uninsured populations and those areas hit hardest by the pandemic.

Tracking how these funds are used will prove crucial. Despite CMS assertions that the funds have “no strings attached,” these payments are essentially federal grants, and as such, they come with conditions. Within 30 days of receipt of payment, providers must sign an attestation confirming receipt of the funds and agreeing to the relief fund payment terms and conditions. Among these terms, the recipient must agree that funds “will only be used to prevent, prepare for, and respond to coronavirus,” and that they will not seek to collect out-of-pocket expenses for amounts that exceed what patients would pay to an in-network provider.

Healthcare providers will have to provide an accounting of how the funds were used. In addition to reporting to HHS “to ensure compliance with conditions that are imposed,” (details regarding the exact format and content of such reporting to come at a later date) recipients receiving more than $150,000 in federal funds under any of the COVID-19-related legislative acts must submit a report to HHS and the Pandemic Response Accountability Committee within 10 days of the end of each calendar quarter. This report must contain: the total amount of funds received from HHS; the amount of funds spent or obligated for each project or activity; and a “detailed list of all projects or activities for which large covered funds were expended or obligated.”

Additional key takeaways from the CARES Act for healthcare providers include:

  • An increase of 20% in the weighting factor for certain diagnosis-related groups (DRGs) related to COVID-19 patients.
  • The current 2% withholding for sequestration will be eliminated for all Medicare providers for patients with service dates from May 1, 2020 through Dec. 31, 2020, and the program will be extended through 2030.
  • Delay of the $4 billion of Medicaid DSH program cuts in the fiscal 2020 year and reduction of the 2021 cuts from $8 to $4 billion.
  • The Paycheck Protection Program forgivable small business loans open to organizations with less than 500 employees. (Keep in mind that size is measured on an “affiliate” basis and applied to all businesses under common control, which makes it unlikely that larger hospitals, health systems, and senior care organizations will qualify.)

COVID-19 impact on hospital reimbursement

Given that Medicare utilization is a key driver of various aspects of Medicare reimbursement, the influx of COVID-19 patients combined with the requirement to suspend elective procedures has forced a dramatic shift in patient mix that has short-term and long-term reimbursement repercussions.

  • Medicare Disproportionate Share Hospital (DSH) payments: To the extent canceled procedures impact Medicaid utilized services, the suspension of these services would have an impact on the Medicaid fraction of the DSH calculation and the overall Medicare DSH percentage. If more of the COVID-19 patients are Medicare patients and not Medicaid patients, then the Medicare DSH calculation could change unfavorably. The federal DRG amount would also be greater, which may offset some of the decrease in the overall Medicare DSH percentage.
  • Medicare Direct Graduate Medical Education (DGME): A key driver of Medicare DGME reimbursement is Medicare utilization based on inpatient days. Depending on which procedures are suspended, the remaining Medicare utilization could be favorable or unfavorable. To the extent the COVID-19 patient population is of a higher Medicare utilization, the impact would be favorable to Medicare DGME reimbursement.
  • Medicare Indirect Medical Education (IME): IME reimbursement is partially driven by an intern-to-bed ratio. As hospitals have been adding beds and changing the purpose of existing beds to meet the anticipated needs of incoming COVID-19 patients, the number of bed days available throughout the year (which is the denominator in this ratio) is likely to change. Also remember that changes to staffing could impact the number and type of interns and residents the hospital is training, and travel restrictions are hindering hospitals’ ability to obtain new foreign residents.
  • Rural health clinics (RHCs): Small provider-based RHCs (under 50 beds) have no cap on cost per visit. Changes to available beds could change that, barring any exemption from CMS.
  • Medicare Wage Index: Changes to an individual hospital’s wages and those of hospitals within their Core Based Statistical Area (CBSA) could influence rate setting in the future. This could also influence a hospital’s ability to wage reclassify.

The influx of COVID-19 patients combined with the requirement to suspend elective procedures has forced a dramatic shift in patient mix that has short-term and long-term reimbursement repercussions.

Increased funding and reporting relief for post-acute providers

Senior care organizations will need to watch developments in their states regarding the Federal Medical Assistance Program (FMAP) increase. The Families First Coronavirus Response Act (FFCRA) increased the federal match to state Medicaid programs by 6.2%. This increase was effective Jan. 1, 2020, and continues through the last day of the calendar quarter in which the emergency ends. Administration of the funds is decided at the state level, but any state that imposes more restrictive payment and eligibility requirements than those in effect on Jan. 1, 2020, risks not qualifying for the additional funds.

Post-acute providers welcomed a number of CMS reporting relief measures, including:

  • Waiver of the three-day hospital stay requirement for SNF coverage for Medicare beneficiaries.
  • Exceptions from and extensions of time to comply with quality reporting.
  • Extensions of many cost reporting due dates.
  • Suspension of most federal state surveys until further notice.

Will providers be required to offset any state or federal grant money against expenses? 

Much remains to be seen with regard to how federal relief will interact with the post-acute care sectors’ cost-based reimbursement systems. For example: Will providers be required to offset any state or federal grant money against expenses, which would then have the potential to reduce future reimbursement? Or will CMS make exceptions for these emergency relief funds?

What all providers should do now

The CARES Act and follow-on legislation will require HHS and other agencies to develop and issue regulations for months to come. In addition to keeping up with these evolving regulations, we recommend the following action steps to help optimize reimbursement and make sure your organization receives (and keeps) all the funds to which it is entitled.

Track COVID-19 expenses and lost revenue

While we don’t know exactly how these expenditures will need to be reported, we suggest adding new accounts to your financial statements now to track these new expenditures. This data is not only important for internal reporting, but could be a driver of reimbursement in the future. Not tracking this data — or trying to do it after the fact — could have serious consequences. In some cases, it may be impossible to document some of these expenses and lost revenues after the fact.

This data is not only important for internal reporting, but could be a driver of reimbursement in the future.

We suggest adding general ledger accounts that, at a minimum, cover the following:

  • Additional direct care staff, outside consultants, or temporary staffing added to cope with COVID-19-related matters.
  • Additional dietary, social services, administrative, housekeeping, laundry, and maintenance staffing.
  • Medical supplies, pharmacy items, oxygen tanks, equipment rental, universal precaution supplies (gowns, caps, gloves, masks), contracted dietary, housekeeping, or laundry services.

For each account, use a number sequencing or account description to distinguish that these expenses are specifically related to the COVID-19 pandemic should they need to be cost-reported or accounted for. You may decide to add a numeric digit such as “19” to these new accounts or “universal precaution COVID-19” as an example for the new chart of account description.

Track patient mix

Given that patient utilization is a key driver of many elements of Medicare reimbursement, providers should track patient activity on a more detailed and routine basis than they may have previously and model the potential reimbursement implications of these changes.

Changes in patient mix also will flow through to post-acute care providers and impact capacity and revenue for many months to come. In the short term, SNFs are experiencing a drop in new admissions as family members are holding off on decisions to place Mom or Dad. But soon, SNFs can expect a wave of COVID-19 patients needing a place to recover. Each state will need to decide how to handle these COVID-19 patients. Will they allow them to be admitted into the general facility population? Will they create separate wings, or standalone COVID-19 SNFs? Do these patients require separate care teams?

Keeping open lines of communication between and among providers along the continuum of care will help everyone stay informed of and plan for the patients within the pipeline.

SNFs can also expect a surge in admissions when elective procedures start to come back. Desperate for revenue, hospitals are likely to ramp up these high-margin procedures quickly once they get the green light. The sudden surge in patients requiring long-term care could strain the capacities of the post-acute care system.

We expect this uncertainty in admissions to play out over the next several months. Keeping open lines of communication between and among providers along the continuum of care will help everyone stay informed of and plan for the patients within the pipeline.

Manage cash flow

Each of the relief programs has different implications for an organization’s cash flow. While the $100 billion in emergency grant money doesn’t need to be repaid, it will require significant human resources (and possibly legal counsel) to comply. The accelerated and advanced Medicare payments alleviate cash flow concerns for the next few months. Providers will receive full payments for their claims during that period. But when the recoupment process begins, Medicare reimbursements will be applied against these advances for a period of up to a year from the time of the initial payment. Without good cash flow management, facilities could just be kicking the cash flow crunch down the road.

Without good cash flow management, facilities could just be kicking the cash flow crunch down the road.

Although we’re in the midst of an unprecedented public health and economic crisis, we know that the healthcare community is resilient. Our healthcare experts are prepared to help you anticipate the reimbursement implications of this crisis and move forward confidently.

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