On September 19, 2020, the Health Resources and Services Administration (“HRSA”) of the Department of Health and Human Services (“HHS”) issued guidance (“September Guidance”) regarding the post-payment reporting requirements applicable to providers who received more than $10,000 in relief fund payments from the Provider Relief Fund (“PRF”) – a fund created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”) and the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Act”) to provide financial relief to hospitals, physicians, and other health care providers.  In addition to the reporting requirements, the September Guidance includes information regarding the PRF audit procedures applicable to PRF recipients.

In this article, we will review the September Guidance including the PRF reporting requirements and audit guidance.  Finally, we will discuss steps that providers can take to prepare for PRF audits and reporting in 2021.

1. PROVIDER RELIEF FUND REPORTING

a. Reporting Requirements

According to the September Guidance, providers that received one or more PRF payments exceeding $10,000.00 in the aggregate must report to HRSA data regarding health care related expenses attributable to COVID-19 (“COVID-19 Expenses”) in two categories: general/administrative expenses (‘A/G Expenses”) and healthcare-related operating expenses (“Ops Expenses”).  The COVID-19 Expenses to be reported are limited to expenses not otherwise reimbursed by other sources.  Moreover, only providers that received between $10,000.00 and $499,999.00 in PRF  payments can report COVID-19 Expenses in aggregate by category.  Providers that received $500,000.00 or more in payments must report COVID-19 Expenses in detail based on use.

Within the A/G Expenses category, the September Guidance recommends that providers separate out what was spent on mortgage/rent; insurance; personnel; fringe benefits, including “hero pay;” lease payments for new equipment or software; utilities/operations; and other. With the Ops Expenses, providers are recommended to separate such expenses into supplies, including personal protective equipment, hand sanitizer and materials needed for patient screening; equipment such as ventilators or updates to HVAC systems; information technology; facility-related costs, such as the lease or purchase of permanent or temporary structures; and other.

If all PRF payments received were not consumed by COVID-19 Expenses, providers are recommended to report information used to calculate lost revenues attributable to COVID-19, represented as a negative change in year-over-year net operating income from patient care- related sources.  According to the September Guidance, once revenue information is provided, cost/expense impacts will be calculated based on a calendar year comparison of 2019 to 2020 healthcare expenses to determine net operating income.

b. Timeline

Pursuant to the Reporting Guidance, HRSA will release the reporting system for use by PRF funding recipients on January 15, 2021.  For those PRF recipients who expended their PRF funds on or before December 31, 2020, the first reporting deadline for all recipients will be February 15, 2021.  The reporting deadline for PRF funding recipients who did not fully expended PRF funds prior to January 1, 2021 will be July 31, 2021.

2. AUDITING

As noted above, the September Guidance also includes information regarding the auditing of PRF funding recipients.

a. Audit Requirements

As described by HHS on the HHS PRF Reporting and Auditing webpage, PRF funding recipients may be subject to auditing to ensure the accuracy of the data that they submit to the HRSA for payment – including the data submitted as required pursuant to the above referenced reporting requirements.  Any recipients identified as having provided inaccurate information will be subject to PRF payment recoupment and other legal action.

HHS has communicated that all “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 the audit requirements set forth in the regulations at 45 CFR §75.501.  According to HHS, recipients must also indicate if they are subject to Single Audit requirements in 2020, and if yes, whether the Reporting Entity’s auditors selected PRF payments to be within the scope of the Single Audit, if known at the time the Reporting Entity submits its report.

b. What to do now

For some qualifying PRF recipients, PRF funding may trigger their first experience with a federal compliance audit requirement.  This is especially true for many for-profit entities that typically do not participate in federal awards.  However, in the case of the PRF program, HHS has clarified that for-profit entities will be subject to some form of federal compliance audit.

In order to prepare for PRF-related federal compliance audits, PRF recipients who will be subject to the compliance audit requirements should be proactive in preparing for the inevitable.  For example, according to Andrew Waggoner, Director, RSM US LLP: now is a good time to consider the following:

i. Who is going to perform the federal compliance audits? (Note: While it is often common to engage the financial statement auditor to perform a compliance audit,  you may choose to consider an alternative provider.);

ii. Whether you have adequate controls in place to comply with applicable award requirements and whether they are documented to the extent necessary.

1. Review internal control practices, in particular controls relevant to the federal award(s).
2. Evaluate the sufficiency and quality of your documentation of these controls.

iii. Should I engage a professional to provide compliance audit readiness support?

iv. What should be done internally to prepare for a federal compliance audit?

1. Separately track all PRF receipts and receipts from other awards, such as loans or hazard grants, for visibility.

2. Establish a method for determining and tracking appropriate uses of the awards, which for PRF must be pandemic-related expenses and lost revenues (as defined by HHS).

This article is not an unequivocal statement of the law, but instead represents our best interpretation of where things currently stand.  This article does not address the potential impacts of the numerous other local, state and federal orders that have been issued in response to the COVID-19 pandemic, but which are not referenced in this article.

Check out Sheppard Mullin’s Coronavirus Insights Portal which aggregates the firm’s various COVID-19 blog posts on a broad range of topics. Click here to view and subscribe.

FOOTNOTES

*RSM U.S. is a leading provider of audit, tax and consulting services for the healthcare industry and other economic sectors in the U.S..  Adam Waggoner, Director (213-330-4788); and Rick Kess, Health Care Partner, Health Care Industry Senior Analyst (612-629-9006).