King & Spalding’s Healthcare Finance practice is working to keep clients informed of issues that may be of concern to lenders in the healthcare space. Providers are continuing to face financial difficulties due to spikes in supply and staffing costs combined with lost revenues from elective, non-emergent services. One of the largest sources of relief for providers has been the Public Health and Social Services Emergency Fund (the PHSSE Fund) administered by the US Department of Health and Human Services (HHS), which received $100 billion under the CARES Act. Last week, HHS began distributing the first $30 billion as conditional grants to all providers that billed Medicare in 2019, which gave an immediate cash injection to many borrowers in the healthcare industry. This week, HHS announced plans for distributing the remaining $70 billion and Congress passed the “Phase 3.5” COVID-19 stimulus legislation adding $100 billion to the PHSSE Fund. Set forth below is a high-level summary of these latest developments. These developments should result in additional cash injections for many providers in the coming days and weeks, although eligibility will vary and certain terms and conditions will apply.

HHS PLANS TO DISTRIBUTE REMAINING $70 BILLION FROM PHSSE FUND

1. General Allocation Supplement ($20 Billion): HHS is distributing $20 billion to all providers that received Medicare fee-for-service (FFS) payments in 2019. This amount supplements the initial $30 billion distribution that HHS made to these providers earlier this month. HHS is distributing the funds as grants and not as loans. The same eligibility criteria and terms and conditions applicable to the initial distribution (discussed here) will continue to apply and providers unable or unwilling to accept the terms and conditions must return the funds.

• Amount of Grant: Each provider’s share of the initial $30 billion distribution was determined based on its proportionate share of Medicare FFS payments for all providers during 2019. For this $20 billion distribution, HHS is adjusting the formula such that each provider's share of the total $50 billion general allocation will be based on net patient revenue from all sources during 2018. HHS has not publicized the exact formula, but providers for whom Medicare represents a smaller share of their revenue mix should receive a comparatively larger share and vice versa.
• Distribution Mechanics: All providers must submit revenue information through a portal that will become available this week. Providers without adequate cost report data on file will not receive distributions until after they submit their revenue information. Advance payments are scheduled for distribution today, April 24, to a portion of providers that have previously submitted revenue information in cost reports. Payments to other providers will go out on a rolling basis as information is validated. As with the previous distribution, payments will be made automatically in the same manner as providers' regular Medicare payments.

2. Allocation to Hospitals in High-Impact Areas ($10 Billion): HHS will make a targeted distribution of $10 billion to hospitals in areas that have been particularly impacted by COVID-19 (e.g., hospitals in New York). HHS has reached out directly to hospitals to solicit information regarding the number of ICU beds and total COVID-19 patient admissions, which hospitals must submit through an online portal no later than 3:00 PM ET on April 25. HHS has not publicized the methodology it will use for distributing this allocation. It appears HHS will distribute the funds as grants and not as loans.

3. Allocation to Rural Providers ($10 Billion): As early as next week, HHS will distribute $10 billion among rural providers, including health clinics and hospitals. HHS has not publicized the formula that it will use, but has stated that the money will be distributed proportionately based on operating expenses. It appears HHS will distribute the funds as grants and not as loans.

4. Allocation for Treatment of Uninsured Patients (Amount Not Specified): HHS is establishing a new program intended to reimburse providers at Medicare rates for COVID-related treatment to uninsured patients. Enrollment opens on April 27 and providers may begin submitting claims in early May.

• Eligibility: HHS has stated that “every” healthcare provider can enroll as a provider participant, but providers will be required to accept certain terms and conditions (not yet available) which may limit eligibility.
• Covered Services: Reimbursement is limited to dates of service on or after February 4, 2020 for qualifying testing for COVID-19 and treatment services with a primary COVID-19 diagnosis for uninsured patients in the U.S.
• Required Attestation: Providers must attest that they (1) have checked for eligibility and verified the patient is uninsured, (2) will accept the reimbursement as payment in full and will not balance bill the patient, and (3) agree to the program's terms and conditions (not yet available), including possible post-reimbursement audits.

5. Other Allocations (Amount Not Specified): HHS indicated in its press release that some providers will include further, separate funding, including skilled nursing facilities, dentists, and providers that solely take Medicaid. No additional details are available.

PHASE 3.5 STIMULUS: PHSSE FUND POISED TO RECEIVE ADDITIONAL $100 BILLION

• This week Congress passed the “Phase 3.5” COVID-19 stimulus bill, the Paycheck Protection Program and Health Care Enhancement Act (the Act), which replenishes the Paycheck Protection Program with an additional $310 billion and adds $100 billion to the PHSSE Fund.
• Of the $100 billion added to the PHSSE Fund, $75 billion is to be distributed by HHS through grants or other mechanisms to providers for “healthcare related expenses or lost revenues that are attributable to coronavirus.” HHS will have discretion, as it did with the $100 billion added to the PHSSE Fund under the CARES Act, to determine the manner in which it will distribute these additional funds to providers. It remains to be seen whether HHS will use the same avenues described above or if it will establish new programs.
• The remaining $25 billion added to the PHSSE Fund is for COVID-19 testing, including to research, develop, validate, manufacture, purchase, administer, and expand capacity for tests.