CARES Act Distribution of $35 Billion for Safety Net/Medicaid and CHIP Providers – HHS Attempt to Level the Playing Field

Morgan Lewis - Health Law Scan
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Morgan Lewis - Health Law Scan

Congressional stimulus packages appropriated $175 billion in relief funds under the CARES Act and the Paycheck Protection Program and Health Care Enhancement Acts for the benefit of hospitals and other healthcare providers in response to losses incurred due to the coronavirus (COVID-19) pandemic.

Following the distribution of the first two tranches of dollars to a large number of healthcare providers, more than $100 billion has continued to sit awaiting further distribution by the US Department of Health and Human Services (HHS). On June 8 and 9, HHS announced new funding rounds applicable to what appears to be a wide swath of hospitals, physicians, and other providers operating in COVID-19 hotspots, that serve Medicaid and Children's Health Insurance Program (CHIP) patients, and that qualify as safety net hospitals.

The devil, of course, is always in the proverbial formula detail and that is true of this allocation, as well. Following its initial announcement of the formulas, HHS has continued to revise payment formulas to ensure that it has addressed needs equitably.

Based on information obtained to date, HHS will distribute roughly $10 billion to hospitals in hot spot areas, $15 billion to Medicaid and CHIP providers, and another $10 billion to safety net hospitals, for a combined total of $35 billion in additional aid.

For a hot spot hospital to qualify for funding from the $10 billion pool, the hospital must update information on their COVID-19 positive-inpatient admissions for January 1, 2020 through June 10, 2020, by June 15, 2020 at 9:00 pm ET in a dedicated portal designed for compiling this data. To qualify for funding under this category an entity must have had at least 100 COVID-19 admissions.

To qualify for funding from the $15 billion pool, providers that participate in the state Medicaid and CHIP programs must

  1. not have received payments from the previous $50 billion Provider Relief Fund General Distribution; and
  2. have directly billed their state Medicaid or CHIP program, or Medicaid managed care plans, for healthcare-related services between January 1, 2018 and May 31, 2020.

The intent, as identified by HHS, for this distribution is for providers, such as pediatricians, obstetrician-gynecologists, dentists, opioid treatment and behavioral health providers, assisted living facilities, and other home and community-based services providers to receive relief from the $15 billion pool. HHS estimates that nearly one million healthcare providers may be eligible for this new tranche of funding.

Eligible Medicaid and CHIP providers must submit their annual patient revenue that will be used as a factor in calculating their Provider Relief Fund payment. HHS indicates that it is their intention that the funding will be at least 2% of reported gross revenue from patient care for providers that submit their data. The value of the grant will be determined after the data is submitted through the portal, including information about the number of Medicaid patients the provider serves.

Finally, for a safety net hospital to be eligible to receive funding from the $10 billion pool, HHS initially identified a methodology as follows:

The acute care hospital must have

  1. a Medicare Disproportionate Payment Percentage (DPP) of 20.2% or greater;
  2. Average Uncompensated Care per bed of $25,000 or more; and
  3. profitability of 3% or less, as reported to CMS in the hospital's most recent Cost Report.

    After initially announcing this distribution methodology, HHS updated the distribution methodology to add children’s hospitals by creating the below formula in recognition that children’s hospitals do not see uninsured patients, since the majority of the uninsured in the US are adults and children are generally covered under either Medicaid, CHIP, or a commercial product. Therefore, the formula identified by children’s hospitals that are considered to fall within the safety net designation is as follows:

    1. A Medicare Disproportionate Patient Percentage (DPP) of 20.2% or greater; and
    2. Net Operating Margin of 3% or less.

HHS extracted information from CMS Hospital Cost Reports and Provider Specific Files (PSF) to identify acute care facilities and children’s hospitals that met each of the criteria and then applied the data to create a bed-weighted DPP score that was multiplied by the number of beds for the facility. For children’s hospitals, HHS created a Medicaid Only ratio.

Each acute care or children’s hospital individual score was expressed as a percentage of the total sum of bed-weighted facility DPP scores and Medicaid Only ratios. This percentage was then multiplied by $10 billion to arrive at the relief for distribution.

A minimum distribution value of $5 million was applied to each facility with an unadjusted distribution value less than $5 million, and a maximum distribution value of $50 million was applied to each facility with an adjusted distribution value greater than $50 million.

With approximately $60 billion left in CARES Act appropriated funding, there will be continuing pressure on HHS by those providers that continue to see scant funding relief even with the formula distribution determined to date. The losses have been severe and the need for continued financial relief will not wane in the near future.

There will be no rest for weary regulators at HHS and CMS in the coming days as they must provide the industry with additional guidance and funding during these tenuous times.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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