CHOWs Continue to Puzzle Providers and HHS: Updated Provider Relief Funding FAQs Focus on Recent CHOWs

Arnall Golden Gregory LLP
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Providers that underwent a change of ownership (CHOW) in 2019 or 2020 should take note of recent FAQ updates from the Department of Health & Human Services (HHS).  On October 28, 2020, the agency signaled its continued focus on how provider relief funds should be handled by individuals or entities involved in recent changes of ownership.  In the updates, HHS:

1. Updated existing FAQs to confirm that the guidance applies to changes of ownership in 2019 and 2020 (see A-C below); and

2. Clarified who is responsible for reporting use-of-funds where a change of ownership occurred after receipt of a Provider Relief Fund payment (see D below).

The updates reconfirm HHS’ position that a seller in an asset transaction may not transfer provider relief funding to the buyer.  However, with respect to general distributions, where (1) an entity is acquired and merged with another entity or (2) a CHOW involves the purchase of stock or membership interest of a provider entity, then the entity resulting from the merger or the entity acquired, respectively, may use the funding. If providers are uncertain whether they may be eligible for additional funding, they should apply for Phase 3 by November 6, 2020.

FAQ Updates

Can an organization that sold its only practice or facility under a change in ownership in 2019 or 2020 and is no longer providing services accept payment and transfer it to the new owner?

No. A provider that sold its only practice or facility must reject the Provider Relief Fund payment because it cannot attest that it was providing diagnoses, testing, or care for individuals with possible or actual cases of COVID-19 on or after January 31, 2020, as required by the Terms and Conditions. Seller organizations should not transfer a payment received from HHS to another entity. If the current TIN owner has not yet received any payment from the Provider Relief Fund, it may still receive funds in other distributions.

Can a provider that purchased a TIN in 2019 or 2020 accept a Provider Relief Fund payment from a previous owner and complete the attestation for the Terms and Conditions?

No. The new TIN owner cannot accept the payment from another entity nor attest to the Terms and Conditions on behalf of the previous owner in order to retain the Provider Relief Fund payment. However, the new TIN owner may still receive funds in other distributions.

Can a provider that purchased a TIN in 2019 or 2020 accept a Provider Relief Fund payment from a previous owner and complete the attestation for the Terms and Conditions?

No. The new TIN owner cannot accept the payment from another entity nor attest to the Terms and Conditions on behalf of the previous owner in order to retain the Provider Relief Fund payment. If the new TIN owner did not receive a direct payment under the Provider Relief Fund, it is not eligible to receive a payment under the General Distribution. However, the new TIN owner may still receive funds in other distributions.

Who is responsible for reporting use-of-funds in the event of a change of ownership after receipt of a Provider Relief Fund payment?

The following chart outlines Provider Relief Fund reporting actions in the event of a change of ownership of a subsidiary that received Provider Relief Fund dollars.

Distribution Change of Ownership Scenario Program Guidance Reporting Action
General Distribution Purchase of stock or membership interest of subsidiary If the transaction is a purchase of the recipient entity (e.g., a purchase of its stock or membership interests), then the Provider Relief Fund recipient may continue to use the funds, regardless of its new owner. Subsidiary may use
the Provider Relief
Fund dollars and
report on the use,
or its new
parent/owner (if an
eligible healthcare
provider) may
direct and report on
the use.
General Distribution Asset Purchase of subsidiary If the transaction is an asset purchase (whether for some or all of the Provider Relief Fund recipient’s assets), then the original recipient must use the funds for its eligible expenses and lost revenues and return any unused funds to HHS. In these circumstances, the Provider Relief Fund money does not transfer to the buyer, however, buyers in these circumstances will be eligible to apply for future Provider Relief Fund payments. Subsidiary must
use the Provider
Relief Fund
payment (returning
any unused funds)
and must report on
the use itself. The
new owner of the
assets cannot use
the relief fund
money or report on
the use.
General Distribution Subsidiary entity is acquired and merged with another entity The entity resulting from the merger is the successor entity and can use the Provider Relief Fund payment. If this successor entity is a subsidiary of a new parent, that new parent, if it is an eligible healthcare provider, can direct the use of the relief fund money. Subsidiary may use
the Provider Relief
Fund money and
report on its use, or
its new owner (if
an eligible
healthcare
provider) may
direct the use of the
relief fund money
and report on the
use.
Targeted Distributions Purchase of stock or membership interest of recipient subsidiary Asset purchase of recipient entity Subsidiary is acquired and merged with another entity. Only the subsidiary can use the Targeted
Distribution.
Subsidiary reports
on use of Targeted
Distribution.

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