The Limitations and Risks Inherent in the New Round of COVID-19 Relief Payments to Skilled Nursing Facilities

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On May 22, 2020, the Department of Health and Human Services (HHS) began distributing $4.9 Billion in additional relief funds to Skilled Nursing Facilities (SNFs) to help in the response to the COVID-19 pandemic.1 Whether this new round of funding will meaningfully address the significant challenges facing these facilities remains to be seen, but according to some in the industry it does not. In addition, the funds come with important Terms and Conditions that can lead to significant liability if not followed.

In announcing the payments, HHS noted the many ways the pandemic has impacted SNFs, including up to a 6% decline in patient population and having many employees (along with residents) diagnosed with COVID-19. In addition, as we previously reported, several states, including New York and Texas, are requiring SNFs and other long-term care (LTC) facilities to test all employees and residents for COVID-19. Since that report, California has also implemented mandatory COVID-19 testing. These state actions are consistent with Federal recommendations. While some states are mobilizing state health care agencies and first responders to carry out the tests, facilities in other states are expected to do it on their own leaving many wondering how to pay for the cost of supplies and services associated with the required COVID-19 testing.

HHS appears to recognize this challenge by listing “scaling up ... testing capacity” as one permissible use of the new money, along with other “critical needs such as labor, ... acquiring personal protective equipment and a range of other expenses directly linked to this pandemic.” The $4.9 Billion will be distributed in two parts, one fixed and one variable. First, every eligible SNF will receive $50,000. Second, eligible SNFs will receive an additional $2,500 per certified bed. A SNF must have at least six certified beds to be eligible for the distributions.

Funding may fall short

Unfortunately, this funding may not be enough. As an initial matter, testing is not a one-time endeavor and it may require multiple tests per resident/employee per month to track and stem the spread of the disease. The American Health Care Association (AHCA), a trade organization representing SNFs, has estimated the cost of testing all nursing home residents and employees just one time would be $440 Million.2 At that rate, testing twice per month would use up the funds within six months. Furthermore, the funds may have to be allocated to other approved, pressing needs. For this and other reasons, AHCA has requested HHS to create a $10 Billion fund for SNFs in responding to the pandemic.3

Terms and Conditions and the False Claims Act

SNFs must also be aware of the Terms and Conditions4 associated with these funds. These Terms and Conditions are material to HHS’s payment and are deemed accepted if the SNF does not return the payments within 45 days of receipt. SNFs must attest to receipt of the funds, which includes acceptance of the Terms and Conditions, and submit reports as generally designated by HHS to ensure compliance. SNFs receiving over $150,000 in total funds from any Act primarily making appropriations for the coronavirus response and related activities must also submit quarterly reports to the Pandemic Response Accountability Committee.

A misleading attestation or statement in a required report, or failure to follow the Terms and Conditions, could lead to recoupment and perhaps civil liability under the False Claims Act. As previously reported, HHS’s Office of Inspector General (“OIG”) recently announced its Strategic Plan: Oversight of COVID-19 Response and Recovery which emphasizes, among other goals, protection of funds. It is clear that OIG intends to use all means at its disposal to ensure that COVID-19 relief funds are used appropriately. It is therefore imperative for SNFs to understand the application of the False Claims Act in light of the Terms and Conditions associated with these new payments.

A party can be liable under the False Claims Act for a “reverse false claim” by making or using false records or statements material to an obligation to pay or transmit money to the Federal government, or for concealing or improperly avoiding or decreasing an obligation to pay or transmit money to the Federal government. 31 U.S.C. § 3729(a)(1)(G). In this context an “obligation” includes the retention of an overpayment. 31 U.S.C. § 3729(b)(3). Keeping more funds than the SNF knows it should have received or using funds for an unapproved purpose could trigger False Claims Act liability. In this regard, the standard for liability under the False Claims Act does not require an intent to defraud. If liable under the False Claims Act, a SNF can be required to pay the Federal government up to three times the amount of its actual damages which could include some or all of the money disbursed depending on the violation, plus penalties for each false claim of $11,665 to $23,331, plus attorney’s fees.

For these reasons, understanding the Terms and Conditions is critical. Many providers are already pointing out ambiguities in certain Terms and Conditions. For example, according to the Terms and Conditions, a recipient must only use of the funds “to prevent, prepare for, and respond to coronavirus, and [only to] reimburse ... for health care related expenses or lost revenues that are attributable to coronavirus.” Many providers question whether funds can be used to reimburse economic losses arising from COVID-19, such as losses caused by lower patient volume, or must be limited to expenses directly related to treating and testing for the disease.

Similarly, the Terms and Conditions prohibit the recipient from “us[ing] the Payment to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse.” These other sources of payment are not expressly limited to other COVID-19 relief funds and it is unclear whether receipt of payment for testing residents, which presumably includes reimbursement for supplies and services associated with the testing, could prohibit use of relief funds for resident testing costs. Similarly, if testing of employees is covered under an employee welfare benefit plan, it is not clear whether such coverage may also trigger this prohibition.

In addition, receipt of the funds imposes numerous reporting obligations. The Terms and Conditions expressly state that “any deliberate omission, misrepresentation, or falsification of any information contained in [such] reports may be punishable by criminal, civil, or administrative penalties, including but not limited to revocation of Medicare billing privileges, exclusion from federal health care programs, and/or the imposition of fines, civil damages, and/or imprisonment.”

Moreover, this new round of funds does not apply to other LTC facilities such as nursing facilities (NFs) reimbursed under Medicaid and Assisted Living Facilities (ALFs). Providers who operate one or both of these types of facilities along with a SNF through separate but connected campuses, must make sure to allocate these new funds only to eligible facilities.

Conclusion

The recent payments to SNFs are a welcome first step to address mounting financial hardships in fighting the COVID-19 pandemic. According to some, however, more needs to be done so that SNFs can provide necessary care to a vulnerable population. In addition, SNFs should exercise caution to ensure that funds are used only for intended purposes and to report such uses accurately.


1 https://www.hhs.gov/about/news/2020/05/22/hhs-announces-nearly-4.9-billion-distribution-to-nursing-facilities-impacted-by-covid19.html
2 https://www.ahcancal.org/facility_operations/disaster_planning/Documents/State%20by%20State%20Breakdown_COVID%20Testing%20for%20Nursing%20Homes%205.20.20.pdf
3 https://www.ahcancal.org/facility_operations/disaster_planning/Documents/AHCA_HHSFEMA%20Letter_5.5.2020.pdf
4 https://www.hhs.gov/sites/default/files/terms-and-conditions-skilled-nursing-facility-relief-fund.pdf

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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