PICPA  >  CPA Now
CPA Now
  • Jun 18, 2021

    Provider Relief Fund Compliance: Documenting Is Key

    Rick KesBy Richard Kes


    The health care industry saw billions of dollars in stimulus payments in 2020 through the Provider Relief Fund (PRF) to help with the financial effects of the pandemic. The rollout, however, presented challenges as organizations attempted to determine how to meet the PRF grant’s terms and conditions.  

    The PRF was established through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. PRF funding would be used to compensate health care providers for unreimbursed expenses incurred as a result of the pandemic, as well as lost revenue that the health care provider experienced due to the pandemic.

    Clarifications

    Health Care AccountingThroughout 2020, the U.S. Department of Health and Human Services (HHS) provided direction through terms and conditions, frequently asked questions (FAQs), and reporting guidance in an attempt to provide a framework for the recipients of the PRF. The HHS guidance has evolved over time. For instance, HHS’s September reporting guidance was released defining lost revenue as a decline in year-over-year operating margin. This was different from what many in the industry thought the calculation was intended to be: top line lost revenue. Then in October, HHS released revised reporting requirements that defined lost revenue as actual calendar year 2020 revenue as compared to actual calendar year 2019 revenue. This clarification again was not what many health care providers were hoping for as previous HHS guidance had led them to believe that lost revenue could be based on a comparison of actual revenue to budgeted or forecasted revenue. In December, the U.S. Congress passed the Consolidated Appropriations Act, 2021 (CAA) to provide more clarification.

    The CAA did two things related to the PRF: it again changed the calculation of lost revenue to permit a budget to actual calculation in addition to a year-over-year actual to actual calculation, and it provided an opportunity for providers that are parent organizations of subsidiaries that received targeted distributions to allocate those distributions to other eligible health care providers within the organization.

    The change to the lost revenue definition, and the flexibility to allocate targeted distributions gave providers a bit more financial certainty going into 2021. Previously, providers found themselves in a predicament when lost revenue was defined as calendar year 2020 versus calendar year 2019. Although some providers experienced revenue growth in 2020, many were often not growing as fast as they had budgeted because of the effects of the pandemic. This slower revenue growth contributed to profitability concerns, as the higher budgeted revenues drove decisions around higher expenditures.

    Compliance Audits

    One thing that health care providers and their auditors will have to consider in 2021 and beyond is the guidance subjecting PRF funds to compliance audits. Nonfederal entities (states, local governments, Native American tribes, institutions of higher education, and nonprofit organizations) are required to consider PRF funding in determining the need for an audit in accordance with 45 CFR Part 75, Subpart F. This process and determination may be more familiar for nonfederal entities than for commercial (for-profit) entities, many of which have never received federal financial assistance. Commercial entities that receive $750,000 or more in annual awards will have two options to address the compliance audit requirement:

    • Financial-related audit of the award conducted in accordance with Government Auditing Standards (GAS)
    • An audit in conformance with the requirements of 45 CFR 75, Subpart F

    Many in the health care industry believe that most commercial entities will elect a GAS audit. A complicating factor with the GAS audit option is that there is little guidance available at this time. Commercial-entity recipients of PRF funds know that an audit will be required, but they do not know when the audit must be completed, as well as many other unanswered questions. HHS and the American Institute of Certified Public Accountants have discussed audit timing and many other unanswered questions. Through these efforts, hopefully we will see guidance issued in the coming weeks or months.

    Key Considerations

    Many health care providers, especially commercial entities, continue to ask what can they do now. The following are a few considerations:

    • Ensure that you have reviewed the terms and conditions of the PRF grants as well as all the HHS FAQs and reporting guidance.
    • Document, document, document. Document methodologies, approaches, rationale, and assumptions contemporaneously. Ensure that your documentation of compliance with the terms and conditions of the PRF grants is easy to follow and auditable.
    • Discuss with your accounting firm their information needs and capacity to timely complete compliance audits.

    Richard Kes is a health care partner for RSM US LLP in Minneapolis, Minn. He can be reached at richard.kes@rsmus.com.


    Sign up for weekly professional and technical updates from PICPA's blogs, podcasts, and discussion board topics by completing this form.  



Follow @PaCPAs on Twitter
Disclaimer
Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.