Strings attached: Mitigating the fraud and abuse implications of CARES Act provider relief funds

This Client Alert provides a summary of the general and targeted CARES Act funding allocations to health care providers, as well as an overview of the Terms and Conditions to which these funds are subject. And after parsing the Terms and Conditions, this Client Alert also describes the associated fraud and abuse ramifications that may follow under these circumstances and sets forth our “Top 5” practical tips for navigating the evolving CARES Act regulatory environment.

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On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act providing $100 billion in relief funds to hospitals and other healthcare providers on the front lines of the coronavirus response. 1 As detailed in our prior client alert, this funding will be used to support healthcare-related expenses or lost revenue attributable to COVID-19 and to ensure that uninsured Americans can get testing and treatment for COVID-19.

On April 10, the Health Resources Service Administration, an agency of the U.S. Department of Health and Human Services (HHS), began distributing $30 billion in general provider relief from the Public Health and Social Services Emergency Fund (known as the Provider Relief Fund) that was appropriated in the CARES Act. On April 22, HHS announced the release of the then-remaining $70 billion of the $100 billion in provider relief – these residual funds include an additional $20 billion in general provider relief funding, as well as more targeted allocations focused on providers in COVID-19 high-impact areas, providers who provide COVID-19-related treatment to the uninsured, rural health clinics and hospitals, and Indian Health Service facilities, among others.

This Client Alert provides a summary of the general and targeted funding allocations as well as an overview of the Terms and Conditions to which these funds are subject. And after parsing the Terms and Conditions, this Client Alert also describes the associated fraud and abuse ramifications that may follow under these circumstances and sets forth our “Top 5” practical tips for navigating the evolving CARES Act regulatory environment.

I. General Provider Relief Fund Allocations

Both the initial $30 billion and subsequent $20 billion general distributions have the same eligibility criteria. An “eligible provider” is one that:

Billed Medicare in 2019 and provides, or provided, after January 31, 2020 diagnoses, testing, or care for individuals with possible or actual cases of COVID-19 (HHS broadly views every patient as a possible case of COVID-19);
Is not terminated from participating in Medicare or precluded from receiving payment from Medicare Advantage or Part D;
Is not excluded from Medicare, Medicaid, or another federal healthcare program; and
Does not have its Medicare billing privileges revoked.

Between April 10 and April 17, the initial $30 billion in funding was automatically distributed to eligible health care providers and allocated proportionately based on eligible providers’ share of Medicare fee-for-service revenue in 2019. Beginning April 24, an additional $20 billion of the $50 billion general allocation began being distributed based on providers’ share of 2018 net patient revenue, a different allocation methodology. On April 28, HHS announced that “providers’ total allocation from the entire $50 billion general distribution, which includes their payment from the initial $30 billion added to their payment from the $20 billion HHS has begun sending – is proportional to their 2018 net revenue.” This marks a swift change in course from the initial $30 billion in funding being based on Medicare fee-for-service revenue in 2019, and it appears that HHS may need to reconcile amounts previously allocated to providers in that initial $30 billion general distribution. While the guidance provided by HHS to date is rather inconsistent on this issue, HHS’s change in distribution methodology may result in providers having to repay portions of funds initially received or having them offset against future amounts. HHS has also recently released a state-by-state breakdown of the $30 billion general distribution, which is available via PDF.

According to the Terms and Conditions for the $20 billion distribution, providers receiving these funds based on cost report data are required to submit “general revenue data for calendar year 2018 to the Secretary when applying to receive a Payment, or within 30 days of having received a Payment.” This requirement does not appear in the Terms and Conditions for the initial $30 billion distribution. This revenue information is to be submitted to HHS via the Provider Relief Fund Payment Portal (Payment Portal) so that it can be verified. In addition to accepting the Terms and Conditions, all providers retaining funds must sign an attestation via the Provider Relief Fund Payment Attestation Portal (Attestation Portal) confirming receipt of the funds and certifying that the funds will be used for healthcare-related expenses or lost revenue attributable to coronavirus, among other criteria (more on the Terms and Conditions below). While providers originally had 30 days to attest to receipt of payments from the Provider Relief Fund and accept the Terms and Conditions, HHS announced on May 7 that providers will now have 45 days from the date they receive a payment to attest and accept the Terms and Conditions or return the funds (note that the clock begins to run on the date of receipt of the funds, not the following day). Providers that have not returned the payment within 45 days of receipt will be deemed to have accepted the Terms and Conditions.

Medicare providers who did not automatically receive a general distribution may have been omitted from that process because HHS did not have adequate 2019 cost report data on file for those providers. HHS has announced that providers eligible to receive these additional funds, but who did not receive an automatic payment, can seek a general distribution by submitting revenue information to the Payment Portal.

The Payment Portal collects four pieces of information in allocating general distribution funds:

Provider’s “Gross Receipts or Sales” or “Program Service Revenue” as submitted on its federal income tax return (to provide an understanding of a provider’s usual operations);
Provider’s estimated revenue losses in March 2020 and April 2020 due to COVID-19 (in order to understand the extent of the COVID-19 impact);
A copy of the provider’s most recently filed federal income tax return (to verify self-reported information); and
A listing of the TINs of any of the provider’s subsidiary organizations that have received relief funds but that do not file separate tax returns (so that HHS does not overpay or underpay providers filing multiple tax returns covering multiple legal entities, such as consolidated tax returns).

The Payment Portal is to be used solely for general distributions, and HHS has established separate mechanisms, set forth below, for providers to use when applying for targeted allocations. HHS has released a detailed set of FAQs to assist providers applying for general distribution funds.

II. Targeted Provider Relief Fund Allocations

In addition to the general allocation of funds described above, HHS will also be distributing targeted allocations aimed to assist providers who are disproportionally impacted by COVID-19 or who have not received payments in the general distribution. These distributions fall into several categories discussed below.

Allocation for COVID-19 high impact areas. HHS will be allocating $10 billion for a targeted distribution to hospitals in areas that have been particularly impacted by the COVID-19 outbreak. For example, hospitals serving COVID-19 patients in New York City, which has the highest concentration of confirmed COVID-19 cases in the United States, are expected to receive a large portion of the funds. Hospitals seeking funds pursuant to this targeted allocation were directed to apply by 12:00 a.m. Pacific Time on April 23 via an “authentication portal” established by an HHS vendor, TeleTracking. Applicants were directed to provide: (1) a Tax Identification Number; (2) a National Provider Identifier; (3) the total number of intensive care unit beds as of April 10, 2020; and (4) the total number of admissions with a positive diagnosis for COVID-19 from January 1, 2020 to April 10, 2020. HHS has stated that it will use this data to distribute the targeted funds to where the impact from COVID-19 is greatest, and the distribution will also take into consideration the challenges faced by facilities serving a significantly disproportionate number of low-income patients, as reflected by their Medicare Disproportionate Share Hospital adjustment.

Allocation for treatment of the uninsured. For dates of service or admission on or after February 4, 2020, providers will be eligible to seek reimbursement for COVID-19 testing and testing-related visits for uninsured individuals, as well as treatment for uninsured individuals with a positive COVID-19 diagnosis. All claims will be subject to the same timely filing requirements required by Medicare. Reimbursement will be made for qualifying testing for COVID-19 and treatment services with a primary COVID-19 diagnosis, including the following:

Specimen collection, diagnostic, and antibody testing;
Testing-related visits including in the following settings: office, urgent care, emergency room, or via telehealth;
Treatment, including office visit (including via telehealth), emergency room, inpatient, outpatient/observation, skilled nursing facility, long-term acute care, acute inpatient rehab, home health, DME (e.g., oxygen, ventilator), emergency ground ambulance transportation, non-emergent patient transfers via ground ambulance, and FDA approved drugs as they become available for COVID-19 treatment and administered as part of an inpatient stay; and
FDA-approved vaccines, when available.

Services not covered by traditional Medicare will also not be covered under this program. In addition, the following services are expressly excluded:

Any treatment without a COVID-19 primary diagnosis, except for pregnancy when the COVID-19 code may be listed as secondary;
Hospice services; and
Outpatient prescription drugs

The COVID-19 Uninsured Program Portal is now open and providers must attest to the following information during registration:

The patient’s program eligibility has been checked and it has been confirmed that the patient is uninsured;
The provider has verified that the patient has no other coverage that will provide reimbursement for COVID-19 testing and/or care for that patient;
The provider will accept the defined program reimbursement as payment in full;
The provider will not balance bill the patient; and
The provider must agree to all program terms and conditions, and acknowledge that the provider may be subject to post-reimbursement audit review.

Allocation for Indian Health Service & Rural Providers. HHS will be allocating $400 million for Indian Health Service facilities and $10 billion for rural health clinics and hospitals. While the amounts will be distributed proportionately to facilities based on operating expenses, it is not yet clear how HHS will define “rural” for purposes of the $10 billion allocation or how HHS will be collecting the data on operating expenses for these facilities.

Additional allocations. While HHS has not yet elaborated on the nature or specific amounts of the additional allocations, it has announced that special consideration will be given to providers disproportionately affected by COVID-19, namely skilled nursing facilities, dentists, and providers solely accepting Medicaid.

Congress has also recently appropriated additional funding beyond the $100 billion aimed at reimbursing health care providers for expenses or lost revenues attributable to COVID-19, and on April 24, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act, a $484 billion piece of legislation providing additional relief to health care providers and small businesses.2 In relevant part, these latest provisions furnish $75 billion in funding for health care providers, in addition to the $100 billion provided under the CARES Act, making for a combined $175 billion in relief funding.

III. Terms and Conditions for Provider Relief Fund Distributions

While the CARES Act funds are payments, not loans, to eligible health care providers, all providers retaining general distribution funds must comply with the Terms and Conditions associated with the payments, as well as any “other relevant statutes and regulations, as applicable.” 3 Criteria set forth in the Terms and Conditions include:

If a provider receives a payment from the Provider Relief Fund and retains that payment “for at least 30 days without contacting HHS regarding remittance of those funds, [the provider is] deemed to have accepted the following Terms and Conditions.”

The funds must only be used to “prevent, prepare for, and respond to coronavirus . . . for health care related expenses or lost revenues that are attributable to coronavirus.”
The funds cannot be used “to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse.” For example, if a provider had an insurance policy and subsequently received reimbursement for expenses after receiving funding from HHS for the same expenses, the funds received from HHS would likely need to be repaid.
Recipients receiving over $150,000 from the Provider Relief Fund will be required to submit periodic reports, not later than 10 days after the end of each calendar quarter, containing, among other things, total amounts received from the government related to COVID-19 and “a detailed list of all projects or activities for which large covered funds were expended or obligated[.]”
The Terms and Conditions also contain a variety of other restrictions, including those prohibiting the use of funds for excessive executive pay, gun control advocacy, abortion, lobbying, embryo research, promotion of legalization of controlled substances, pornography, human trafficking, and more.

IV. Fraud and Abuse Implications Inherent in the Terms and Conditions for Provider Relief Fund Distributions

The Terms and Conditions make clear that noncompliance can subject providers to recoupment as well as other penalties. The Terms and Conditions carry the warning that any deliberate omission, misrepresentation, or falsification of any information contained in the payment application, or any future reports, can result in “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.” In apparent reference to the “materiality” component of the federal False Claims Act, 31 U.S.C. § 3729, (FCA) the Terms and Conditions expressly state that a provider’s “commitment to full compliance with all Terms and Conditions is material to the Secretary’s decision to disburse these funds to you.”

Because the Terms and Conditions require all applicants to make specific certifications to the government, and because those certifications are, in the government’s view, “material” to its decision to distribute payments, there is significant potential for FCA enforcement activity in connection with misuse of distributions from the Provider Relief Fund (additional analysis of CARES Act liability under the FCA can be found in our prior client alert). Now, while recipients should ensure that all certifications are correct, both initially and on an ongoing basis to avoid liability for failing to return funds that were not spent appropriately, this is not to say that simply because the government claims that a certification is “material” means that it is necessarily so. Indeed, the United States Supreme Court’s 2016 seminal decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar makes clear that the FCA’s materiality element is “rigorous,” “demanding,” and is a fact-specific inquiry largely focusing on the government’s conduct (as we have covered in another prior client alert). 4

Given the FCA-related provisions set forth in the Terms and Conditions, it is highly likely that HHS’s Office of Inspector General and other federal enforcement agencies will be devoting substantial resources to auditing and other anti-fraud priorities when it comes to the disbursement and expenditure of CARES Act funds. Given the potentially significant consequences for non-compliance, it would be advisable for providers receiving distributions from the Provider Relief Fund to consult with counsel to clarify and fully understand the requirements and obligations set forth in the Terms and Conditions.

In light of these ramifications, providers should consider looking at the following:

Compliance Programs. Perhaps one of the most effective ways to avoid, or at least minimize, FCA scrutiny is to promote an organizational culture of compliance that starts from the top. And among the many benefits of a rigorous compliance program is that the organization is better equipped to counter allegations that it “knowingly” violated the FCA through recklessness or deliberate ignorance. Because the CARES Act authorizes various agencies to promulgate corresponding regulations, there will likely be a considerable amount of guidance with which recipients of CARES Act funds should be prepared to comply, both upon distribution of funds and on an ongoing basis. If you do not already have a sophisticated compliance program in place to identify and comply with new requirements as they are issued, now may be the time to implement one. If you already have a sophisticated compliance program in place, you may want to focus on educating personnel on the requirements associated with the receipt and expenditure of CARES Act funds and reinforcing existing policies, procedures, and reporting/monitoring processes (and documenting these actions every step of the way).
Documentation is Key. Given the many ambiguities in the CARES Act itself and the speed with which it is being rolled out, there are sure to be ambiguities in the forthcoming implementing regulations. It is therefore critical for organizations to document, with as much specificity as possible, any efforts to assess eligibility criteria and otherwise comply with the strictures of the CARES Act. Such efforts include, but are not limited to, communications with agency personnel, communications with counsel, interpretations of agency guidance, use of received funds, and any other communications that may support the organization’s good faith belief that the eligibility criteria are satisfied.
Effective Corrective Actions. Evaluating your compliance program’s ability to implement corrective measures is another good way to ensure your organization is set to move forward effectively in this environment. You should assess your ability to detect and implement training, corrective measures, and evaluate potential voluntary disclosures of issues identified.
Carefully Evaluate the Terms and Conditions. Because criminal, civil, and administrative penalties can result from deliberate omission, misrepresentation, or falsification of any information contained in the payment application, or in any future reports, it is critical that applicants carefully review and fully understand the CARES Act eligibility criteria.
Listen to Employees. It is important to pay attention to concerns raised by employees and others about potential compliance violations, including documenting any efforts taken to address or remediate concerns that are raised. Employees are the eyes and ears of the organization, and providing an environment where they can raise compliance concerns and feel that concerns are being effectively addressed allows the organization to quickly adapt to issues that arise.

Please contact our LSHI team, or the Reed Smith lawyer with whom you frequently work, to ensure compliance with applicable laws in applying for and utilizing funds under federal programs to avoid enforcement in the future. Additionally, please reach out the authors for more information.

Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you may face related to COVID-19.

For more information on the legal and business implications of COVID-19, visit the Reed Smith Coronavirus (COVID-19) Resource Center or contact us at COVID-19@reedsmith.com.

Pub. L. No. 116-136, 134 Stat. 281.
Pub. L. No. 116-139, div. B, tit. I, 134 Stat. 620, 622 (2020).
HHS updated the Terms and Conditions following the initial $30 billion distribution, resulting in separate Terms and Conditions for the $30 billion distribution and the $20 billion distribution. The two documents are nearly identical, with the only substantive difference being that the Terms and Conditions for the $20 billion distribution make clear that certain revenue information must be disclosed, that payments that a provider receives through the Provider Relief Fund can be made public, and “that such disclosure may allow some third parties to estimate the Recipient’s gross receipts or sales, program service revenue, or other equivalent information.”
136 S. Ct. 1989 (2016).

Client Alert 2020-300