accounting for the provider relief funds – what healthcare
TRANSCRIPT
Accounting for the Provider Relief Funds – What Healthcare Providers Need to Know
August 4, 2020
Meet Your Facilitators
• DHG Healthcare – COVID 19 Response Team Leader• Delivers solutions and develops financial models related to a variety of
revenue transformation business issues, including the transition from fee-for-service to alternative payment models
• Analyzes alternative payment model data; advises on the mandatory Medicare programs; develops multiple payment models; and evaluates strategic implementation plans
• Specializes in navigating new payment and delivery structures such as CMS’s voluntary and mandatory bundles and ACO initiatives
• Delivers reimbursement consulting services focusing on revenue enhancement and federal and state regulatory issues
Craig Tolbert
Principal | DHG HealthcareBirmingham, [email protected] | 205.212.5355
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Meet Your Facilitators
• Chair of the AICPA Healthcare Expert Panel and HFMAPrinciples and Practices Board
• Provides audit and advisory services primarily to clients in healthcare and not-for-profit industries
• Experienced in financial reporting, mergers and acquisition due diligence, corporate finance, internal control reviews, internal audit plan development and coordination, and corporate compliance matters
Norman Mosrie, CPA, CHFP, FHFMA
Partner in Charge | DHG Healthcare AssuranceCharleston, [email protected] | 304.414.3913
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Meet Your Facilitators
• National professional practice partner for DHG Healthcare• Client relationships span the spectrum from large, NFP regional
health systems to PEG-backed ambulatory and home health providers, medical groups, and senior living facilities
• Performs audits under generally accepted auditing standards, OMB regulations, and Government Auditing Standards, as well as various other types of assurance and advisory engagements
• Deep experience in the not-for-profit, private equity, and local government sectors
Daron Tarlton, CPA
Professional Practice Partner | DHG HealthcareTampa Bay, [email protected] | 813.425.1339
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Meet Your Facilitators
• Partner in DHG Healthcare’s National Reimbursement Practice• Leads many of the firm's larger hospital cost report preparation
engagements and reimbursement special projects• Leader of the firm's Hospital Cost Report Training program• Involved in a variety of internal and external professional
education events
David Hall, CPA
Partner | DHG HealthcareWinston-Salem, [email protected] | 336.714.8147
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CARES Act Accounting Implications
Agenda• Provider Relief Funds background and overview• Resources and accounting for:
– Provider Relief Fund– FEMA Public Assistance program– Medicare Accelerated and Advanced Payment Program– Paycheck Protection Program loans– Temporary increases in CMS payments– Other accounting and financial reporting considerations
• Single audit & Uniform Guidance applicability and recommendations• Common questions and looking forward
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Provider Relief Funds Background
• HHS is distributing $175 billion to healthcare providers
• General and targeted distributions• Intended to reimburse COVID-related
expenses and lost revenues• Terms & conditions, FAQs, reporting
requirements
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PRF Process Overview & Sequencing
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Financial Statement Reporting and Revenue Recognition
Regulatory Reporting and Compliance
Cumulative Tracking and Internal Controls
Con
side
ratio
ns• Forecast Scenarios• Timing of Expenditures• Additional Case Surges
• Liquidity Timing• Sustainability of Expenditures• Fundamental Strategic and
Operational Changes
“Surplus” to Justify
CARES and other
Stimulus Funding
Stimulus Optimization
Roadmap
Add’l Lost Revenue
Add’l Qualified Expenses
7/31/21
• Future Stimulus Funding (i.e. HEALS)
• FEMA Funding
Time
$• Gross• Net Impact
• Finding all possible Qualified Expenses per T’s & C’s
Lost Revenue
Qualified Expenses
Other Relief Available
• Increases in CMS payments– Sequestration suspension– COVID-19 IPPS rate increases– DSH cut suspensions– HRSA COVID-19 Uninsured Pool (PRF)
• CMS accelerated and advance payments
• FEMA public assistance grants
• Other - PPP, EIDL, ERTC, payroll tax deferral, etc.
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Polling Question #1
Do you have clarity on the terms, conditions, and requirements tied to the Provider Relief Funds?
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Healthcare Provider CARES Act Accounting and Reporting Resources
• AICPA Healthcare Expert Panel CARES Act technical Q&As in development - for latest updates refer to AICPA “Recently Issued Technical Questions and Answers” and “Coronavirus (Covid-19) Audit and Accounting Resources” web pages
• TQA Section 3200 Issued on PPP loan accounting and forgiveness recognition
• GASB Technical Bulletin 2020-01- Accounting and Financial Reporting Issues Related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Coronavirus Diseases
• HHS website https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/faqs/index.html
• Articles and Alerts – AICPA and HFMA P&P Board
• DHG Healthcare Knowledge Share Updates
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CARES Act Accounting Highlights for NFPs
• CARES Act general relief funds are non-exchange transactions under ASC 958-605 subject to terms and conditions – No direct benefit to resource provider
• Contribution model– Donor imposed conditions
• Healthcare related expenses or lost revenue attributable to COVID-19
• Provision for recoupment– Donor imposed restrictions
• Prevent, prepare or respond to COVID-19
• Conditional grant revenue recognized as other income to the extent terms and conditions/restrictions are met for healthcare related expenses or lost revenues
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Provider Relief Fund – NFPs
• Timing and amount of recognition– Conditions met and restrictions released
• Facts and circumstances• “Simultaneous release” accounting policy
• Classification– Operating vs. non-operating – Balance sheet treatment
• Refundable advance liability
• Disclosures
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Provider Relief Fund – Private Companies (non-SEC)
• Non-exchange transaction, not subject to Topic 606– No direct benefit to the resource provider
• No explicit US GAAP on accounting for government grants for business entities; analogize to other US GAAP or other guidance– ASC 958-605 grant accounting model similar to
NFP– Gain contingency model– IAS 20
• Reasonable assurance (“probable”) of meeting with compliance with conditions and receiving the grant
• Income grant - reported as grant income or as a reduction of related expense or if no related expense (i.e., loss revenue) grant income presentation
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Provider Relief Fund – Private Companies (non-SEC)
• Timing and amount of recognition– Conditions met
• Facts and circumstances
• Classification– Offsetting of expenses?– Operating vs. non-operating – Balance sheet treatment
• Refundable advance liability
• Disclosures
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GASB Technical Bulletin 2020-1
• CARES Act relief funds are voluntary non-exchange transactions subject to eligibility requirements
• Relief funds should be recognized as a refund liability (not deferred inflow) until applicable eligibility requirements are met, including incurrence of allowable costs; revenue recognized when eligibility requirements are met
• Resources provided for loss of revenue are contingent upon an eligibility requirement, as provided under paragraph 20d of Statement 33
• PPP loan subject to forgiveness provisions should be reported as a loan until the entity is legally released from the debt.
• Revenue would primarily be nonoperating except for resources received from Uninsured Relief Fund, which constitute reimbursement for services provided and should be reported as operating
• COVID-19 matters not deemed to be extraordinary or special items for reporting purposes
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Temporary Increases in CMS Payments
• Provisions– Sequestration suspension– COVID-19 rate increases– DSH cut suspensions– HRSA COVID-19 Uninsured Pool (PRF)
• Accounting Treatment– Considered exchange transactions – part of reimbursement for provision of services
to patients and would be considered patient service revenue under ASC 606– Changes or adjustments to explicit price concessions i.e. contractual adjustments
• Balance billing prohibited does not affect implicit price concessions or bad debt
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Medicare Accelerated and Advance Payment Program
• Advance payments– Recoupment period beginning 120 days after
payment– Full amount due 210 days to 1 year following
advance
• Liability accounting– FASB – contract liability– GASB – advance liability (not deferred revenue
or deferred inflow)– Recognize revenue as services provided during
recoupment period– Transition to refund liability for amounts
expected to be repaid
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Polling Question #2
Are Provider Relief Funds payments considered exchange or nonexchange transactions?
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FEMA Public Assistance Program
• Governmental and NFP entities are eligible
• Accounting treatment is similar to PRF– Non-exchange transactions
• Accounting topics –– Timing and amount of recognition
• Expense-driven grant - receivable recognized at execution of grant agreement for expenses previously incurred
• FEMA grants are Federal awards subject to single audit
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Paycheck Protection Program Loans
• Loan Program– Loans forgivable if borrower meets certain conditions– Defined loan terms
• Accounting Options– AICPA TQA 3200.18 (and GASB TB 2020-a)– Debt accounting
• Interest method under FASB ASC 835 (or GASB 70)• No additional interest imputation• Gain on forgiveness of debt when legally released from obligation
– Facts and circumstances determination• Only option for GASB reporters
– Grant treatment• Private entities choose method (ASC 958-605, ASC 450, IAS 20)• Accounting similar as discussed for PRF
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COVID-19 Other Financial Reporting Considerations
• Footnote disclosures related to CARES Act funding including selection from existing acceptable alternatives and principles and methods unique to healthcare industry
• COVID-19 specific footnote disclosure tailored to reporting entity (i.e., cost cutting measures taken like elimination of benefit plan employer match)
• Facts and circumstances modifications to disclosures related to goodwill, receivables (i.e., possible bad debt expense), investment market declines
• Asset impairment – inventory, PPE, intangibles
• Subsequent event – recognized or nonrecognized
• Going concern – look forward period of year from date of issuance or available to be issued– Management to evaluate conditions and events that, in aggregate, raise
substantial doubt within 1 year of issuance date– Substantial doubt – probable that entity will be unable to meet its obligations
as they come due– Conditions and events
• Debt covenant violations, access to liquidity, capital and credit, financial position and projected near term results from operations and cashflow
• Significant debt due within year22
Other Accounting Considerations
• Prepaid Contracts/Health Plans – Premium Deficiencies– Medical cost expenses exceed premium for remaining period of non-cancelable contract– Accrue estimated loss in period of determination– AICPA A&A Guide, Chapter 13 – Accounting for Loss Contracts (FASB ASC 954-450)– Additional Consideration:
• IBNR Accrual at year end given potential uneven recent claims history
• Debt Covenants– Classification of debt in the case of covenant violations– If violation of provision of agreement that makes debt callable, current classification unless:
• The creditor has waived or subsequently lost the right to call the debt for a period of 1 year beyond the balance sheet date
• The agreement contains a grace period and curing the violation is probable within that period
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Applicability of Uniform Guidance and Single Audit
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• Nonprofit and state/local governmental entities that expend > $750k in federal awards are required to have a financial statement audit and a compliance audit (combined, a Single Audit) in accordance with 2 CFR 200 (the Uniform Guidance) and Government Auditing Standards
NOT Federal Awards Subject to UGFederal Awards Subject to UG- HRSA Provider Relief Funds (PRF)
- HRSA Uninsured Testing and Treatment
- FEMA Public Assistance Grants
- SBA Economic Injury Disaster Loan (EIDL)
- Other federal agency grant programs
- HHS Accelerated and Advance Payments (AAP)
- 20% IPPS reimbursement increase for CV-19 services
- SBA Paycheck Protection Program (PPP)
- Employee Retention Tax Credit (ERTC)
- Payroll tax deferral
Applicability of Uniform Guidance and Single Audit
• HHS Provider Relief Fund FAQs
• Are commercial organizations that receive Provider Relief Fund payments required to have a Single Audit in conformance with the requirements under 45 CFR 75 Subpart F? (Added 7/22/2020)
• Commercial organizations that receive $750,000 or more in annual federal awards have two options:
1) a financial audit conducted in accordance with Generally Accepted Government Auditing Standards (45 CFR 75.216) or 2) a Single Audit in conformance with the requirements under 45 CFR 75 Subpart F.
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DHG Recommendation – Compliance and Controls
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• Providers should review and update their internal controls to be certain that these new loan programs are administered in accordance with federal regulations
• Areas to address should include:– Policies and procedures related to compliance with federal awards– Policies and procedures related to procurement, compensation, indirect costs– Policies and procedures related to fraud and abuse– Determination and monitoring of compliance requirements (e.g., allowability of
activities and costs, eligibility, reporting, etc.)– Determination and monitoring of satisfaction of conditions and restrictions (e.g.,
qualifying expenditures, lost revenues)– Cost allocation procedures to prevent personnel costs from being reimbursed from
more than one funding source– Financial reporting of expenditures (e.g. preparation of the SEFA)
Polling Question #3
Are Provider Relief Funds subject to Uniform Guidance and Single Audit Requirements?
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Common Questions and Looking Forward
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HHS quarterly reporting requirement?
Methodology for determining lost revenues?
What constitutes COVID-related expenses?
Can I allocate Provider Relief Funds to related parties?
What if I received more in PRFs than I lost in revenues and incurred in CV-related expense?
What are reimbursement implications?
EMERGE // Converting the Challenges of COVID-19 Into Actionable Opportunities
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Polling Question #4
Would it be helpful to discuss any of today’s topics further with DHG Healthcare?
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DHG | PINNACLE 2019
Questions?
Norman Mosrie, FHFMA, CHFPPartner in Charge Assurance // DHG [email protected]
Daron TarltonProfessional Practice Partner // DHG [email protected]
Craig TolbertPrincipal // DHG [email protected]
Thank You