We find ourselves in challenging times amidst an economic shutdown and social distancing mandates. Healthcare providers, while deemed essential businesses, certainly are not immune to the financial repercussions of these actions that are unprecedented in our lifetimes. The financial risk for healthcare providers is not limited to the current slow in business but hints at a rather grim outlook for the near future as well.
The Current State of Affairs. Thirty-five states and Washington, DC, issued formal guidance or made informal recommendations effectively ceasing elective procedures as well as the ancillary work associated with them. The influx of testing and inpatient admissions related to COVID-19 has not replaced the lost revenue that hospitals and physician practices would typically collect. Many healthcare providers have already responded with layoffs and furloughs of workers, including clinical professionals, as demand for services has dramatically diminished with some physician offices reporting decreases in patient volume as high as 80%.
As of April 7th, 157 hospitals had furloughed workers as states suspended elective testing and procedures, making cost reduction a necessity. On April 15th , the American Medical Association, along with 140 other medical associations, submitted a letter to Congress. The letter states, “Given the magnitude of the growing revenue shortfalls confronting physician practices across the country, we continue to need your support to preserve their viability so they can meet the needs of all patients.”
There is some hope that a rush by patients to receive delayed care once restrictions are lifted will ease the financial shortfall. Providers will undoubtedly experience a return to ordinary levels of income; however, optimism around recovering lost income fails to consider the full extent of the impact of an economic shutdown on the healthcare industry. Credit rating agencies project problems for both nonprofit and for-profit hospitals from lost revenue and increases in costs, while many rural hospitals were struggling or closing before the outbreak.
A Grim Outlook. Many people who have become ill within the past 60 days have self-medicated while the periods of illness, decline, and convalescence passed. Adding to the inability to recover lost revenue, many patients who were forced to delay access and treatment are now unemployed and may have lost their ability to pay. Under normal conditions, Emergency Departments are used by patients to overcome barriers to access created by the inability to pay. Only 29% of patients visiting Emergency Departments require care specific to the Emergency Department. It is likely that Emergency Department utilization will spike with hospitals unable or unwilling to turn away patients seeking routine care over concern of liability under EMTALA, the Emergency Medical Treatment and Active Labor Act of 1986.
Further complicating matters will be the need to overcome the inevitable backlog of elective procedures. How will surgeons and hospitals meet demand when months of backlogged procedures overwhelm operating rooms? Labeling a procedure as “elective” does not mean the procedure is optional, but instead means that the procedure is non-urgent. Non-urgent procedures can become urgent, following an extensive delay. Will long hours in the operating room effectively relieve the backlog while also addressing the current demand? Will this increase in procedure volume and ancillary services result in an infusion of income to offset the losses from previous months? That scenario is unlikely to net anything close to a full financial recovery.
CMS COVID-19 Accelerated Payment Program. The Federal Government responded to the economic shutdown with the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, providing limited access to funds for struggling businesses. The Centers for Medicare and Medicaid (CMS) initiated the CMS COVID-19 Accelerated Payment Program, which is a streamlined version of an existing policy allowing Medicare Administrative Contractors to issue no-interest, short-term loans during national emergencies.
According to the Centers for Medicare and Medicaid, “an accelerated/advance payment is a payment intended to provide necessary funds when there is a disruption in claims submission and/or claims processing.”
Eligibility. To be eligible, your healthcare organization:
- Must have billed Medicare within the past 180 days;
- Must not be in bankruptcy or planning to file bankruptcy;
- Must have no record of a fraud enforcement action against the provider or its representatives; and,
- Must have no outstanding delinquent Medicare overpayments.
Nuts and Bolts. On April 26th , CMS announced that successfully distributed over $100 billion to healthcare providers. CMS also announced the suspension of the Advance Payment Program and reevaluations of all pending and new applications for Accelerated Payments. To receive a payment, an eligible provider requested the specific amount desired. Most providers requested a one-time payment totaling up to 100% of the Medicare payment amount for three months. Inpatient acute care hospitals, children’s hospitals, and some cancer centers were eligible to request a one-time payment totaling up to 100% of the Medicare payment amount for six months.  Critical Access Hospitals were eligible to request a one-time payment totaling up to 125% of their Medicare payment amount for six months. 
Just as the eligible amounts differ from one entity type to the next, the repayment terms vary. Inpatient acute care hospitals, children’s hospitals, some cancer centers, and Critical Access Hospitals have up to one year from the date of the payment to repay the balance.  All other Part A providers and Part B suppliers will have 210 days from the date of the payment was made to repay the balance.  The 210-day term includes the initial 120-day loan period and a 90-day repayment period. 
The Missing Fine Print. Once the applicable loan period has expired, the appropriate Medicare Administrative Contractor will be recouping the payment amount from regular Medicare payments. For example, most physician practices will see recoupment of their payments begin on day 121 as payments for new claims are reduced to offset the balance owed back to Medicare.  Once the repayment period expires, the Medicare Administrative Contractor will issue a demand letter to the provider for any remaining balance.
What is not clear in CMS publications is that, upon the 31st day following the date of the demand letter, any remaining outstanding balance begins to accrue interest at the rate set by the U.S. Department of the Treasury for overpayments.  The current interest rate as of April 20th is 9.65%, down from 10.25% in the first quarter. 
Providers should understand this program for what it is. While the CMS Accelerated Payment Program may provide short-term cash flow while revenue is down, this is not forgivable stimulus relief…at least not yet. It is a short-term loan with a high-interest penalty. For comparison, the national average for personal loans is 9.41%.  Average small business loan rates, depending on the size of the lender, range around 4% to 6%.  Providers unable to comply with the government’s payback terms my find that it made more financial sense to accept a lower interest rate with more flexible payback options. Considering a small business loan or other relief available under the CARES Act and forgoing the CMS Accelerated Payment Program may have been the wiser decision.
 Becker’s ASC Review. 35 States Canceling Elective Procedures (April 10, 2020), available here.
 USA Today. Thousands of US Medical Workers Furloughed, Laid Off as Routine Patient Visits Drop During Coronavirus Pandemic (April 2, 2020), available here.
 Becker’s Hospital CFO Report. 157 Hospitals Furloughing Workers in Response to COVID-19 (April 7, 2020), available here.
 American Hospital Association. Letter to Congress (April 15, 2020), available here.
 Becker’s CFO Report. Hospitals Face Financial Fallout From COVID-19: 6 Things to Know (March 23, 2020), available here.
 Becker’s Health IT. Emergency Department Overuse: Routing Low-Acuity Visits Away From the ED with Virtual Care (November 21, 2017), available here.
 U.S. Department of Health & Human Services. CMS Fact Sheet: Expansion of The Accelerated and Advance Payments Program for Providers and Suppliers During Covid-19 Emergency (April 13, 2020), available here.
 CMS News Alert (April 9, 2020), available here.
 CMS. Medicare Financial Management Manual, Chapter 3, Section 150.3, available here.
 Noridian. Overpayment Interest Rates, available here.
 Experian, What’s a Good Personal Loan Interest Rate? (January 27, 2020), available here.
 ValuePenguin. Average Small Business Loan Interest Rates in 2020: Comparing Top Lenders (January 21, 2020), available here.