ATI Contributor: Tyler Overstreet Cromer 

In distributing $100 billion, the Centers for Medicare & Medicaid Services (CMS) must accurately aim funding at providers with the highest COVID-19-related costs while getting cash onto the front lines of healthcare as quickly as possible. With $30 billion already out the door, CMS now decides the best disbursement approach for the remaining dollars. The agency is in the unenviable position of insuring against the worst outcome: that the funding seeps through the cracks of our complicated healthcare system before it reaches providers who most need the resources. A simple three-part test can be applied to any funding formula to guard against this possibility.

The First Tranche

The Department of Health and Human Services (HHS) has $100 billion in grant (aka, free, not a loan and there is no requirement to pay back) money available to distribute to the healthcare system for expenses related to COVID-19. This appropriation is astoundingly broad and flexible. There are no previous examples where such a large amount of funds has been provided with such minimal direction from Congress in the healthcare space. It would not be an exaggeration to say this fund is unprecedented in recent history, but this is an unprecedented time.

HHS has already announced how it plans to disperse the first $30 billion – as a quick tranche of formula funds disbursed based upon a provider’s Medicare payments from last year. CMS administrator Seema Verma has said there are “no strings attached.” This approach:

  • Gets the money out the door quickly – important in a time of economic crisis – this money should be in provider hands this week;
  • Allows the money to be spent flexibly – on whatever a provider or facility deems appropriate (provider pay, PPE, technology for telehealth, etc); and
  • Is administratively efficient – calculation is quick, payment is through already existing mechanisms, and spending will require less auditing and backend oversight because of broad flexibility.

However, this approach has its drawbacks too:

  • It does not consider the differential costs and impacts experienced across the health system – for example, if two hospitals – one in New York and one in Montana each received $1 million in Medicare reimbursement last year, they both will receive the same amount from the $30 billion, even if the NY hospital has served 500 COVID-19 patients and the Montana hospital has served zero.
  • It also leaves out providers who are more heavily or solely reimbursed by private health insurance, Medicaid, or private pay.

So, given these gaps, how should HHS think about how to disperse the remaining $70 Billion?

  • CMS has stated some of their priorities for the remaining funds: “The Administration is working rapidly on targeted distributions that will focus on providers in areas particularly impacted by the COVID-19 outbreak, rural providers, providers of services with lower shares of Medicare reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the treatment of uninsured Americans.”
  • Senate Democrats are calling for the next $70 billion to be targeted to places hardest hit by COVID-19.
  • Everyone in the health system – and even some who aren’t in the health system – will argue they should receive these funds, and many will have a compelling case.

A Three-Part Test To Protect Public Health and Public Trust

Below I lay out a three-part test to prioritize the disbursement of remaining resources to cover the costs the health system is experiencing as a result of the COVID-19 public health emergency:

  1. Will these funds be used to cover additional costs to provide healthcare directly related to the COVID-19 public health emergency?

Priority one should be to pay for direct healthcare and health system preparedness. The health system is in a different boat than most of the economy – segments of it have never been more needed, more vital, or in higher demand. There are additional costs associated with preparing for and providing this care. Direct additional costs include things like: increased personal protective equipment (PPE) required to care for COVID-19+ or quarantined patients; increased PPE per unit costs; costs to provide COVID-19 related care for the uninsured; increased personnel costs – e.g., hazard pay; training; costs to build or retrofit a facility to house COVID-19+ or quarantined patients; acquiring technology or training for telehealth visits. These direct additional costs will be higher in areas of the country more heavily impacted by the COVID-19 outbreak.

Direct additional costs are NOT lost revenues. Elective procedures are being postponed and regular doctor visits are too. But these are not additional direct costs attributable to preparedness or caring for patients during COVID-19. The appropriations language includes that funds are available for “lost revenues” attributable to the Coronavirus, however priority one should be to cover the additional costs in the health system. HHS has covered at least some of these “lost revenues” via their disbursement of the first $30 billion. Using grant funds to cover lost revenues is appropriate, especially when it allows a provider to have the funds needed to respond to COVID-19, but covering direct costs should be funded as priority one.

  1. Is reimbursement for these costs already built into the existing healthcare payment system?

The system for reimbursements in the health system is exceedingly complex, but Medicare and other payers build various costs into the design of their payments for services. Healthcare providers should not be paid with grant funds to cover costs for which they are already reimbursed – e.g., for medical equipment and PPE that is already built into the base payment for a procedure.

  1. Are there other funds in the CARES Act, Families First Act, or other subsequent COVID-19 response legislation that is more directly designed to cover these costs?

The CARES Act includes substantial, though likely not adequate, funds to cover lost revenues resulting from the COVID-19 Public Health Emergency for businesses with under 500 employees. This includes most substantially the Paycheck Protection Program and the Economic Injury Disaster Loan Emergency Advance. These programs should be used to help make medical providers who have lost substantial business or even had to close – e.g., dental practices – whole. This is even more support for the criteria under question 1 – the first priority for these funds should be to cover additional costs, and not lost revenue, as other provisions of legislation are specifically designed to help alleviate the impacts of lost revenue across the economy.

Separately, the Families First Act includes a 6.2% increase in the Federal Matching Assistance Percentage (FMAP) – or the share of Medicaid costs that the federal government pays. These additional federal payments will help to cover additional costs Medicaid providers experience as a result of COVID-19. The Congressional Budget Office (CBO) estimates this provision to cost $50 billion. One can argue this is not sufficient to cover additional costs in Medicaid and for safety net providers, and many are, but providers should NOT be reimbursed for the same thing twice – in other words, if the 6.2% FMAP increase is being used to buy additional N-95 masks, a provider should not then receive a grant from HHS for those same N-95s. This same logic holds for the Medicare payments included in the first $30 billion – though of course this will be tricky to work out since CMS is not asking for providers to detail how the $30 billion in funds are used.

These funding pools will be insufficient to cover lost revenue in many situations. Many providers will not qualify for the Paycheck Protection Program. States are not necessarily passing the FMAP increase through to providers. More revenue-related funding options will be necessary to address COVID-19 challenges that arise as a result of revenue impacts. That is, to the extent these funding pools are not sufficient to fulfill their purpose or inaccessible, Congress and the Administration should provide additional sources of revenue stabilization.

Balancing Priorities

All of this will need to be balanced with other priorities – probably the most pressing of which is speed. Between the additional FMAP, the accelerated and advance payment program Medicare has [rightly] set up and made broadly available, and the first $30 billion – all of which CMS has made available very quickly – HHS should be able to provide a more systematic review that takes account of the factors above for at least some portion of the $100 billion. HHS should include a streamlined application with standard data fields, and attestation of some of the above (e.g., I am not receiving federal or state funds for the items for which I am requesting funding). And of course, with this level of funding, proper oversight will be a necessity. HHS should work with its OIG to set up a process now in a way that allows for proper oversight in the future.

Tyler Overstreet Cromer worked at the Office of Management and Budget for over a decade, where she oversaw budget development and execution at HHS.

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