No Free Lunch: Additional Regulatory Concerns in Healthcare Relief Funds

Government Enforcement Update

Client Alert


This week the Department of Health and Human Services announced distribution of the first $30 billion of CARES Act funds for healthcare providers. Somewhat surprisingly, no application is needed for this first tranche of funds. Instead, HHS is directly funding Medicare providers based on their total Medicare fee-for-service payments in 2019. According to HHS announcements, providers can expect funds in their accounts or checks mailed to them this week. Receipt and acceptance, however, come with new requirements and restrictions specific to these funds. Failure to comply with these rules, either willfully or due to lack of attention during these frantic times, could result in post-crisis enforcement actions against providers.  

Use of CARES Act Funds Conditioned on Acceptance of HHS Terms

Medicare providers, already accustomed to a wide range of regulations, will not be surprised that these funds come with conditions, including reporting and self-certification requirements, which must be agreed to within 30 days of receiving the funds. If a provider does not wish to comply with the terms and conditions, it must contact HHS within 30 days and then remit the full payment to HHS as instructed. Because reporting to HHS may be required as early as July, healthcare providers must have practices in place to track use of these funds and ensure compliance with federal regulations. Failure to accurately segregate, track, and report use of the funds to HHS could result in significant financial liability under the enforcement mechanisms described below.

CARES Act Funds Requirements  

HHS published a set of terms and conditions with its announcement that the $30 billion would be distributed to healthcare providers. The terms and conditions include the following requirements:

  1. The provider (a) billed Medicare in 2019; (b) currently provides diagnosis, testing, or care for individuals with possible or actual cases of COVID-19; (c) has not been terminated from participation in Medicare; (d) has not been excluded from federal healthcare programs; and (e) has not had Medicare billing privileges revoked.
  2. The provider certifies that payment will be used to prevent, prepare for, and respond to the coronavirus, and that the payment shall reimburse the recipient only for healthcare-related expenses or lost revenues that are attributable to the coronavirus.
  3. The provider certifies funds won’t be used to reimburse expenses or losses that have been reimbursed by other sources or that other sources are obligated to reimburse (note that loans obtained under the Small Business Association’s “7(a)” program, which contain a forgiveness feature for certain expenses incurred by the borrower, may be implicated by this provision).
  4. The provider will submit reports as HHS determines necessary to ensure compliance with the terms and conditions.
  5. Providers that receive more than $150,000 must provide detailed quarterly reports to HHS regarding the use of funds, including the amount of funds granted, lists of projects and activities for which large covered funds were expended, jobs created, sub-grants awarded and many other details.
  6. Providers must retain sufficient records and cost documentation to substantiate the reimbursement costs provided.

Additionally, HHS included restrictions on balance-billing patients for out-of-network care  (currently a hot topic in Congress) for COVID-19 related treatment for any provider accepting these funds. A copy of the full terms and conditions can be found here.

Ambiguity, Compliance, and Risk

Notably, the terms and conditions refer to reports to the Pandemic Response Accountability Committee within HHS, which suggests that HHS intends to monitor compliance with the various restrictions on the use of CARES Act money. Given the ambiguities in HHS’s required certifications, if providers accept these funds, they must pay careful attention to their COVID-related costs, expenditures, and losses, and be prepared to produce required quarterly reports to HHS. Additionally, compliance departments across healthcare providers should consider supplementing their compliance programs to account for the requirements attached to these new funds. Finally, billing departments may need to make immediate adjustments regarding out-of-network billing and consider how third-party contractors that work in their facilities may be affected by these requirements. 

Post-Crisis Enforcement

Enforcement is inevitable following massive infusions of government money during crisis situations. In coming months, we can expect enforcement activity from HHS and from whistleblowers who have significant pecuniary interest in bringing so-called fraud to light through the qui tam provision of the False Claims Act. Healthcare providers are all too familiar with how an internal whistleblower can file a lawsuit on behalf of the government if the whistleblower believes that the organization is engaged in fraud or submitted false claims to the government. The use of CARES Act funds provides another avenue for potential whistleblower – and ultimately government – action. In addition to the cost and disruption associated with a government investigation, financial liability can amount to three times the amount received from the government plus associated fines and penalties. Importantly, liability under the False Claims Act can attach when the government believes there has been “reckless disregard” for the rules and regulations attached to the government funds. Essentially, if aggressive prosecutors believe the organization wasn’t careful enough, financial liability can attach. Notably, lack of a compliance program appropriate to the size and sophistication of the provider can be a major factor in proving liability in these investigations. 

Healthcare providers should take note. Help is on the way in the form of massive government funds. Organizations are understandably focused on the current health crisis and associated financial stress. The government is likewise focused on getting money out the door to relieve the financial stress on healthcare providers. But as the terms and conditions associated with these grants make clear, accountability and eventual enforcement will not be far behind.  Focusing on compliance now may prevent a world of hurt later.