COVID-19 Expenses & Forgone Revenue: Start Accumulating Data Now
In our recent BKD Thoughtware® alert, we informed healthcare providers of basic information regarding the terms and conditions of the $30 billion in relief funds as well as provided recommendations. In this alert, we offer additional information for providers to track fund use, including COVID-19 expenses and lost revenue.
Many healthcare providers have begun to apply for and receive payments from various federal government agencies associated with emergency funding initiatives regarding the COVID-19 response. A partial list of these programs includes:
- Expansion of the Accelerated & Advanced Payments (AAP) program administered by CMS
- Public Health & Social Services Emergency Fund (PHSSEF) administered by the U.S. Department of Health & Human Services (HHS)
- Public Assistance Program administered by FEMA
- Paycheck Protection Program loans administered through the U.S. Small Business Administration
- COVID-19 Telehealth Program
In addition, providers are investigating whether business interruption or similar insurance claims are an option, and various states and local municipalities also may offer program funding.
Each of these programs have differing rules and requirements to obtain and potentially repay funding, ranging from expected recoupment of all advances from the CMS AAP program to potential ability to retain funding from the other programs if various requirements are met. But no matter what monies you are eligible for and able to access, you should already be strategizing and planning how you will track, monitor and document your cash, expenses and forgone revenue associated with the COVID-19 pandemic.
Terms & Conditions for PHSSEF Payments – A Guide to Documentation Requirements
To illustrate the importance of tracking COVID-19 activity, consider the notification of terms and conditions of PHSSEF funding sent to providers with the recent release of the first wave of funds. A partial summary of the PHSSEF terms and conditions include:
- Recipient certifies that funds will “only be used to prevent, prepare for, and respond to coronavirus, and shall reimburse the Recipient only for health care related expenses or lost revenues that are attributable to coronavirus.”
- Recipient certifies “that it will not use the Payment to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse.”
- Recipient “shall submit reports as the Secretary determines are needed to ensure compliance with conditions that are imposed on this Payment, and such reports shall be in such form, with such content, as specified by the Secretary in future program instructions directed to all Recipients.”
- If funding from COVID-19-related programs exceeds $150,000, recipient no later than 10 days after the end of each calendar quarter “shall submit to the Secretary and the Pandemic Response Accountability Committee a report” with various stipulated data associated with how the funds were used.
- Recipient “shall maintain appropriate records and cost documentation including, as applicable, documentation required by 45 CFR §75.302 – Financial management and 45 CFR §75.361 through §75.365 – Record Retention and Access, and other information required by future program instructions to substantiate the reimbursement of costs under this award.”
Accounting Framework for COVID-19 Activity
The PHSSEF guidance can be instructional for a provider to build the framework necessary to track and document the use of COVID-19-related response funding. Clearly, documentation of qualifying expenses incurred, as well as revenue forgone in the case of this program, appears to be a requirement for PHSSEF funding recipients. While each of the programs addressed above has varying specific requirements, each generally precludes funding of the same activity by two sources. Given this situation, we recommend establishing the following master accounting framework to help monitor and document COVID-19 activity and associated funding:
- Establish separate accounts within the general ledger (GL) to track receipts from each funding source
- Establish separate GL accounts to track all COVID-19-related expenses incurred by major type, and identify and record expenditures into these accounts using a consistent methodology considering established federal accounting principles like Uniform Guidance or FEMA documentation requirements (see further description below)
- Develop and maintain a summary financial analysis of forgone revenue using a consistent methodology (see further description below)
- Monitor and record potential settlements from each source on an ongoing basis, and prepare required reporting for each, consistently using the data generated by this framework and specifically allocating each element to various programs to avoid duplication. Reconciling and summarizing the associated information using a tool such as an electronic spreadsheet can aid in this process
We also recommend developing a written policy to define applicable uses of the various funds. Define and cite examples of expenses required to prevent, prepare for and respond to COVID-19 and types of revenue forgone that would apply to each funding source. Documentation for specific activity gathered should include descriptions regarding how the data meets the defined parameters, a purpose for which a summary document such as the Tracker can be effective. Using this framework also will help providers develop documentation that will potentially be required for federal audits under Uniform Guidance requirements, or similar state or local requirements.
Identifying & Documenting COVID-19-Related Expenses
Identifying expenses associated with COVID-19 response efforts at a detailed level using existing accounting systems will help meet documentational requirements, reduce the need for financial analyses performed after the fact to capture the data and identify associated expenses. Organizations should consider FEMA and federal Uniform Guidance cost finding and documentation requirements as a guide for the various decisions addressed below.
Specific areas and steps to consider include:
- Determine payroll tracking options:
- Establish and clearly define COVID-19-specific time codes if possible to help capture data in detail
- Educate managers and employees on using COVID-19 time codes for defined efforts related to preventing, planning and responding to the pandemic. These could include:
- Direct patient care of COVID-19 patients
- Testing for COVID-19
- Response team coordination
- Internal and external communication
- Security and visitor monitoring
- Remote work setup
- Specific overtime or hazard pay required for COVID-19 response
- For physician and physician extender providers, consider idled or inefficient time related to activity reductions or cancellation of elective procedures
- Determine expense (accounts payable, inventory, others) tracking options
- Establish COVID-19-specific expense accounts in major affected expenses in each department, and define expenditure types in general that should be coded to these accounts (including supplies issued from inventory)
- Educate managers and employees on using COVID-19 expense accounts for defined efforts related to planning and responding to the pandemic. These could include:
- Testing and other non-reimbursed supplies provided to COVID-19 patients
- Direct expenses associated with facility and supply costs associated with readying additional sites used for COVID-19 capacity planning
- Contract staffing fees associated with required additional capacity or staffing disruptions
- Supply costs associated with additional personal protective equipment required to address the pandemic
- Required additional employee costs such as provision of food, living quarters or transportation
- Required additional housekeeping and laundry costs
- Alternative care sites and new construction considerations:
- Providers taking advantage of blanket waivers and delivering care at alternative sites or new construction should establish separate cost centers to track the costs associated with these areas
- Identifying cost by natural classification may reduce the risk of underreporting costs associated with these areas
Providers should consider timing of initiation of these detail cost-finding efforts and perform a financial analysis to capture, in as much detail as possible, and allocate to these accounts expenditures incurred for COVID-19 response efforts made prior to initiation of the processes. At a minimum, providers will need to track expenses via an electronic spreadsheet to include:
- For expenses: Vendor, invoice number, expense amount and purpose of expense
- For payroll: Employee, hours, pay and purpose of hours incurred
After capturing direct expenses, providers should develop a policy defining a methodology to allocate indirect expenses for various COVID-19 response efforts. Providers should consider reviewing existing allocation guidelines under FEMA or Uniform Guidance policies to help guide this policy. After determination of the policy, indirect costs should be calculated on at least a monthly basis and recorded into the GL.
Other items to consider:
- Consider the effect of COVID-19-related initiatives, especially if adding locations, to your annual cost report filings. This exercise can help a provider determine both the direct and indirect costs associated with this location
- Challenging department managers:
- Request each department manager evaluate their monthly expenditure compared to budget
- If department managers indicate a variance is related to COVID-19 efforts but has not been identified in separate initiative accounts, determine if the expense has been recorded in the correct account or subaccount
Documenting COVID-19-Related Lost Revenue
The terms and conditions for accepting payment from the PHSSEF indicate the funds can be used as reimbursement for lost revenue attributable to COVID-19. As most providers will agree, documenting lost revenue due to COVID-19 will be more difficult than documenting expenses related to the virus. We recommend providers begin determining their lost revenue effect now using the following high-level approach:
- Develop and document specific underlying drivers for potential lost revenue, and perform financial analyses to estimate potential losses caused by these reasons
- For identified reasons that drive potentially significant lost revenue, expand analyses to more fully define specific reasons for lost revenue and capture associated detailed information
The provider should document a timeline to indicate the time period considered pre-COVID-19. This will establish a baseline of volume and revenue and will help assess the amount of lost revenue when compared to the historical state.
As noted, historical volumes will be the basis for the lost revenue assessment. The next step will be to determine current volume. We recommend analyzing lost revenue by month.
Historical volumes should be classified as inpatient, outpatient and professional fee volumes, as a provider might see different trends in volumes based on patient status or type of encounter. Based on early indications, the decline in volumes will most likely be most significant in areas with high elective or prescheduled procedures, such as surgery, screening procedures, radiological studies, clinic visits, scheduled endoscopies, therapies and laboratory.
Request input from revenue-producing department managers. Understand the volume trends since the beginning of the COVID-19 public health emergency. Discuss the drivers of those trends, and if the driver is COVID-19-related, incorporate it into the lost revenue analysis.
Examples of areas providers should consider when analyzing historical and current trends include:
- Compare volume of pre- and post-COVID-19 DRG encounters by payor
- Graph volume by DRG by month
- Compare patient day volume by service line by month, if available
- Available bed days by nursing unit and utilization
- Outpatient procedures by service line or department
The goal of the assessment is to identify key areas to inform the specific data you track and use in your lost revenue calculation to “tell your story.”
Consider the drivers of your lost or forgone revenue, such as those noted below, as this can help determine the necessary level of detail to track and more accurately calculate lost revenue due to preventing, preparing and responding to COVID-19:
- Postponement of nonurgent surgeries, procedures and diagnostic tests
- Restriction on in-person clinic visits
- Conversion of semiprivate to private rooms to meet isolation requirements
- Post-acute care bed shortages for patients meeting discharge criteria
Once potential drivers of lost revenue are identified, providers should determine what financial information is available to calculate lost revenue. The data could include:
- Provider financial statements, by month, including 12 months prior to COVID-19 onset
- Volumes by location, by month, including 12 months prior to COVID-19 onset
- The availability of data will dictate the level of detail each provider will choose for this analysis
- We recommend collecting patient volumes by patient status, i.e., inpatient, outpatient, by location
- Actual gross and net patient revenue by the volume indicators chosen above, recorded monthly, including the 12 months prior to the COVID-19 onset
Documentation of the detailed lost revenue assessments will be important, as well as including as much detailed information as possible along with documenting the underlying reasons why the revenue was lost due to COVID-19 effects. Providers would be well-served to maintain a narrative of key decisions and why the decisions are made. The transactional information is obviously important; however, the context and circumstances in which the transactions incurred can be relevant in the future and rarely documented during the crisis. Providers should institutionalize these types of discussions during periodic COVID-19 meetings and designate a scribe focused on documenting the environment in which decisions are made and expenses are incurred.
As more information from HHS and other government agencies becomes available, providers should be prepared to update their calculations. We recommend implementing a tracking process, like the one described above, that is in sufficient detail to support your claim to the federal and state funds you receive.
As with most topics related to COVID-19, changes are being made rapidly. Please note that this information is current as of the date of publication. For more information, reach out to your BKD Trusted Advisor™ or use the Contact Us form below.