Navigating community benefit reporting of Provider Relief Funds
INSIGHT ARTICLE |
In March 2020, the uncertainty of how the pandemic would impact the United States economy was at its height. The health care ecosystem was no different. Although the pandemic brought patients with COVID-19 to the hospital, it also forced many health care providers to stop performing certain non-emergent services. For many health care providers, this meant a dramatic decline in revenues from patient services. As a result, Congress took swift legislative action and passed the Coronavirus Assistances Relief and Economic Securities Act (CARES Act).
The CARES Act introduced stimulus funding to health care providers through the Provider Relief Funds (PRF). The PRF brought billions of dollars to health care providers to help mitigate the pandemic’s financial burden by offsetting the expenses and lost revenues.
Reporting the PRF
As time has elapsed since the first disbursements, the ecosystem is now in the phase of reporting the use of the funds to Health and Human Services (HHS). Soon tax-exempt health care providers will also need to report these payments in their Forms 990, Schedule H.
With the IRS remaining silent on Form 990 reporting of the PRF grants, taxpayers must rely on the existing Schedule H instructions. The big question is whether the PRF grants should be reported as direct offsetting revenue. According to the instructions, direct offsetting revenue includes restricted grants or contributions that the organization uses to provide a community benefit. Because the PRF grants have terms and conditions and specific requirements on how to use the allocated funds, many within the health care ecosystem consider the PRF grants as restricted to loss revenues and expenses resulting from COVID. Accordingly, the portion of the grant applied to losses from subsidized health services or COVID expenses for community benefit should be reported as direct offsetting revenue.
But what portion of the PRF was used for community benefit? For HHS reporting purposes, hospitals may use their own discretion in allocating PRF grant funds between the loss of net patient revenue and COVID-related expenses. In practice, some hospitals apply the PRF grants first to the decrease in net patient revenue and apply any remaining funds to eligible expenses. Hospitals that include net patient revenue and COVID-related expenses as community benefit on Schedule H will need to adopt a methodology that allocates the PRF grants, as appropriate, as direct offsetting revenue.
Net patient revenue: If a hospital experienced a decrease in subsidized health services that it reports as a community benefit on Schedule H, it will need to determine whether and to what extent PRF grants were received for that specific net patient revenue. Specifically, the hospital will calculate the change in net patient revenue for these services using the same methodology as the reporting for the PRF. If this results in a loss, a portion of the PRF allocated to the loss of net patient revenue should be allocated to subsidized health services and reported as direct offsetting revenue on Schedule H. A reasonable methodology, such as the ratio of the subsidized services net patient loss compared to the overall reported loss, can be used to calculate the direct offsetting revenue.
COVID-related expenses: Similarly, a hospital may report some of the COVID-related expenses as a community benefit expense on Schedule H. Some hospitals may have a detailed cost reporting system to identify the specific expense used to reconcile the PRF reporting. For those without detailed cost reporting system, a reasonable ratio allocation will probably be used.
The allocation of the PRF to community benefit reporting on Form 990, Schedule H is unique to each hospital and based on their method of reporting to HHS and internal cost reporting systems. Therefore, it is prudent for tax-exempt hospitals to consider their Schedule H community benefit reporting as they prepare their reporting for HHS.