After Long Wait, HHS Announces Medicaid CARES Act Allocation

Well, we’ve been waiting for awhile and now it’s been made public:  the Department of Health and Human Services (HHS) announced on June 9 that it was releasing $25 billion in funding from the Coronavirus Aid, Relief and Economic Security (CARES) Act to high Medicaid providers and to safety net hospitals.  President Trump signed the CARES Act into law on March 27; the CARES law and a subsequent law appropriated $175 billion to a Provider Relief Fund to address the needs of healthcare providers that had increased expenses or lost revenues due to COVID-19.  Although HHS has been distributing funds from CARES to providers for a couple of months now, there has been bipartisan concern that providers that treat a large number of Medicaid beneficiaries have not received a targeted allocation.  We will see if today’s announcement addresses that concern.

By our count, HHS has now allocated close to $100 billion of the total $175 billion fund:

  • A $50 billion “general distribution fund” consisting of:
    • An initial $30 billion allocation based on Medicare revenues; and
    • An additional $20 billion that went to a broader class of providers based on these providers’ net patient revenue;
  • $12 billion to COVID “hot spots”;
  • $10 billion to rural providers;
  • $400 million to Indian health facilities;
  • $4.9 billion to skilled nursing facilities;
  • And with today’s announcement, $25 billion to Medicaid and CHIP providers and safety net hospitals.

HHS has also announced that it would use some funding from the CARES Act provider relief fund to reimburse providers that treat uninsured COVID-19 patients, but we don’t know yet how much of that money has been spent.

Today, we want to drill down on the $25 billion Medicaid-specific allocation.  It’s divided into two components: (1) a $15 billion in a Medicaid and CHIP targeted distribution; and (2) $10 billion to safety net hospitals. HHS has already posted the applicable Terms & Conditions for this fund.

For the first, $15 billion component, HHS explains that the money will be going to “eligible” Medicaid and CHIP providers.  Fund recipients will have to go to an HHS portal and enter their annual patient revenue and information about the number of Medicaid patients the provider treats.  HHS says that the allocation to providers will be approximately 2% of their patient revenue.  Providers can qualify if they billed Medicaid or Medicaid managed care plans between January 1, 2018 and May 31, 2020.

But here’s the catch:  in order to be an “eligible” provider, the recipient cannot have received general distribution funding.  We think that it’s very unlikely that most Medicaid providers will have received no allocation from the general distribution fund; even high Medicaid providers (such as community health centers) would have received some funding from the general distribution fund.  HHS gives some examples of providers that might qualify for the $15 billion allocation:

  • Pediatricians;
  • Obstetricians and gynecologists;
  • Dentists;
  • Opioid treatment and behavioral health providers;
  • Assisted living facilities; and
  • Home and community based services providers.

In other words, providers eligible under this new Medicaid allocation are generally providing services that are not covered or are generally not provided to the broader Medicare population (i.e., the Medicare program does not generally provide coverage for dental services). Providers that think that they qualify can begin entering information in the portal beginning on June 10.

With respect to the second, $10 billion component, HHS is targeting safety net hospitals in this allocation.  According to HHS Secretary Azar, these funds are allocated to “healthcare providers who treat the most vulnerable Americans.”  It appears that hospitals that received money from the general distribution fund can receive funding from this $10 billion allocation.  A hospital will qualify if it has:

  • A Medicare disproportionate “payment” percentage of 20.2% of greater;[1]
  • Average uncompensated care cost per bed of $25,000 or more;
  • Profitability of 3% or less.

What HHS has not said is whether a hospital has to meet all three tests or only one of the three tests in order to qualify for payments from this $10 billion allocation.  HHS has also not said how the $10 billion will be allocated among safety net hospitals.  Regardless, all of the data sources should be readily available to HHS via the hospitals’ Medicare cost reports, which is why the agency announced that the funding is being distributed by direct deposit.

It will be interesting to us to see how policymakers on the Hill and other commenters react to this announcement.  It may be that as Congress considers further COVID relief legislation, a further, more targeted, distribution to high Medicaid providers will be adopted.

[1] Medicare makes additional payments to hospitals that treat a disproportionate share of low-income individuals.  Medicaid does as well, but the Medicaid formula is determined by states.  Medicare’s formula is far more precise and that’s what CMS is relying on here.  We think there may be an error in the HHS description of the policy, however.  Medicare payments to DSH hospitals are determined by the hospital’s disproportionate patient percentage; there is no concept of a disproportionate “payment” percentage in the statutory formula.  So does HHS mean that the amount of the payment adjustment must be 20.2%?  Or that the number of patient days exceeds 20.2%?

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