For health care providers during COVID, policy changes and federal relief money have been a critical lifeline. And while many new complex rules and requirements have created significant uncertainty and concern about repayment and eligibility connected to such funding, skilled care agencies still have opportunities to avail it.
Provider Relief Funds (PRF) and funding from the American Rescue Plan (ARP) helped providers mitigate costs and lost revenue during the pandemic. Many providers might still be eligible for both.
Of course, recipients of these sources of federal funding are subject to both reporting and compliance audit requirements. Along with knowing how to avoid pitfalls in fulfilling these requirements, providers can lean on several pieces of advice on how to:
- retroactively seek these funds, including the employee retention credit (ERC)
- maximize streams of federal funding
- minimize the potential downsides
Here is a look at how skilled providers can overcome four federal funding challenges.
Reporting requirements
Facilities that receive PRF funds are required to report to the Health Resources and Services Administration (HRSA) on how the funds were spent. Recipients of more than one payment and exceeding $10,000 should report these amounts by the end of the reporting time period.
PRF payments may be used during the period of availability to reimburse recipients for allowable expenses.
If providers received funds in multiple phases, they are also responsible for reporting in multiple periods, and these reports are subject to audit by HRSA.
“It is important to note that many organizations are receiving correspondence from various oversight agencies on this reporting already,” says Denise Leonard, CPA and Partner at Plante Moran. “Because of the varied nature of the correspondence being seen, we recommend each organization to carefully understand what is being requested and act promptly. Consider assistance from your business advisor if you have any questions.”
HRSA has engaged outside firms to audit provider relief portal submissions. This audit is separate from the single-audit requirements, and providers are notified directly if they have been selected for this type of audit of their PRF funds.
“Therefore it’s a good idea for providers to retain original documentation for three years after the date of submission of the final expenditure report, in accordance with rules,” Leonard says.
Audit requirement
In addition to reporting funds to HRSA, skilled care providers that spent $750,000 or more in federal funds during the fiscal year, including PRF payments, are required to have a compliance audit on the spending. This audit report is due within 30 days of the audit’s completion or nine months after the fiscal year end.
The type of compliance audit will depend on whether a provider is a not-for-profit (non-federal) entity or for-profit (commercial) entity.
HRSA has established a commercial audit reporting portal to streamline the audit submission process. The HRSA Provider Relief website provides more information on the submission process and other critical updates. The upcoming Reporting Period 5 starts July 1, 2023.
“We continue to encounter providers who are unaware of this audit requirement,” Leonard says. “We would encourage you to discuss this reporting requirement with your accounting professional so that you are able to come into compliance as soon as possible.”
Employee retention credit
One benefit that many skilled care providers may have overlooked is the employee retention credit (ERC). Agencies can still claim it retroactively, but calculating the value of the credit is a bit tricky, as is assessing the big-picture eligibility considerations that can affect members of aggregated groups.
Organizations still have an opportunity to amend previous payroll tax filings to claim the credit. An organization that meets the qualifications criteria will be refunded a credit of a significant portion of wages and health insurance paid for its employees. Since the ERC’s initial launch in 2020, the credit has been modified to include more incentives to employers.
As of 2021, employers are able to claim ERC on any wages not used to support PPP loan forgiveness. Additionally, organizations carrying 500 full-time employees are now categorized as “small employers,” meaning they can now use the ERC, as that threshold is up from 100 employees in 2020. Employers can also now qualify for it if they have suffered a decline of 20% or more in gross receipts for the quarter as compared with the corresponding quarter in 2019. For 2020, that threshold was 50%.
Businesses that don’t meet the quantitative gross receipts threshold may still qualify if the business was partially or fully suspended due to government orders. For example, providers may have been subject to pandemic-related orders from the Centers for Medicare & Medicaid Services (CMS), as well as state and local health agencies that negatively impacted operations.
Also noteworthy is that the ERC is worth more in 2021. For 2020, the credit is equal to 50% of up to $10,000 in eligible wages per employee for the year, or $5,000. In 2021, the credit increased to 70% of $10,000 in eligible wages per employee in each eligible quarter, for a potential credit of $21,000 if an entity qualified for all three quarters in 2021.
“We urge organizations to evaluate their chances of using the ERC,” Leonard says. “Although the provision has expired, new claims may still be filed for prior quarters.”
Lease accounting standards
Organizations also need to be aware of a new lease accounting standard, ASC 842, effective for calendar years ending in 2022 and in fiscal years ending in 2023 for all organizations that report under U.S. GAAP.
ASC 842 requires companies to recognize all finance and operating lease assets and liabilities on the balance sheet, which could impact financial ratios, such as for debt service coverage, debt to equity or cash to debt, and could put health care providers at risk of violating debt covenants. In addition, the effect of adopting the new lease accounting standard could have an impact on how lenders evaluate debt capacity.
In order to prepare for compliance with the new lease accounting standards, providers should:
- inventory all operating leases, including embedded leases
- review debt agreements
- reach out to lenders to adjust or renegotiate covenant terms as needed
This article is sponsored by Plante Moran. To learn more, visit Plante Moran Senior Care & Living.
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