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In its rush to offer a lifeline to U.S. health care providers struggling under the crushing financial impact of the Covid-19 crisis, the federal government has unleashed a provider relief package that may do more harm than good.

The problem? A flawed distribution process that has already resulted in the improper distribution of $30 billion through automated direct deposits, setting unwary providers up for a legal quagmire.


Among the many coronavirus relief measures Congress recently enacted was a $100 billion appropriation in the CARES Act to reimburse hospitals, physicians, and others for “health care related expenses or lost revenues that are attributable to coronavirus.” Hard on the heels of its March 27 enactment, Seema Verma, the administrator of the Centers for Medicare and Medicaid Services, announced during a White House briefing that the first $30 billion would be flowing to providers with “no strings attached.”

By the time the first deposits starting appearing in provider bank accounts on April 10, regulators at the Department of Health and Human Services had added 10 pages of “Relief Fund Payment Terms and Conditions” to the requirements in the CARES Act appropriations language. Unfortunately, the distribution process established by HHS for the first $30 billion ignored key aspects of the appropriations language in the CARES Act. HHS has yet to fix the problem, which has created a series of traps for unwary providers.

Here’s the core problem: The CARES Act stipulates that “to be eligible for a payment” out of the $100 billion appropriation, a provider must submit “an application that includes a statement justifying the need of the provider for the payment.” In its haste to provide desperately needed relief to health care providers, HHS did not establish any kind of application process. It simply distributed the first $30 billion based on providers’ Medicare reimbursement in 2019.


HHS eventually recognized its error and reissued the terms and conditions. The revised version that’s applicable to distributions from the first $30 billion now contains an awkward paragraph purporting to characterize the terms and conditions as an “application,” but they still fail to require providers to submit any “statement justifying the need of the provider for the payment.”

At the same time, HHS issued another set of terms and conditions applicable to distributions from the second $20 billion of the relief money that includes the same awkward “application” paragraph. It also updated the CARES Act Provider Relief Fund website to add a “General Distribution Portal” and associated FAQs. The FAQs and User Guide reflect, for the first time, that an application process of sorts (requiring only revenue information, estimated losses in March and April, a copy of the provider’s most recent tax return and tax ID numbers) does indeed exist — but only with respect to the second $20 billion.

The end result is that HHS direct-deposited $30 billion dollars into the bank accounts of providers who desperately need the money but who technically were not eligible to receive it because HHS failed to require they submit an appropriate application. This leaves providers horribly exposed to potential lawsuits over their right to keep the money, even if they satisfy all of the other requirements. HHS needs to implement a fix that works.

The second trap flows from the lack of a suitable application. In addition to requiring an application, the CARES Act appropriations language says that to be eligible to receive funds from the Provider Relief Fund, a provider must “provide diagnoses, testing, or care for individuals with possible or actual cases of Covid-19.” We can fairly assume that some number of specialty providers (an orthopedic specialty hospital or surgeon, for example) will have incurred qualifying losses and received one of HHS’ direct deposits but without having ever diagnosed, tested, or cared for a patient with Covid-19.

A suitable application would have provided details for providers to confirm whether they qualify and thus prevented payments from being made to providers who don’t. Instead, they are left to determine on their own that they do not satisfy this eligibility requirement and return the money.

The third trap lies in one of the provisions of the CARES Act appropriations language and HHS’ failure to clarify it: Payments from the $100 billion “may not be used to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse.”

This is a simple concept on the surface, but what it means for an “other source” to be “obligated to reimburse” expenses or losses in the future is anything but clear and may, in the case of insurance proceeds for example, be unknowable for months or years, long after relief funds have been spent. Are providers expected to give Provider Relief Funds back if an “other source” is identified later?

Numerous press reports describe the catastrophic financial effects of Covid-19 on U.S. health care providers. The suspension of elective procedures to preserve personal protective equipment, free up space to care for Covid-19 patients, and reduce patients’ and provider’s exposure to the virus that causes Covid-19 means lost revenues for hospitals and clinicians. Costs have skyrocketed as providers and states fight over scarce resources. Reimbursement for care provided to Covid-19 patients may be inadequate. The longer this period of increased expenses and reduced revenues lasts, the bleaker the financial picture becomes. In a news report, Cincinnati-based Bon Secours Mercy Health estimated that it would lose $100 million per month during the pandemic.

The last thing providers need while caring for patients during a global pandemic is relief money that comes with hidden regulatory traps, litigation risk, and uncertainty. HHS needs to pause long enough to read the applicable statutes with care, establish an appropriate application process for to the entire $100 billion (and the additional $75 billion appropriated on April 24, 2020, that is subject to the same statutory requirements), and communicate clearly about what it is doing.

Mark Hedberg and James Pinna are partners in Hunton Andrews Kurth LLP’s health care practice and Sean O’Connell is counsel in the firm’s white collar defense practice.

  • It seemed as a good gesture on the part of Feds on the surface to help first responders
    It looked like a simple loan to be collected back starting July ( as think COVID is gone by then) From the future services provided to Medicare recipients
    Need not to have all these strings and unnecessary legal consequences

  • One month has passed since the first deposits were made, and maybe by now the HHS should indeed have synchronized with the CARES act. However, there must be respect for a fair amount of leeway, as the costs of this pandemic are unprecedented, can not be borne by regular coffers, and have no quick-fix. Fast funding must be appreciated as it provides coverage for direly needed supplies and personnel. There should be NO traps for health care facilities in receipt of this funding – instead, this is an issue for the HHS to deal with itself – via its ties to government coffers. It should never result in “traps” for health care facilities already strained to the max in this ever-growing relentless pandemic. They are involved in activities that far supercede time wasted on as of yet illegible red tape.

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