Cost Recoupment – Covid-19 and Other Disasters

Unless your practice or facility has experienced a natural disaster like an earthquake, flood or hurricane, most finance leaders have never had to file a claim and track costs related to an event. While hospitals can recover Covid-19 costs via FEMA and HHS/CAREs, and other provider can secure PPA forgivable loans, what about your ongoing Covid-19 compliance costs? States have closed practices under ‘lockdown’ orders, restricted elective services and procedures, required ongoing cleaning, signage, capacity limits, etc. All of these measures increase costs and decrease revenue. In the meantime, managed care plans continue to collect the same revenue from CMS, Medicaid and employers/individuals for premiums, while their claims costs have dramatically decreased.

Have you thought about renegotiating managed care contracts to cover ongoing Covid-19 related costs? Have you considered one-time relief requests to cover compliance costs, telemedicine programs, etc.?

If you believe there is an opportunity to recuperate costs or you want to be prepared for a potential Covid-19 second wave or other disaster scenario the following Q&A might be helpful:

What types of costs should practices/facilities track to secure potential relief?

They should essentially track every cost and be as granular as possible. This includes everything from the time that staff are treating patients with COVID-19 to the direct costs of personal protective equipment (PPE) and new equipment. It also includes costs for temporary structures/fixtures or for retrofitting existing facilities/spaces. Staff costs for additional compliance training, process, and procedures.

Are there any costs that could easily be overlooked during this tracking process?

Probably smaller expenditures, like food for nurses and physicians working in isolation areas so they don’t leave and potentially contaminate other units. Additional supplies, signage. Changes to website.

How should leaders track costs?

They can set up a project code in the general ledger to monitor any cost related to COVID-19. They also can create a timekeeping mechanism to monitor the costs of employees who are responding to the emergency/compliance. Some larger providers are using automation in this process and creating specific pay codes for COVID activities.

Other than SNFs, FQHCs, etc. that have been fairly good at tracking costs as accurately as possible for the cost reports they file with CMS on an annual basis or for community benefit reports, many providers may have to invest more in purchasing or creating cost recording systems, and training.

What are some best practices for establishing cost centers for tracking purposes?

Start by setting up distinct cost centers and defining what will be included in each based on what is payable or reimbursable according to FEMA.  You’ll also want to understand how FEMA has historically compensated for costs. They’re looking for what is truly an incremental cost as it relates to the emergency/compliance, not what you would have expended regardless of the emergency. This includes understanding the difference between routine overtime or premium pay and truly incremental payroll costs related to the response. Although HHS guidance is more vague, FEMA guidance is more specific on this point.

What about tracking lost revenues to report to HHS as required to receive CARES funding?

According to their terms and conditions, payments from HHS can be used to pay for direct expenses as well as lost revenues. (Note: HHS has released high-level guidance on how to report lost revenues.)

However, some organizations are wondering if all of what is initially perceived as lost revenue truly is lost revenue. Is lost revenue simply the difference between what was projected in March or April and what the actual revenue is? If elective procedures get rescheduled for July, is that really lost revenue or just deferred revenue? Finance leaders need to think through that.

Compared with tracking costs, determining lost revenue is more of an art than a science.

Any other advice?

Take this opportunity to invest in improving preparations for ‘financial disasters’.  Consider developing contingency plans that are templates that can be used as a started point to developing an ‘event’ specific plan.  It’s important to have a leader take ownership of that. It doesn’t have to be the CFO or somebody with a C-level title, but it does need to be someone who will make sure the organization is thinking about these financial emergencies in the future.  Think of other catastrophic events – major and sustained power outage, internet, phone/cell blackout, etc. 

Mark Williamson, CPA CGMA