As of October 15, 2020, there have been over 8 million COVID-19 cases nationwide. To help address the economic impact of the pandemic, the federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March. The CARES Act made billions of dollars available to aid healthcare providers battling the devastating impact of COVID-19.

Below we discuss the most significant programs under the CARES Act that are available to assist healthcare providers, as well as the related COVID-19 accounting impacts for healthcare entities:

Provider Relief Fund (PRF)

Under the CARES Act, the Department of Health and Human Services (HHS) has allocated Provider Relief Fund (PRF) funds to make general and targeted distributions to pay providers for:

  1. The treatment of uninsured COVID-19 patients, and/or;
  2. Lost revenue due to the pandemic.

Within the last few weeks, HHS has provided further guidance regarding the use of the PRF funds and the lost revenue calculations. This guidance can be found at the end of this article.

  • Not-for-profit entities: PRF distributions should be classified as non-exchange transactions under the Financial Accounting Standards Board's (FASB's) Accounting Standards Codification (ASC) 958-605, following what is known as the contribution model, with donor-imposed conditions and restrictions. As such, any funds received will be recognized initially as a liability and generally included within operating revenue when and if the defined conditions are met.
  • Governmental hospitals: Required to follow Governmental Accounting Standards Board statement No. 33, Nonexchange Transactions, whereby the balance sheet treatment is similar to not-for-profit entities, but when and if the eligibility requirements are met and the revenue is recognized, such revenue is required to be recorded as nonoperating.
  • For-profit entities: Currently, U.S. GAAP provides very little guidance on how for-profit entities should account for funds provided by the government. For-profit hospitals may look for other non-authoritative guidance on this matter; however, most business entities have been reporting this revenue under the International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance This model allows the PRF funds to be recognized as revenue (or as an offset to expenses incurred) when there is reasonable assurance that conditions of the funds will be met.

Noncompliance with any terms or conditions may allow HHS to recoup all or a portion of the payments. Additionally, if there are excess funds that the provider does not use for COVID-19 or are not needed to cover the related lost revenue, such funds may need to be returned.

Medicare Accelerated Advance Payment Program

Under the CARES Act, the Centers for Medicare and Medicaid Services (CMS) expanded the Medicare Accelerated Advance Payment Program by providing $100 billion in cash advances to many healthcare providers during this time of uncertainty. These funds represent advances on payments for future services provided to Medicare patients.

  • FASB Treatment: Nongovernmental healthcare entities should account for these advance payments as a contract liability under the FASB's Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606).
  • GASB Treatment: Governmental healthcare entities should account for these advance payments as an advance liability in accordance with governmental accounting standards.
  • FASB and GASB Treatment: These advances are generally offset against future Medicare claims after one year from receipt of the advance, and the liability will be amortized into revenue as services are provided during the recoupment period. Any amounts that are expected to be paid back should be recorded as refund liability on the balance sheet.

Federal Emergency Management Agency (FEMA) Public Assistance

FEMA granted funding to healthcare entities as part of its recovery efforts declared on March 13, 2020. Only governmental entities and not-for-profit hospitals are eligible to receive these funds — for-profit hospitals are not eligible.

The accounting treatment for any funds received from FEMA would be similar to reporting for PRF. Accordingly, the funds are generally recognized in the statement of operations as the qualifying expenditures are incurred, given that the funds are non-exchange in nature.

Additional Reporting Requirements under the PRF

On top of the typical day-to-day reporting, healthcare providers should establish methods to calculate lost revenues from changes in patient care and changes in patient care payor mix due to the COVID-19 pandemic, as well as track general and administrative expenses attributable to addressing coronavirus and healthcare-related expenses.

The level of tracking varies by the aggregate funding received in PRF payments. If a recipient received more than $500,000 in PRF funds, they will need to provide a breakdown between the following expense groupings:

  • mortgage/rent
  • personnel (full-time, part-time, and contract personnel)
  • fringe benefits
  • lease payments
  • utilities/operations
  • other general and administrative expenses
  • supplies
  • equipment
  • information technology
  • facilities
  • and other healthcare related expenses

In September 2020, HHS released information on reporting deadlines. All recipients of PRF payments of $10,000 or more are required to comply with post-payment reporting processes. The new HHS reporting system opens for providers on January 15, 2021. Nursing homes, rural health clinics, and health resources and services administration reimbursement/distribution recipients are exempt from the reporting requirements. All other recipients have to report by February 15, 2021, on the use of funds, with July 31, 2021, as the final deadline for those who did not fully expend PRF funds before December 31, 2020.

Other COVID-19 Healthcare Accounting Considerations

In the future, there may be more governmental programs providing opportunities for funding during this period of uncertainty.

Healthcare entities should evaluate the stipulations of the funds and whether they represent a contract with a customer. If so, such entities should consider the application of Topic 606. If amounts are expected to be repaid, they should be represented on the balance sheet as a liability.

The most unclear topic of discussion relates to the PRF program. What qualifies as lost revenues? And when will the end of the pandemic be considered to have occurred? According to the most recent guidance from HHS, “…lost revenues (are) represented as a negative change in year-over-year net patient operating income … Recipients may apply PRF payments toward lost revenue, up to the amount of their 2019 net gain from healthcare related sources." This may include operations that were cancelled as a result of the pandemic or other revenue lost that can be directly attributed to COVID-19. Obviously, as of the date of this article, we do not know the date of the conclusion of the pandemic given the everchanging situation surrounding COVID-19.

In Conclusion

Each of these COVID-19 accounting impacts for healthcare entities was addressed in detail at AICPA webinars and in various other formats over the past few months. We have accumulated some of the most common resources, literature, and guidance into one location below for your convenience:

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