In the Final Hours, Providers Prepare for Repayment of Medicare Loans

The clock has run out for many providers who accepted advanced payments from Medicare at the start of the COVID-19 pandemic.

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On or near August 1st, the Medicare Accelerated & Advance Payment Programs will start to recoup the $100 billion in Medicare reimbursements advanced to hospitals and physicians to alleviate cash flow issues they experienced in March when a handful of COVID-19 cases turned into a national public health emergency.

But repayment could be devastating for providers who are still feeling the economic fallout from COVID-19.

“This lifeline could become an anchor that sinks the recovery of hospitals across the country,” said Chip Kahn, president and CEO of the Federation of American Hospitals (FAH), a group representing for-profit hospitals across the country.

Before $175 billion was allocated by Congress to the Provider Relief Fund, the first option available to healthcare providers starting to see revenues dip as a result of COVID-19 was the Medicare Accelerated & Advance Payment Programs.

Providers jumped on the opportunity to receive immediate financial support through the programs, which were established decades ago to move funding to providers experiencing economic hardship during natural disasters and other national emergencies.

In fact, days after the  Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded the programs, CMS reported that it had received 25,000 requests for advance and accelerated payments in little over a week.

The agency suspended half of the program a couple of weeks later on April 26th and said it was reassessing the amounts given to hospitals. At that time, the programs had given nearly $60 billion to over 21,000 Part A providers and $40.4 billion to almost 24,000 Part B providers.

Next month, CMS will start recouping the loans from providers by keeping Medicare fee-for-service payments until a provider’s loan balance is zeroed out.

For hospitals, however, that means losing an average of approximately 25 percent of their payments, FAH reported.

Providers can also opt to repay the funds, or a portion of the funds, directly instead of having payments recouped via claims submission.

But per program rules, if the loan is not paid off within eight months, Medicare will charge interest to the tune of 10.25 percent until hospitals come up with the money.

To avoid triggering the high interest rate, a $100 million hospital, for example, would have to take a $2.5 million hit for the next eight months if it borrowed its maximum of $20 million.

“A healthy, well-performing $100 million hospital may an annual margin of about $2.5 million dollars, and that's a good performer,” said Jordan Shields, MBA, managing director at Juniper Advisory. “If we think about a struggling hospital, starting to repay these loans any given month is very likely more than they would earn in a good year.”

Some hospitals may have put the loan money aside as support from the Provider Relief Fund funneled in, Shields said. But for many hospitals, the money has already been spent to make up for financial losses, which the American Hospital Association (AHA) estimated was over $202 billion between March and June alone.

The Association has since updated its projections, estimating hospitals to lose a total of at least $323 billion through the end of 2020.

Groups like FAH, AHA, and the American Medical Group Association (AMGA) have been pushing for changes to the loan programs.

Chief among provider requests for program reform was the delay of the start of repayments. But the groups have also urged Congress to waive or lower the interest rate, extend the repayment period before interest begins to accrue, and even loan forgiveness in cases of extreme hardship.

Loan forgiveness is highly unlikely in this case, according to industry experts, but Congress has indicated via draft legislation that it intends to include changes to the programs in upcoming coronavirus relief packages.

For providers up against the August 1st deadline, though, Congressional relief will come too late.

That is reason enough for CMS to delay repayments of the loans, a group of six organizations representing hospitals said in a letter sent to CMS Administrator Seema Verma yesterday. The groups, which included the FAH and AHA, urged Administrator Verma to “promptly exercise the authority available to CMS to adjust the repayment schedule” until Congress has the “opportunity to make changes to the programs.”

As providers eagerly await legislative changes, though, Shields recommended that hospital boards watch their numbers weekly, keeping a close eye on the organization’s liquidity.

It is more important than ever for hospital leaders to know how their organization is operating financially. The information is key for scenario planning, which is crucial considering the uncertain future for healthcare providers.

But the information is also key to setting “trip wires,” added Shields.

“With so much uncertainty in terms of relief and in terms of operations month to month, it's important for boards to say, ‘Okay, if we hit 80 days cash, we are going to take one of several actions,’” the hospital and health system advisor explained.

Those actions could be selling or closing a non-essential service like a nursing home or home health agency, which may help slow the bleed, or a merger or partnership.

Larger health systems appear to be faring better financially during the pandemic and data shows that healthcare merger and acquisition activity has withstood the overall economic slump brought on by COVID-19.

However, in order for a new partnership to be successful, hospitals have to execute at the right time.

“Healthy systems are pursuing transactions with other healthy systems in this time of significant uncertainty and struggling organizations are having a more difficult time with finding partners,” Shields explained. “So, we're going to see a lot of bankruptcies here because organizations are going to wait too long before they approach the market. There's a lot at risk for buyers and they're being cautious. So, waiting too long is a real risk. Having these trip wires in place is important.”