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June 04, 2021

May 10 Letter to Xavier Becerra Regarding Provider Relief Funds

This Bulletin is brought to you by AHLA’s Business Law and Governance Practice Group and the Public Health System Affinity Group of the Hospitals and Health Systems Practice Group.
  • June 04, 2021
  • Andrea Ferrari , HealthCare Appraisers, Inc.
  • David A. Weil , Guardian Bridge Group
  • Alaina N. Crislip , Jackson Kelly PLLC

On May 10, 2021, various organizations representing hospitals and health systems sent a letter[1] to Xavier Becerra, Secretary of the United States Department of Health and Human Services, urging expedited distribution of the considerable remaining COVID-19 provider relief funds (PRFs) and extension of the June 30, 2021 deadline to use PRFs. The signatory organizations included America’s Essential Hospitals (representing the nation’s public and safety net hospitals), the American Hospital Association, the Association of American Medical Colleges, Catholic Health Association, the Children’s Hospital Association and the Federation of American Hospitals, among others.

The letter notes 2020 reports released by the American Hospital Association indicating that United States hospitals may have lost $323.1 billion to the pandemic during 2020, with up to an additional $122 billion in losses expected in 2021.[2] The letter also notes that Congress has allocated $178 billion in PRFs to date,[3] and most recently allocated $8.5 billion to rural providers through the Rural Relief Fund,[4] but not all of the funds have been distributed yet and those that have been distributed have not been fully utilized due to the daily operational strains of responding to the pandemic.

In the letter, the organizations said they “previously noted the ongoing financial burden our members are facing; add to this the uncertainty regarding when the pandemic will ease more considerably to allow for a full return to “business as usual,” such as regular wellness visits and scheduled surgeries. Our hospitals will continue to face challenges beyond June 30 [2021] in providing adequate staffing, supplies personal protective equipment, testing and vaccinations.”

As noted in the letter, the effects of the COVID-19 public health emergency (COVID PHE) have dramatically altered—and continue to influence—the operations and finances of many hospitals. For the many rural, safety net and other vulnerable hospitals that were in financial distress prior to the COVID PHE, as well as for many that were not previously in distress, the COVID PHE brought significant financial challenges, with unplanned and perhaps inconceivable needs for supplies and equipment, a strained supply chain, and simultaneous cessation or reduction of many key revenue generating services. One estimate is that almost two-thirds of U.S. hospitals face “material financial risk.”[5] Yet, there are a few positive signs, including reports of hospitals and health systems that have rebounded to a better financial position than before the COVID PHE using the financial buoy of PRFs and other federal and state relief, or through strategic transactions that have scaled operations to fit pandemic and post-pandemic needs, or, in some cases, through the legal protections and restructuring opportunities of bankruptcy.[6]

An upcoming briefing series of the Public Health Systems Affinity Group and Business Law and Governance Practice Group will explore what counsel needs to know to advise rural and safety net hospitals and health systems that are in or emerging from financial distress, including the factors that contribute to cycles of distress; counsel’s role in navigating the federal and state options and obligations related to PRFs; counsel’s role in facilitating transactions for scaling operations (while avoiding related compliance failures); and counsel’s potential role in restructuring with and without bankruptcy protection.

Look for our next article in this series, Can this Hospital Be Saved? A Roadmap for Governance Through Financial Stabilization and Recovery for Rural and Safety Net Hospitals Post-COVID.

 

[1] May 10 letter from America’s Hospitals and Health Systems a to Xavier Becerra, https://www.aha.org/lettercomment/2021-05-10-letter-americas-hospitals-and-health-systems-urging-hhs-extend-deadline.

[2] E.g., American Hospital Association, Catastrophic Financial Impact of COVID-19 Expected to Top $323 Billion in 2020, June 30, 2020, https://www.aha.org/press-releases/2020-06-30-new-aha-report-losses-deepen-hospitals-health-systems.

[3] These funds were largely allocated through the Coronavirus Aid, Relief and Economic Security (CARES) Act, Pub. L. 116-136.

[4] These funds were authorized by the American Rescue Plan Act of 2021, signed March 11, 2021.

[5] Lauren Coleman Lochner, Shaky U.S Hospitals Risk Bankruptcy in Latest COVID Wave, Bloomberg News, October 14, 2021 (quoting a study if the Boston Consulting Group).

[6] Joran Rau and Christine Spolar, Some of America’s Wealthiest Hospital Systems Ended Up Even Richer, Thanks to Federal Bailouts, The Washington Post, April 1, 2021.