This post was updated on October 1.
The appropriations bill Congress sent to President Donald Trump Sept. 30 to keep the federal government open through Dec. 11 includes a section giving hospitals one year, instead of the current three months, to start paying back all of the accelerated Medicare payments they received in the spring.
The move, to be voted on Wednesday, gives some time and relief to cash-strapped small, rural hospitals dealing with COVID-19 that have lost income from non-emergency procedures and clinic visits that have been scrapped or postponed because of the pandemic. They owe Medicare $92 billion in credits for advances they received last spring to treat Medicare patients.
The appropriations bill stopped short of giving hospitals – rural and urban – the long-term tool of loan forgiveness that industry leaders say is needed to get through the pandemic.
“It’s not an adequate fix,” Kirk Norris, president of the Iowa Hospital Association, said. “We’ve been requesting forgiveness in those accelerated payments.” So has the American Hospital Association and other state industry associations.
Iowa has the most facilities of any state in an annual list of the nation’s best critical access hospitals, compiled by The Chartis Group, part of the national healthcare delivery consulting firm iVantage Health Analytics.
“COVID hasn’t gone away,” Norris said in an IowaWatch interview. “The challenges of responding to it are still there, both in terms of equipment and supplies as well as personnel and hospitals having more flexibility in how they respond. And their ability to have that flexibility is directly dependent upon their ability to access financial resources.”
The appropriation bill’s section covering the advanced payment reimbursement schedule spreads out repayments hospitals must make to Medicare in portions instead of being due all at once. And, it reduces the interest rate hospitals would have to pay exceeding a grace period from 10.25 percent to 4 percent.
The U.S. Senate approved on Tuesday, Sept. 29, moving forward with the the appropriations resolution after the House approved it on Sept. 22. Sens. Chuck Grassley and Joni Ernst, both Iowa Republicans, voted yes on the Sept. 29 vote for cloture, which moved the resolution to the Wednesday vote.
The changes for paying back Medicare funds were made to address a major fear of hospital industry leaders: how to pay off a large sum in a short period of time when hospitals still were dealing with disruptions in their business models while still dealing with COVID-19.
“Our concerns were that the repayment terms of the program were simply too stringent for hospitals and providers to be able to comply with them as they are still feeling the effects of the pandemic and, of course, still battling on the front line the pandemic,” Erin Richardson, the Federation of American Hospitals’ senior vice president for government affairs, said.
MercyOne Des Moines Medical Center, for example, drew $92.8 million, Medicare data IowaWatch analyzed for a report in early September show. That was the most in Iowa, the IowaWatch analysis showed.
Accelerated payments pumped needed cash into U.S. hospitals at the beginning of the COVID-19 pandemic when the hospitals had to deal with the highly contagious coronavirus but also regular emergency medicine. But the hospitals took a financial hit when canceling or postponing non-emergency surgeries and clinic visits that generate income.
The Center for Medicare & Medicaid Services’ total outlay reached $1.02 billion with the addition of advances to physicians, optometrists, chiropractors, psychiatrists, psychologists and other health care providers; facilities for skilled nursing and senior living; mental health care facilities; and others eligible for the accelerated and advance payments, data IowaWatch examined show.
About 800 of the nation’s 1,330 critical access hospitals received accelerated Medicare payments, Michael Topchik, national leader for the Chartis Center for Rural Health, said in an interview.
The loans were due now for many hospitals, although the Centers for Medicare & Medicaid Services suspended collections, pending congressional action.
Under the new provisions, hospitals must do the following:
- Credit Medicare for 25 percent of what Medicare owes for patients it covers during the first 11 months hospitals have to pay back the loan. That will allow hospitals to keep the remaining money Medicare pays during those months to cover ongoing expenses for treating patients instead of absorbing all of the costs while paying Medicare back all at once.
- Credit Medicare for 50 percent of what the hospital otherwise would receive for patient care during the next six months.
- Allow 29 months from the date of the hospitals’ first accelerated payment until the outstanding balance is paid in full.
- Charge 4 percent interest after those 29 months if repayment still is required.
The original plans called for the advances to be paid within a year at critical access hospitals, inpatient acute care hospitals, cancer hospitals and children’s hospitals; 210 days at long-term care hospitals, inpatient rehabilitation centers, inpatient mental health facilities, and their suppliers; and 30 days after the 120-day loan period for other healthcare providers.
Richardson said paying back the advances so soon after receiving them would have been difficult. “I never want to be absolute. You know, there are some, possibly, who could,” she said. “But, certainly, the overwhelming experience, feelings from our members, and what we were hearing from hospitals all over the country and, of course, physician practices, as well, who were included in this was that this was simply a very large burden for them at this time and in an extremely short payback period.”
The lower interest rate is critical, hospital industry officials said. “A nearly 10 percent interest rate just seems very outsized for what was happening,” Richardson said.
A good comparison interest rate is difficult to determine because each hospital’s ability is different, based on their financial performance, location and lender. But Richardson said Federation of American Hospitals officials, who represent more than 1,000 tax-paying community hospitals and health systems, have looked at rates for things such as home purchases. Home loan rates are a little more than 3 percent, an average of 9.6 percent for personal loans.
SEE WHAT IOWA HEALTHCARE PROVIDERS HAVE RECEIVED IN CARES ACT FUNDING HERE
The Treasury Department charges an interest rate that is the higher of either the general rate set by the Secretary of Treasury, which is to take into consideration private consumer interest rates, or the department’s Current Value of Funds Rate. The published Current Value of Funds Rate, an interest rate based on the value of funds managed by the Treasury Department, for 2020 is 2 percent.
While the appropriations bill would not forgive the loans, as industry leaders had hoped, the new rules at least give hospitals more breathing room for paying the loans back, hospital industry officials said in interviews.
“The federation has, from the beginning, stated that forgiveness should be available for hospitals and other providers that are in severe distress or have financial hardship,” Richardson said. “And those things, obviously, would have to be evaluated after this pandemic, and the repayment continues for them. But we primarily have pushed for better repayment terms for all hospitals and providers.”
Seventy-seven Iowa hospitals collected $928.3 million in accelerated and advance Medicare payments, an IowaWatch analysis showed. They included 44 critical access hospitals with 25 or fewer beds and serving rural areas. Those rural hospitals were authorized for $222.1 million in accelerated and advance payments, the analysis showed.
Data IowaWatch received from the American Hospital Directory show that 23 Iowa hospitals reported losses of more than $1 million for their last audited reporting period, often June 30, 2019, but for some, the end of 2018.
Norris said in a previous IowaWatch story that hospital industry leaders in the state feared as 2020 started that 10 to 15 small Iowa hospitals could be in bad enough financial shape that remaining open in the next three to five years would be difficult. COVID-19 has aggravated that situation, he said.