Hospitals and other providers have received a large influx of new federal funding since the start of the COVID-19 pandemic this year. All told, the federal government is providing $175 billion in relief grants and another reported $100 billion in advanced Medicare payments, in addition to increased Medicare payments and funding through other programs like the Paycheck Protection Program.
The money is intended to help providers weather the pandemic by paying for costs related to treating COVID patients or making up for revenue losses due to utilization declines. Some providers — including rural hospitals and safety net hospitals treating primarily Medicaid and uninsured patients — face significant financial challenges due to the pandemic. For these providers, federal financial assistance is essential to stay afloat and continue caring for patients. While providers need federal assistance, Congress and the Centers for Medicare & Medicaid Services (CMS) should balance the need for support with wisely targeting the money and ensuring adequate accountability given the implications for taxpayers and Medicare beneficiaries.
Distribution of the Provider Relief Funding
Providers need support, but not all hospitals are in the same financial situation. While some hospitals were already struggling financially at the start of the pandemic, other hospitals were sitting on large financial reserves. In 2018, a hospital at the 25th percentile had enough cash on hand to cover their expenses for just over a week — 8 days. Meanwhile, the 75th percentile hospital had large enough cash reserves to continue paying their expenses for more than five months, even without any additional revenue coming in.
The government’s approach to disbursing the $175 billion in relief funding to providers has often failed to account for these differences. Congress put very few parameters on how to allocate the relief funding across hospitals and other providers. With little congressional guidance, the Department of Health and Human Services (HHS) made funding decisions that did not align financial assistance and financial need.
A significant share of the initial funding was allocated based on total net patient revenue — benefiting hospitals who were already in a strong financial position. The hospitals receiving more relief funding typically served a large number of privately insured patients who they can charge much higher and often excessive rates, and had higher operating margins. If there was ever a time to dip into their cash reserves, this would be it. Yet these hospital systems received more of the initial federal relief grants than those with greater need, although CMS has attempted to correct for this imbalance in more recent funding distributions.
Provider Loans from the Medicare Accelerated/Advance Payment Programs
In a rush to get money out the door to providers, HHS also used an existing program — the Medicare Accelerated and Advance Payment Programs — to provide loans to hospitals and other providers. The loans are advanced payments based on a provider’s historical Medicare reimbursements and must be paid back on a specific timeline. The program’s intent is to help providers manage their cash flow during emergencies, such as natural disasters.
As with the distribution of the relief funding, there was little transparency and oversight over the loan distributions. Congress expanded CMS’s authority to make accelerated payments under the program in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed this spring, allowing them to make payments to additional health care providers.
CMS has reported providing about $100 billion in accelerated payments to date. The Democratic leadership of several health committees in Congress recently accused the Trump Administration of allocating at least some of the money without authorization, resulting in a $40 billion hole in the Medicare trust fund that pays for physician services and an increase in Medicare beneficiaries’ Part B premiums, barring congressional action.
Little Accountability Despite Implications for Taxpayers and Medicare Beneficiaries
Regardless of the exact fact set around the relief funding and the loan payments in particular, there is a problem. Hundreds of billions of dollars are being spent with little transparency or oversight. Providers need financial help right now and federal assistance is warranted. But these funding decisions have important implications for Medicare beneficiaries, the financial viability of the Medicare program, and the deficit. The funding should be spent smartly and targeted toward health care providers based on need. At a minimum, there should be greater transparency and accountability for how the money is allocated and used – and its effects on the Medicare program — given that taxpayers are footing the bill.
Even before the pandemic, the Medicare hospital insurance trust fund was headed toward insolvency in 2026. The economic crisis resulting from the pandemic and the subsequent decline in payroll taxes that fund Medicare’s hospital benefit are accelerating the insolvency date of the Hospital Insurance (Part A) trust fund, now estimated to be 2024. The accelerated Medicare payments could make this situation even worse. These are intended to be loans that providers pay back. But if the repayment of the loans is loosened and the trust fund is not held harmless, this could further exacerbate the trust fund’s status.
Some of the funding for the accelerated payments to providers also came from the Supplementary Medical Insurance (Part B) trust fund, which unlike the Part A trust fund, is partially funded by beneficiary premiums. When Part B spending increases, so do the monthly premiums Medicare beneficiaries pay. The loans will leave holes in the trust funds with potential negative consequences for Medicare beneficiaries if they are not paid back in full in a timely way.
Where to Go From Here?
Some providers are asking for loan forgiveness. The continuing resolution Congress recently passed to fund the government relaxes the repayment terms — extending the repayment schedule and lowering the interest rates. Congress should resist calls for total loan forgiveness, and if loan forgiveness and additional financial support for providers is considered, it should be limited to the subset of providers who need it most. There should also be greater transparency and accountability for the money that has already been spent through the provider relief fund and the accelerated/advance Medicare payment program.