2022 Will Be Year of Accounting for Pandemic Relief Spending

The Biden Administration wants to know how and where hospitals and healthcare systems spent the COVID-19 monies they received. CFOs had better have a clear and complete paper trail.

The Biden Administration has put an increased focus on financial audits, investigations, and surveys, which will have significant implications for hospitals and healthcare systems in 2022. Chief among them will be CARES Act Paycheck Protection Program (PPP) investigations, as the government begins looking at where and how the pandemic relief assistance was spent.

As that process unfolds, if there is one overriding action that is needed on the regulatory and enforcement landscape for hospitals and healthcare systems, it is for the federal government to find some empathy and compassion. At least, that is the way Jody Erdfarb, an attorney and partner at Wiggin and Dana LLP, sees it.

Erdfarb works in the healthcare practice at the law firm, specializing in investigations in the healthcare sector. Wiggin and Dana has over 150 attorneys throughout its officers in New Haven, Connecticut; New York City; Philadelphia; Washington D.C., and Palm Beach, Florida. 

"We represent providers of all shapes and sizes, either when audited or investigated by state or federal authorities, or audited by commercial payers. We help them through the entire process, from the moment they get first notice that they're either being audited or investigated, until the matters resolves itself one way or another."

The regulatory and enforcement landscape can be a rough road to navigate right now. Between come-due accountability for pandemic relief assistance awards and changes in industry regulations, scrutiny is at a high point. COVID-19 will be a significant part of the government's fraud enforcement efforts this year and beyond.

Hospitals must account for COVID-19 relief funds spent

There are a variety of reasons for the increased scrutiny in the healthcare regulatory and enforcement space. An obvious one is the sheer amount of federal assistance that was awarded during the early days of the pandemic. The goals were to help ensure that businesses survived and that the American workforce remained on the job, or at least on payroll, Erdfarb explains.

The government now wants an accounting for much of that COVID assistance, including assurance that if an organization accepted relief funds it spent them in the right areas, for the right reasons, and that employees were retained if that was a condition on receiving funds.

Healthcare CFOs and accounting departments must be on their A-game in defending how they handled any money received. Everything related to COVID relief funds needs to have been very carefully documented, Erdfarb says.

"The way that the healthcare industry and government enforcement happens right now, there are mechanisms to self-disclose, but even though they're punitive, under the OIG self-disclosure protocol, there's a 1.5 times multiplier on penalties, even if it's a totally innocent mistake," Erdfarb explains.

Erdfarb expects many healthcare systems will find themselves in this dilemma. The pandemic relief programs were a new entity. The process of approving and distributing funds at the federal level was a rushed effort. As a result, errors can have happened at any level. But most importantly, at the local hospital level, the guidelines were complicated and hard for many people to understand, Erdfarb says.

COVID-19 flexibilities may expire, changing term expectations

Healthcare CFOs should watch for the end of COVID-19 flexibilities this year. Since the beginning of the pandemic, the federal government has adjusted fraud and abuse regulations for the benefit of the industry, but many of the changes are temporary.

Some of the regulatory changes were in response to the challenges that hospitals and health systems were experiencing with physician contracts, compensation, or general staffing. It has been well-publicized that the healthcare sector lost more than 20% of its workforce over the past two years. As a result, the federal government issued a variety of waivers to provide relief from reimbursement and other regulatory requirements.

Many healthcare providers entered into arrangements or established care delivery systems based on new flexibilities in the regulations, and some have specific requirements that must be met. Erdfarb advises CFOs and healthcare accountants to keep careful records and documentation on how they are meeting guidelines and factoring in any waivers until such time as the pandemic runs its course, or the flexibilities are ended.

Telehealth services skyrocketed during the pandemic, adding to fraud fears

Also related to the pandemic, there was a substantial increase in needed telehealth services as physician offices and care centers shut down for a time, and as the need for mental health counseling skyrocketed.

"We can't really talk about our predictions for the regulatory and enforcement environment [this] year without talking about telehealth," Erdfarb says. "Everybody knows that telehealth usage has gone through the roof since the pandemic, and especially in the behavioral health area."

As noted above, the federal government issued several waivers during the pandemic regarding healthcare regulations, including some that expanded telehealth capabilities. For example, Erdfarb says that statutory requirements for a patient to be located in a rural area and physically present at a healthcare facility were relaxed. Healthcare services can now be delivered remotely to a patient anywhere, including at their home. Reimbursement amounts to hospitals were also increased to be on par with in-person visits.

Again, these waivers are only temporary, Erdfarb notes. They are currently in effect until the end of a federal public health emergency declaration.

The telehealth environment makes it potentially much easier for billing fraud to occur, which also has federal investigators on alert.

"What we've been seeing in this area is really bad actors, people billing for services that were literally never provided, such as by using stolen identities, or taking massive amounts of kickbacks on ordering prosthetics for people who don't need them," Erdfarb says.

CFOs can expect the federal government to closely review documentation related to telehealth billings.

Complaints and grievances getting thorough scrutiny

An area where CFOs can take a lead role is in the handling, or hopefully preventing, of formal complaints against the healthcare organization over perceived financial irregularities.

An increasing risk for hospitals and health systems are grievances filed by disgruntled current and former employees or by whistleblowers. And it seems obvious that there are a lot of unhappy workers in the healthcare sector right now.

"That's something that we have to keep our eye on," Erdfarb says. "Anybody involved in investigations knows that disgruntled employees can wreak enormous havoc on our healthcare providers, even during the pandemic or during a severe healthcare shortage."

"The government's perspective is that, even a broken clock is right twice a day. So even if it's a disgruntled employee or someone with little credibility, they still take those complaints seriously. They investigate them, and their investigation takes a lot of time and energy for healthcare providers to deal with," Erdfarb explains.

The best advice Erdfarb has for healthcare CFOs is for them to conduct their own thorough internal audits now, ahead of any that might be potentially imposed on an organization.

In real estate, the slogan is 'Location, location, location.' In healthcare compliance, it is 'Audit, audit audit,' Erdfarb says.

"The best thing you could do is to find potential problems yourself and fix them in real time. If you can fix them within a year, then you don't even have to file self-disclosure. If you can self-audit, the better off you're going to be," Erdfarb concludes.