Provider Relief Funds: Lost Revenue Clarifications

Included within the terms and details of the recently released HHS document, there were three important clarifications as it relates to lost revenues that are eligible under the PRF program.

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Included within the terms and details of the recently released HHS document, there were three important clarifications as it relates to lost revenues that are eligible under the PRF program.

On September 19, 2020, the U.S. Department of Health and Human Services (HHS) published a six-page document of Provider Relief Fund (PRF) reporting requirements.  This document covers the basics in terms of information that providers will be required to include when they submit their grant funds reporting by February 15, 2021 (for providers that fully expend their PRF funds prior to December 31, 2020) or by July 31, 2021 (for those that fully expend their funds by June 30, 2021).

Included within the terms and details of this document, however, there were three important clarifications as it relates to lost revenues that are eligible under the PRF program.

Clarification # 1

The first clarification indicates that healthcare-related expenses due to coronavirus (that have not been covered by another payment source) must be applied against the PRF grant prior to any lost revenue considerations.  In other words, if a facility received $500,000 in PRF payments and has $500,000 in coronavirus expenses not covered by another source, lost revenues are not eligible for inclusion in the PRF grant expenditures.  For many providers, this may necessitate a change in their determination of how much lost revenues can be recovered through the PRF and when that recovery can occur.

Clarification #2

The second clarification relates to the actual definition of lost revenue.  In the various PRF documents that were published in Spring 2020 related to Phase 1 general distributions under the PRF program, lost revenue was mentioned as an allowable use of the grant funds, but the term was not defined.  As no definition was provided, many within the industry assumed the term would follow the general accounting definition of revenue representing the net proceeds from providing goods or services.  This general accounting definition typically includes discounts, etc., but does not include operating expenses.

The PRF reporting requirements document, however, defines lost revenue as follows:

“… a negative change in year-over-year patient care operating income (i.e. patient care revenue less patient care related expenses for the Reporting Entity…) net of the healthcare related expenses attributable to coronavirus…”

This PRF definition of lost revenue has an important difference when compared to the general accounting definition with the inclusion of patient care related expenses.  Let us use the following simplified example:

ABC Nursing Home

Income Statement for the years ended December 31, 2020 and 2019


2020 2019
Revenues from patient services (net of contractual allowances) $8,500,000 $10,000,000
Bad debt expense      150,000        100,000
Net revenue from patient services $8,350,000 $9,900,000
Salaries and benefits $6,500,000 $6,000,000
Property and maintenance                              500,000                            500,000
COVID 19                              600,000                      –
General and administrative                           1,400,000                         1,500,000
Taxes       350,000       300,000
Total operating expenses $ 9,350,000 $ 8,300,000
Net income from healthcare operations  $(1,000,000) $1,600,000


Under a general accounting definition, most would consider the lost revenue for the ABC Nursing Home in 2020 to be $1,500,000.  An argument could also be made, perhaps, that the decrease should include bad debt expense and, as such, the lost revenue could also be calculated as $1,550,000.

Under the PRF definition, however, the more relevant figure in our example appears to be the net income from healthcare operations.  In this case, the ABC Company’s change in “patient care revenues less patient care related expenses” is $2,000,000 (after the required step of removing the COVID 19 expenses).  This calculation assumes all operating expenses fall under the heading of patient care expenses.  An argument could certainly be made that certain operating expenses (for example, general and administrative) do not fall under the heading of patient care expenses.  Unless and until HHS provides additional clarification, however, this would be the safest way to interpret the definition.

Clarification #3

The third clarification on lost revenues from the HHS’s September 19 reporting requirements document indicates which lost revenues, once calculated, are allowable under the PRF grant.  Here is the language from the HHS document:

Recipients may apply PRF payments toward lost revenue, up to the amount of their 2019 net gain from healthcare related sources.  Recipients that reported negative net operating income from patient care in 2019 may apply PRF amounts to lost revenues up to a net zero gain/loss in 2020.”

HHS does not define ‘net gain from healthcare related sources’ within this document.  Absent additional clarification, we think it would be reasonable to interpret this term as being analogous with net income from healthcare operations.  Based on that assumption, a provider that had a $250,000 net income from operations in 2019 would be only be permitted to apply a maximum of $250,000 in lost revenues to their PRF grant reporting.  If a provider had a loss from healthcare operations in 2019 and a loss from healthcare operations in 2020, that provider would be permitted to claim an amount of lost revenue representing the difference between that 2020 loss and $0.  Based on the language above, it is unclear whether a provider with a loss from operations in 2019 who improved their results and now shows net income from operations in 2020 is eligible to apply any lost revenue against the PRF grant.  HHS is also silent on whether COVID relief revenues should be included/excluded in the calculation of ‘net gain/loss from healthcare related sources’ for this purpose.

Most providers have received coronavirus-related funding from a variety of federal and state programs.  Based on these clarifications provided by HHS, providers should review their internal tracking of coronavirus-related expenses and lost revenues in order to ensure they are appropriately matching such amounts up against their various coronavirus grants and funding sources in order to minimize any instances of lost funding or amounts required to be returned to the funder.

If you have any questions or would like further information please contact us on our website or reach out to your blum team member.

Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.


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