How Accurate Provider Relief Fund Reporting Can Avoid Unfair Repayment
December 2020 ISSUE December 1, 2020Practice Management Financing
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The Provider Relief Fund (PRF) was designed to reimburse dentists and other healthcare providers for lost revenue and/or added expenses arising from COVID-19. PRF payments received must be repaid if not used in accordance with the terms and conditions of the program. Here’s how to properly report your lost revenue and added expenses to eliminate any unjust repayment.
The Provider Relief Fund (PRF) was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and allows dentists to apply for funds to reimburse for additional operating expenses and/or lost revenue attributable to the pandemic. Under this program, dentists are eligible to receive reimbursement amounts of up to 2% of their annual reported patient revenue. The payments are not loans and don’t have to be repaid provided they are used in accordance with the terms and conditions of the program.
On July 13, 2020 we alerted our members they were eligible to receive PRF payments and encouraged them to apply for their share of the $175 billion in relief funds available. According to our most recent survey, 72% followed our advice and applied for PRF payments before the November 6, 2020 deadline.
Under recently released PRF reporting guidelines, health care-related expenses attributable to the coronavirus that qualify include equipment and supplies purchased to provide health care services, including PPE (masks, gowns, shields, gloves, etc.). Also included are expenses incurred for leasehold improvements to facilities for HVAC modifications, air purification systems, new walls, and negative pressure rooms. PRF funds are first allocated against these health care-related expenses with any balance available to offset lost revenues, measured by the decline in your 2020 revenues compared to 2019.
Calculating Lost Revenues
According to an HHS Q&A, the term “lost revenues attributable to the coronavirus” includes “revenue losses associated with fewer outpatient visits, cancelled elective procedures or services, or an increase in uncompensated care.”
For most segments of dentistry, the calculation is simple. Subtract your 2020 practice collections from your 2019 practice collections to determine your revenue loss. While this revenue loss calculation is accurate for most segments of dentistry, it’s not for orthodontics.
In orthodontics, practice production is measured by the total new patient treatment contract amounts entered into during the year. In less than 20% of cases, payment for the full treatment fee is made at the time the contract is entered into. In all other cases, most orthodontic practices require only a minimal down payment ($500-$600) with the balance financed over the period of time (usually 24-36 months) necessary to keep payments affordable ($150-$200 per month). Thus, many orthodontists are reporting 2020 collections from payments on contracts entered into when patients started treatment in 2018 or 2019. As a result, simply looking at 2020 practice collections does not provide an accurate view of the revenue loss attributable to the coronavirus for orthodontists.
Due to payments received on contracts started in prior years, one orthodontic client reported that his collections were actually higher for the first 6 months of 2020 than for the same period in 2019, even though his office was closed for 10 weeks. However, his true revenue loss from the pandemic was best measured by looking at his net production for the same period in 2020 versus 2019, which showed a loss of over $1,000,000!
Accordingly, orthodontists should calculate their revenue loss by comparing their net production for 2020 against that for the same time period for 2019. While the HHS reporting guidance recommends that recipients use their normal method of accounting (cash or accrual basis) to reflect revenue loss, reporting on a cash basis (collections) without adjustments does not adequately reflect the coronavirus impact and could leave you vulnerable to having to repay all or part of the PRF payments you received.
An HHS Q&A provides another option to arrive at the same result. It directs PRF recipients to exclude from net patient revenue payments received relating to “care not provided in 2019 or 2020.” Accordingly, you could reduce your 2020 collections by amounts received from patients while the orthodontic office was closed due to the pandemic, since no care was being provided during that time.
The McGill Advisory content is provided for informational purposes only and does not constitute legal, accounting, or other professional advice.
Copyright © 2021 John K. McGill & Company, Inc.