Funds provided to hospitals through the Coronavirus Aid, Relief, and Economic Security Act require careful compliance efforts to avoid substantial liability. The money comes with many strings attached.

  • The government enacted substantial restrictions on how the money can be used.
  • Funds not used for appropriate reasons must be returned to the government.
  • The Department of Health and Human Services Office of Inspector General is expected to audit hospitals receiving the funds over the next two years.

The federal government is providing billions of dollars in relief to hospitals affected by the COVID-19 pandemic, but risk managers must ensure compliance plans are adequate to oversee the money. Failure to comply with the government’s requirements will leave hospitals at risk of substantial liability.

The funds from the Coronavirus Aid, Relief, and Economic Security (CARES) Act are not like the $1,200 stimulus checks that many Americans received because that money came free and clear of any requirements. The CARES Act funds come with a lot of strings attached.

The CARES Act provided more than $175 billion in relief funds to hospitals, physicians, and other healthcare entities, notes Peter Urbanowicz, JD, managing director with Alvarez & Marsal in Dallas. Previously, he was principal deputy general counsel at the Department of Health and Human Services (HHS) with President George W. Bush’s administration, and he was executive vice president, general counsel, and secretary of Tenet Healthcare Corporation.

The regulatory language for the funding specifies the funding should be used for costs related to COVID-19 treatment, and for any lost revenues associated with the pandemic, Urbanowicz explains. All healthcare entities accepting the money must accept those conditions, which are spelled out in greater detail, he says.

HHS also requires the hospital or other entity to keep records specifying how the money was used. “There also are specifications on how the money may not be used. For example, they cannot use it for highly paid executives, using it to give them a big bonus,” Urbanowicz explains. “There are prohibitions that you typically find in federal grants, such as not using it for lobbying. As you accept these monies you need to have a process in place, create separate accounts in your general ledger, so that when you draw down this money, you know where it’s going. At some point there will be an accounting for this.”

Document Lost Revenues

Pay attention to using the funds for lost revenues, he says. There should be clear documentation of lost revenues for March and April 2020, with an explanation of those figures — a year-over-year comparison, against budget, or another method.

“Commit to a methodology so that one or two years from now when the Office of Inspector General [OIG] does audits of this money you have a methodology that you followed, and you can demonstrate what your losses were. You won’t have to do it after the fact, or even worse, try to do it at the time of the audit,” he says.

There is danger in accepting the HHS funds too casually, Urbanowicz says. The healthcare entity cannot just deposit the funds in general revenue and continue to run the business normally with no special accounting of those funds, he explains.

“Whether it is $10,000 or $10 million, you must have a careful accounting system that demonstrates where you transferred all that money,” he says. “That is the No. 1 pitfall — not having an accounting system in advance to show where that money is going.”

The funds are restricted in ways that will be familiar to academic institutions that receive federal grant money, Urbanowicz says. For instance, grants from the National Institutes of Health specify many ways in which the money cannot be spent — executive pay, lobbying, gun control advocacy, embryonic research, marijuana advocacy.

“It’s also similar to receiving Medicare or Medicaid money. There, you are providing a service; here, it is more open-ended. In both cases, you are signing something that potentially sets you up for a violation of the False Claims Act,” he explains. “If you were to take the money, sign the terms and conditions, and then violate them because you didn’t spend the money on something related to COVID-19, or the money you kept wasn’t equal to your losses, that can set you up for all kinds of violations of the False Claims Act with civil penalties and fines.”

Smaller Hospitals at Risk

Urbanowicz suspects larger organizations are better prepared for compliance with CARES Act requirements. Smaller hospitals may not be as prepared because they have less experience with government grants and may mistakenly assume their smaller grants require less oversight.

“Some healthcare organizations that don’t deal with government funding as much may not realize there are so many strings attached. They may have gone into the portal, got a sum of money, and attested to the terms, and that’s all they did,” he says. “Those are the ones that are really at risk, whether it’s six months from now or two years now. The OIG says, ‘Where did you spend that money? Were your losses really equal to the amount of the money we gave you?’ They will ask, ‘If you did not have legitimate use for the money, why didn’t you return it?’”

That is another important point, Urbanowicz says. Just because the CARES Act provides a certain amount of money, you do not necessarily get to keep it all. The hospital or other healthcare entity must justify how much was needed and used appropriately; the rest must be returned.

Some government relief funds are made specifically to hospitals that treated COVID-19 patients. Urbanowicz says hospitals must be careful in documenting that qualification. The amounts provided for this reason can be significant, he says, and the compliance requirements are strict.

“It has to be someone you can document actually had COVID-19, and not try to code a patient who came into the facility for something else and you can’t really determine if they died from the coronavirus. You can’t count up all those patients and lump them in so that you qualify for more funds,” he says. “There is a risk that some hospitals may have done that. It can come back to hurt them if the OIG audits turn up numbers that cannot be substantiated.”


  • Peter Urbanowicz, JD, Managing Director, Alvarez & Marsal, Dallas. Phone: (214) 662-7389.