House Approves HEROES Act: Key Take-Aways - McDermott+Consulting

House Approves HEROES Act: Key Take-Aways

The US House of Representatives on May 15, 2020, approved the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, a massive new relief and stimulus measure assembled by House Democrats and advanced on party lines, with only one Republican voting in favor.

The bill would infuse nearly $3 trillion into the economy, becoming the largest stimulus package in history, a title currently held by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Relief provisions include financial support for individuals, businesses, healthcare providers, and the states. The bill articulates the House Democrats’ vision for strengthening the public health workforce, bolstering the social safety net, and protecting workers’ rights – all themes we expect to see the party build on heading into the 2020 election as a way to contrast Democrats from President Trump.

The HEROES Act will not be enacted in its current form. The President issued a veto threat and Senate Republicans said the upper chamber will not consider the bill. Senate Republicans have not publicly committed to a timeline for another stimulus package, but have begun to gather ideas for the next phase. Many have indicated that they need to see how already appropriated, but not distributed, federal dollars sustain various aspects of the US economy.

As we saw play out with the Democrats’ legislative answer to CARES, the HEROES Act will serve as a messaging tool to convey Democrats’ priorities as the parties enter future negotiations. Some of the provisions in the HEROES Act reflect areas of potential compromise, others represent party priorities unlikely to move forward. Stakeholders should carefully review the HEROES Act and continue to communicate their priorities to House and Senate members.

Support for Healthcare Providers

Additional Funding, New Terms for the Provider Relief Fund

  • Key Takeaway: HEROES provides an additional $100 billion for the Provider Relief Fund (PRF), proposing to give healthcare providers additional financial relief to recover from the economic impact of coronavirus. However, the HEROES Act also establishes legislative conditions and process around these funds.

The CARES Act appropriated $100 billion to the PRF to provide financial relief to healthcare providers. The Paycheck Protection Program and Health Care Enhancement Act added $75 billion to the PRF. As of May 17, 2020, HHS has distributed only $72.4 billion of the appropriated funding, leaving over $100 billion sitting in the PRF for more than 45 days since the passage of CARES and 20 days since the passage of the Paycheck Protection Program and Health Care Enhancement Act.

HEROES is responsive to major health industry stakeholders’ claims that the $175 billion already appropriated will not be enough to achieve reasonable recovery of COVID-19 losses. For example, the American Hospital Association issued a report earlier this month estimating “total financial impact of $202.6 billion in losses resulting from COVID-19 expenses and lost revenue for hospitals and health systems over the four-month period from March 1, 2020 to June 30, 2020 – or an average of over $50 billion in losses a month.” Additional funding for providers will be necessary to chip away at these shortfalls.

The HEROES Act would establish tighter rules and timeframes for distributing funds, requiring a quarterly process for HHS to review provider applications and distribute payments. In addition, House Democrats would legislate a payment formula and allow reimbursement for 100 percent of eligible COVID-19 expenses and 60 percent of qualifying lost revenues. HEROES also would incentivize providers to retain employees by requiring applicants for PRF funds to deduct savings from foregone wages, payroll taxes, and benefits of furloughed or laid off personnel from the lost revenue calculation.

Further, the HEROES Act would narrow “eligible healthcare providers” who may apply for and receive PRF distributions to those that provide diagnosis or treatment to individuals with presumed or confirmed cases of COVID-19. HHS has taken the approach that providers may receive PRF distributions regardless of whether they diagnosed or treated actual COVID-19 patients, allowing many physician practices facing volume shortfalls to qualify for funds. The HEROES Act as currently formulated may be interpreted as limiting funds to those diagnosing and treating COVID-19 patients.

Finally, through PRF terms and conditions, HHS has prohibited balance billing for patients with presumptive or actual COVID-19 cases. The HEROES Act codifies balance billing prohibitions for patients with presumptive or actual COVID-19 cases and defines presumptive to include supporting documentation in the patient’s medical record – an expansion from current HHS definitions of presumptive that require a positive test result.

Accelerated and Advance Payment Programs

  • Key Takeaway: HEROES would restart the Accelerated and Advance Payment Programs and respond to healthcare advocates’ calls to soften the repayment terms for these loans. House Democrats are not proposing total loan forgiveness, as some stakeholders have requested, but would reduce the repayment burden on providers.

The Accelerated and Advance Payment Programs allow Medicare providers to access prepayment of Medicare claims for a defined period of time. The program has served as a lifeline for providers, securing cash flow as volumes declined. On April 26, 2020, the Centers for Medicare & Medicaid Services (CMS) suddenly suspended the Advance Payment Program and announced that it was re-evaluating the Accelerated Payment Program.

The HEROES Act would make provider-friendly changes to the Accelerated and Advance Payment Programs.  It would codify the Advance Payment Program for Part B suppliers, lower the applicable interest rate for loans to Medicare providers from the Treasury rate, currently near 10 percent, to 1 percent, reduce the per-claim recoupment percentage from 100 percent to 25 percent, extend the period before repayment begins from 210 days for Part B suppliers to one year, and extend the repayment period from 210 days for Part B suppliers and a year for most hospitals to at least two years.

Expanding Eligibility for the Paycheck Protection Program

  • Key Takeaway: House Democrats want to bolster and expand access to the Paycheck Protection Program, providing an additional avenue of relief for providers.

The HEROES Act broadens the types of businesses eligible for the Paycheck Protection Program (PPP). Currently, non-profits are eligible for PPP, but it is limited to those with 501(c)(3) status and those 501(c)(3)s with 500 employees or less. A provision in the HEROES Act broadens non-profit eligibility to include all non-profits with 501(c) status and removes the 500 employee limit for these non-profits. This would be a significant expansion, increasing access to many healthcare providers, including rural hospitals, with nonprofit status that also may be affiliated with larger institutions and thus subject to the 500 employee cap. Many hospitals and physician groups across the country have asked for expanded eligibility for the PPP in order to provide an additional avenue of financial relief.

Support for States

FMAP Increase

  • Key Takeaway: House Democrats have included Federal Medical Assistance Percentage (FMAP) increases in every coronavirus relief proposal put forward. Whether the next bill adopts this 14 percentage point increase is unknown, but it seems likely a bump will be included in any next package.

In addition to appropriating $375 billion in fiscal relief for local governments and $20 billion for state governments (plus another $20 billion for tribal governments), HEROES also would increase FMAP payments to state Medicaid programs by a total of 14 percentage points starting July 1, 2020 through June 30, 2021. The Families First Coronavirus Response Act (the second coronavirus relief bill) increased FMAP by 6.2 percentage points. Federal contributions through FMAP are an easy and often-used tool to get money to states facing increased Medicaid enrollment.

Medicaid Fiscal Accountability Regulation

  • Key Takeaway: House Democrats also took this opportunity to block HHS from finalizing the Medicaid Fiscal Accountability Regulation (MFAR) proposed in November 2019, until the end of the COVID-19 public health emergency.

The MFAR proposal would increase reporting requirements for supplemental payments — those made to providers beyond the base Medicaid rate for a particular service — and make structural and definitional changes that could decrease states’ flexibility in financing the state share of the Medicaid program. Many states and Medicaid providers are strongly opposed to the rule. While inclusion of this provision provides welcome signaling to the stakeholder community, the ultimate inclusion of this provision in a final bill is subject to very complex priorities in negotiations.

Pre-Coronavirus Healthcare Priorities

Before the start of the pandemic, Congress and the Administration were pursuing a number of prominent healthcare priorities, including legislation and regulations that would address surprise billing and prescription drug pricing restrictions. HEROES sheds light on whether some of these priorities might be addressed this year.

Surprise Billing

  • Key Takeaway: The Administration used the PRF to make some modest progress on their surprise billing goals; broader action on protecting consumers from surprise medical bills has remained elusive.

In early 2020, Congress seemed on a course to enact surprise billing legislation. While there were key issues yet to be resolved, bipartisan proposals had advanced considerably in the House and Senate. The pandemic upended that legislative trajectory. Could the next relief and stimulus bill go further that the PRF restrictions and include sweeping surprise billing reforms, like those under consideration before the pandemic?

Stakeholders should be prepared for possible inclusion of surprise billing provisions in future legislation. Remember that CARES extended certain must pass healthcare provisions through the end of November. Even if surprise billing does not make its way into this round of stimulus, it could resurface at the end of the year.

Prescription Drug Pricing

  • Key Takeaway: Prescription drug pricing legislation became substantially more difficult in light of COVID-19.

Like surprise billing, prescription drug pricing dominated the legislative airwaves pre-COVID. While there was bipartisan agreement on certain provisions, legislation did not come together in time before COVID-19 gripped the nation. With the world turning to the prescription drug manufacturers to develop vaccines and treatments, congressional (or administrative) action on prescription drug pricing seems unlikely, but could quickly come back to the forefront as a presidential campaign topic or if questionable pricing stories emerge.

Relief for Rural Providers

  • Key Takeaway: Rural providers, who were struggling pre-COVID are now in dire straits. Legislative action to shore them up is absent from HEROES.

HHS acknowledged that and provided some measure of relief by targeting $10 billion from the PRF for rural hospitals, critical access hospitals and rural health clinics, among others. Notably, HEROES provides virtually no targeted relief for rural healthcare providers, leaving rural health advocates to wonder if House Democrats are appropriately focused on the crisis confronting rural America.

Member Specific Policy Priorities

  • Key Takeaway: Some Member-specific priorities made their way into HEROES.

House Democrats seem willing to use the next bill to advance unrelated policy priorities. HEROES contains several Member pet projects, like a restoration of the a rural floor for the Medicare hospital area wage index for hospitals in all-urban states (a provision likely to benefit only providers in Delaware, New Jersey and Rhode Island) and a legislative wage index reclassification for hospitals in upstate New York.

What’s Next?

  • Key Takeaway: Negotiations with the Senate will begin after Memorial Day, but may not convert to action until summer. Issues like liability reform remain on the table, even if absent from HEROES.

While precise timing for next steps remains unclear, several issues have emerged as areas for potential negotiation when that time arrives. For example, despite considerable momentum behind broad-based liability protection for businesses and healthcare providers, HEROES includes no mention of the issue. Silence on this issue likely reflects a negotiating posture rather than absence of support. House Democrats recognize that liability protection is a key priority for Senate Majority Leader Mitch McConnell, and they are more than willing to let the Republican Leader press for the change, so they can advance other priorities – like relief for state and local governments. In the inverse, the Majority leader notably expressed willingness to let state and local governments file for bankruptcy. His comments were widely believed to be similar negotiating tactics. As negotiations and conversations begin, a broader tension will be playing out as well between government spending and the economic crisis.

With the approach of the Memorial Day recess it is expected that meaningful discussions around the next bill may not happen until June at the earliest. These dynamics require that stakeholders continue articulating needs and priorities to Congress.


For more information contact Sheila Madhani, Mara McDermott, Rachel Stauffer, Rodney Whitlock or Eric Zimmerman.