POLICY UPDATE - MCDERMOTT+CONSULTING
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Policy Update
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.
www.mcdermottplus.com 1HOUSE APPROVES HEROES ACT: KEY TAKE-AWAYS
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.
www.mcdermottplus.com 2HOUSE APPROVES HEROES ACT: KEY TAKE-AWAYS
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?
www.mcdermottplus.com 3HOUSE APPROVES HEROES ACT: KEY TAKE-AWAYS
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.
www.mcdermottplus.com 4HOUSE APPROVES HEROES ACT: KEY TAKE-AWAYS 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. McDermott+Consulting LLC is an affiliate of the law firm of McDermott Will & Emery LLP. McDermott+Consulting LLC does not provide legal advice or services and communications between McDermott+Consulting LLC and our clients are not protected by the attorney-client relationship, including attorney-client privilege. The MCDERMOTT trademark and other trademarks containing the MCDERMOTT name are the property of McDermott Will & Emery LLP and are used under license. www.mcdermottplus.com 5
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