CARES Act Receipts and Effective Cash Reconciliation

Reconciling cash transactions is a constant, daily pain point for healthcare providers. It is also a risk area that requires significant time and attention from general accounting and revenue cycle staff members. Effective cash reconciliation is critical for today’s healthcare providers to optimize cash management and prevent unwanted write-offs.

The March 2020 passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has put even more of a spotlight on proper cash management. Improper identification, reconciliation, and accounting of CARES Act receipts can result in future returns to the federal government or underpayments for services rendered, putting organizations at financial risk during an already challenging economic time.

Here are several leading practices for reconciling unapplied cash, including recording and managing receipts related to the CARES Act.

Accounting considerations for CARES Act receipts

Due to the COVID-19 pandemic, hospitals throughout the United States have suffered drastic reductions in inpatient and outpatient revenue. The CARES Act has added $100 billion to the public health and social services emergency fund to reimburse providers for expenses and revenue losses related to the pandemic. To maintain best practices for cash reconciliation, providers should pay particular attention to treatment of receipts related to the following provisions in the CARES Act:

Expansion of the Accelerated and Advance Payment Programs to a broader group of Medicare Part A providers and Part B suppliers (CARES Act, H.R. 748, Section 3719). The purpose of the Centers for Medicare & Medicaid Services (CMS) Accelerated and Advance Payment Programs is to provide funds when claims submissions or claims processing is disrupted. Inpatient hospitals can now request from the CMS an advance payment of up to 100% of the Medicare payment amount for a six-month period. Payments that providers receive represent working capital financing. This financing is provided by a customer (Medicare) and subject to repayment at a future date.

To properly account for these payments, organizations should record them as a liability in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 606, “Revenue From Contracts With Customers.” Repayment of the liability begins 120 days after receipt. At that time, every provider claim processed and approved for payment is applied against the cash advance until the balance is reduced to zero. Providers must take great care to reconcile these transactions to help make sure the government does not recoup too much, resulting in underpayment to the provider.

Hospital stimulus funds (CARES Act, H.R. 748, Division B). On April 10, the U.S. Department of Health and Human Services (HHS) began releasing $30 billion in emergency funds to healthcare providers. Recipients eligible for the first wave of funds included all facilities and providers that received Medicare fee-for-service reimbursements in 2019 and physician practices that are part of a larger medical group. During the month of May, additional funding was released to rural hospitals and high-volume COVID-19 health systems.¹

Stimulus payments are not subject to repayment if providers 1) agree not to charge any patient for the difference between the cost of COVID-19-related treatment and the amount paid by Medicare or other insurers and 2) agree to limit collection of out-of-pocket payments from COVID-19 patients to what would be collected from patients who receive in-network care from the provider. If a provider does not wish to meet these conditions, that provider will need to notify HHS within 30 days of receiving the funds and return them to HHS.

Providers should take care to account for COVID-19-related expenses and be prepared to show documentation in the event of a future HHS audit. Documentation should include information related to why the funds were needed and how they were used for COVID-19-related care (for example, lost revenue, cost of treatment and testing, purchase of equipment, or expansion of facilities).

Cash reconciliation best practices

The following leading practices can help improve healthcare providers’ cash balance reconciliation processes and reduce risk.

Create an interdisciplinary steering committee

The cash reconciliation process is multifaceted and touches numerous departments that often operate in silos, which can be a barrier to improving cash reconciliation processes. Organizations should consider creating a steering committee comprising staff members from the finance, revenue cycle, treasury, and information systems departments. Such a committee can help improve communication and make sure all individual departments are working together toward the same desired goals and metrics.

Assess gaps in current processes

To assess gaps and identify areas for improvement, it’s helpful to address cash balance reconciliation processes in the following three areas:

Business operations

Identify bottlenecks that are depleting effectiveness.
Identify front-end processes that can be corrected to improve back-end processes (and vice versa).
Determine whether manual tasks are slowing down cash reconciliation processes and if they can be eliminated or automated.

Tools and systems

Determine if technology is being used effectively and if existing systems are scalable for growth.
As processes are improved, determine what technologies can be put into place to automate those processes and improve workflows.

Human capital

Determine if the organization has the right people in the right positions to deploy new processes successfully.

Adopt daily posting to the GL

Daily, rather than monthly, posting to the general ledger (GL) is beneficial for providers, as it allows for daily cash reconciliation and for exceptions to be identified more quickly. Waiting until month-end to reconcile unapplied cash makes it much more difficult to investigate exceptions.

Have a plan for nonpatient cash receipts

Effective reporting and communication controls should be in place for recording nonpatient items, such as settlements and interest, in the GL. Best practices in this area include developing specific timeline requirements and assigning a departmental point of contact – and a backup – in case of unforeseen absences. Organizations also might consider having their treasury departments set up bank accounts that receive only nonpatient cash, such as parking, cafeteria, and grant payments.

Review historical balances

To help determine more effective processes for cash reconciliation, organizations can review historical unapplied cash balances for trends. Approaches for doing so include:

Determine the months in which unapplied cash resulted in net debit GL balances or fell outside an organization’s acceptable range.
Identify timing variances versus true unreconciled items that need to be resolved. Conduct further research on true unreconciled items to identify patterns, and assign a staff member to identify and correct these types of issues moving forward.
Consider writing off large variances that are older than six months to one year.

Improve access to systems and data

Staff members who do not have direct access to reconciliation reports should at least have access to a designated contact person. Staff should set due dates and times for reports to be run or accessed to prevent delays in reconciliation or closing. One leading practice in this area is creation of a shared network folder for all relevant reports where appropriate staff can access and share data to complete the reconciliation process.

Adopt controls to relieve temporary postings

It’s essential for organizations to have effective controls in place to relieve temporary cash postings in unapplied accounts within the patient accounting system (PAS). Not doing so can lead to issues such as items being missed or remaining for long periods of time in the PAS – factors that can impede an organization’s ability to achieve a true representation of unapplied cash. Controls that might help relieve temporary postings include:

Verifying and reviewing all temporary account postings for appropriate reversals
Reporting all temporary accounts to the finance department monthly so they can be reviewed or removed as part of the financial reporting process
Limiting the number of temporary accounts that can be used and reused

Aim for smooth credit card reconciliations

Improper handling of credit card transactions can contribute to ineffective cash reconciliation. Best practices in this area include:

Standardizing merchant processes and eliminating as many as feasible
Being mindful of timing differences between merchant statements and actual bank deposits – for example, dates of reports versus timing of receipts – which can lead to month-end cut-off issues
Monitoring settlement statements to confirm appropriate posting to the PAS and referencing

Adopt technology and automation

Technology and automation contribute to smoother daily cash management processes by helping to eliminate burdensome, manual processes. Organizations should consider:

Using automated banking feeds from banking providers and Bank Administration Institute (BAI) codes – a set of standardized codes to use in classifying deposits – to help track and identify various types of deposits and determine how to treat them
Using alternative payment strategies, such as collecting copayments prior to appointments, implementing patient payment portals, or going cashless
Purchasing a manufactured 835 solution from a banking or revenue cycle vendor if dealing with payers that do not provide 835 electronic remittance advices
Evaluating technology options that perform not only a two-way match between the bank and the organization’s PAS but also a three-way match between the bank and the organization’s PAS and GL

Seek help when needed

Organizations must have strong cash reconciliation processes in place to avoid significant financial risk. For help managing receipts related to the CARES Act or with streamlining day-to-day cash balance reconciliation processes, organizations should consider working with third-party specialists in this area.

¹Ayla Ellison, “HHS Doling Out $22B to COVID-19 Hotspots, Rural Hospitals,” Becker’s Hospital Review, May 4, 2020, https://www.beckershospitalreview.com/finance/hhs-doling-out-22b-to-covid-19-hotspots-rural-hospitals.html

CARES Act Receipts Highlight Need for Effective Cash Reconciliation