How to Calculate Lost Revenues for PRF and ARP Rural Reporting

Providers who receive both PRF and ARP Rural payments should apply the ARP Rural payment toward eligible health care expenses and lost revenues attributable to COVID-19 before using PRF payments to cover eligible health care expenses or lost revenues attributable to COVID-19.

When reporting lost revenues, providers do not need to account for a specific expense to “use” funding by the deadline. Instead, they need to be able to document that the loss occurred during the relevant time period and was attributable to coronavirus. As explained in more detail on this page, providers have three options for accounting for lost revenues.

Lost Revenues Reimbursement

PRF and ARP Rural payment amounts (excluding Nursing Home Infection Control (NHIC) Distribution payments) may be applied to patient care lost revenues.

Patient Care

“Patient care” means health care, services and supports, as provided in a medical setting, at home/telehealth, or in the community.

Non-Patient Care

The following list shows items not considered patient care - including:

• Insurance
• Non-Patient Care Dining Services
• Fundraising Events
• Prescription sales revenues
• Grants or tuition
• Amounts of charity care adjustments
• Bad debt
• Retail, auxiliary, or parking services
• Real estate revenues (exception for nursing and assisted living facilities’ real estate revenues where resident fees are allowable)
• Amounts of contractual adjustments from all third party payers
• Any gains and/or losses on investments

Options for Calculating Lost Revenues

Option i: Actuals

Option i for lost revenues is a comparison of actual revenues. Consider using this option if you have actual revenues from 2019 which are comparable to 2020 and 2021 (i.e., apples-to-apples).

Information Needed for Reporting:

• Actuals for each quarter during the period of availability
• Actuals for 2019

Examples of Option i Lost Revenues Calculation

Example 1
Example 2

Option ii: Budgets

Option ii is a comparison of budgeted revenues to actual revenues during calendar years 2020 and 2021. Consider using this option if you have:

• An approved budget prior to March 27, 2020 which covers the entire period of availability
• Budgeted revenues that are comparable to 2020 and 2021 actual revenues (i.e., apples-to-apples)
• An executive-level attestation that the budget was approved prior to March 27, 2020

Information Needed for Reporting:

• Actuals for each quarter during Period of Availability
• Budgets for each quarter during the Period of Availability
• Copy of the budget approved before March 27, 2020
• Executive-level attestation

Example of Option ii Lost Revenues Calculation

Option iii: Alternate Reasonable Methodology

By law, providers can use “any reasonable method” to document lost revenues. Option iii provides significant flexibility for providers because it allows providers to account for their unique circumstances, particularly where Options i or ii may not appropriately capture their situation (e.g., adding a new service, which made revenue appear higher than an apples-to-apples comparison; major changes in response to COVID-19 preventing planned changes that would have generated more revenue; etc.).

Providers must maintain source documentation that fully supports the narrative and methodology (documentation should be maintained by the provider for the record retention period of three (3) years after the submission of the report).

The calculated amount of lost revenues for the PRF and/or ARP Rural program must not be included in the calculation of lost revenues for another Federal program, such as the CARES Act Higher Education Emergency Relief Fund (i.e., no double-dipping).

Information Needed for Reporting:

• Calculated lost revenues for each quarter during the Period of Availability
• A narrative document describing the methodology, including an explanation of why the methodology is reasonable for the circumstances, and a description establishing how lost revenues were attributable to coronavirus (as opposed to a loss caused by any other source)
• A calculation of lost revenues attributable to coronavirus using the methodology described in the narrative document

Example of Option iii Alternate Reasonable Methodology

Best Practices When Developing a Reasonable Methodology

• Measure the amount of baseline revenue and lost revenues consistently (i.e., an “apples-to-apples” comparison).
  • Example, if the patient care revenues associated with a new non-COVID related service are excluded on your PRF report, those patient care revenues should be excluded in both the baseline and comparison. Expenses associated with those services should also be excluded from healthcare expenses attributable to coronavirus on the PRF and/or ARP Rural Report.
• Give consistent treatment.
  • Example 1: if using the fiscal year as a baseline, estimate lost revenues over the course of a fiscal year.
  • Example 2: if patient care revenues are consolidated in your financial statements you should report the consolidated amount in your PRF report.
• Be consistent with policies and procedures and apply them uniformly to federal and other sources of funds.
• Check to ensure any amounts fully covered through direct expenses in lost revenues are not included (e.g., if the provider used PRF payments as a direct expense to account for an increase in patient encounter cost by charging all expenses which contribute to the patient encounter cost, providers should not also factor the margin in its calculation of lost revenues).
• The same approach used for lost revenues calculation should be used in any subsequent Reporting Periods.

Example of How Option iii May Provide Flexibility for Individual Circumstance

A provider received funds on January 18, 2021 and May 3, 2021 and is getting ready to report in Reporting Period 3. This entity has 12 service lines in their organization during the period of availability, but one of those was not established until June 2021. For comparability purposes, when calculating lost revenues from patient care services, the provider omitted the new service line and used only the patient care revenue from 11 services lines for calculating lost revenues for the entire Period of Availability.

Documentation Requirements

Documentation requirements for lost revenues calculations are defined within the Data Elements section in the Reporting Requirements Notice (PDF - 137 KB) and summarized below:

Examples of Lost Revenue Calculations

Option i Example 1

Publicly listed Alpha Beta Corporation (ABC) was a diversified medical provider and owner of 100 hospitals in the Midwest. According to ABC’s consolidated audited financial statements the 2019 quarterly patient care revenues were $20M/quarter. Patient care revenues dropped in 2020 and the first two quarters of 2021 to $10M/quarter, after which they increased for the last two quarters of 2021. ABC’s quarterly patient care revenues dropped an additional $500k in Q1 2022 and increased by $750k in Q2 2022 (these 2022 changes are both compared against the base year 2019). ABC will include all patient care revenues in the PRF report and the report will calculate lost revenues of $10M a quarter for all of 2020 and 2021 with an additional $500,000 for Q1 2022. Q2 2022 revenues are not factored into the calculation because they increased. The total amount of lost revenues which can be applied towards PRF payments is $60,500,000. When the provider comes in to report in Reporting Period 6, if the provider did not already apply the entire $60M to payments in Reporting Period 4 and 5, the provider will be able to apply the remaining unreimbursed lost revenues (up to the PRF payments received and not used) on expenses attributable to coronavirus in RP6. Note: The remaining amount in this example can only be applied to unreimbursed lost revenues up through June 30, 2023 (the end of the quarter in which the Public Health Emergency ended).

Option i Example 2

123 Hospital Lost Revenues Calculation (Actual 2020 - Actual 2019)

123 Hospital Lost Revenues Calculation (Actual 2021 - Actual 2019)

123 Hospital Lost Revenues Calculation (Actual 2022 - Actual 2019)

*Aggregate of all patient care revenue sources

123 Hospital Revenues 'Eligible' for Reimbursement using PRF Payment

Option ii Example

XYZ Medical Company Lost Revenues Calculation = (2020 Actual - 2020 Budget)

XYZ Medical Company Lost Revenues Calculation = (2021 Actual - 2021 Budget)

XYZ Medical Company Lost Revenues Calculation = (2022 Actual - 2022 Budget)

*Aggregate of all patient care revenue sources

XYZ Medical Company Lost Revenues 'Eligible' for Reimbursement using PRF Payment

Option iii Example

Springfield County
Rehabilitation and Nursing Center
Estimated Lost Revenues 03/01/2020-06/30/2022
Unit: Dellblade Nursing Facility

Narrative: Springfield County Rehabilitation and Nursing Center Dellblade (SCRN) held 26-bed wing on Dellblade as a "COVID" wing to be dedicated towards quarantining covid-positive residents, quarantining residents returning from care at local hospitals, and lastly as an overflow facility for local hospitals overrun with COVID-19 cases. The unit was not utilized for any other purposes.

Total Estimated Lost Revenue: $4,730,867