Labor & Employment Law Daily Wrap Up, AGENCY NEWS—Eleven out of thirty audited hospitals did not comply with PRF terms and conditions, (Jun 23, 2025)

By Jeffrey H. Brochin, J.D.

Eleven audited hospitals that received a total of $3.8 billion in COVID-19 Provider Relief Fund (PRF) either used PRF payments for unallowable expenditures, or inaccurately calculated lost revenues, largely due to clerical errors or misinterpreting HRSA guidance.

The Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) has conducted an audit of thirty hospitals that were recipients of Provider Relief Fund (PRF) funding per Congress’ appropriation of $178 billion to HHS for the PRF. The audit determined that eleven of those hospitals audited did not comply with the terms and conditions for expending the reimbursements for health care-related expenses or lost revenue attributable to COVID-19. The deficiencies were attributed to hospitals making clerical errors in their reporting of expenditures, not always correctly interpreting Health Resources and Services Administration (HRSA) guidance, failure to maintain documentation to support reported expenditures, or having procedures in place to verify the accuracy of lost revenue calculations (OIG Report, No. A-02-22-01003 (June 11, 2025)).

The Provider Relief Fund (PRF). As a result of the COVID-19 public health emergency, many states ordered health care facilities and other providers to delay elective or nonurgent procedures in order to conserve personal protective equipment and free up staff and facilities for COVID-19 patients. Throughout the nation, hospitals reported that ceasing elective procedures and other services decreased revenues while their costs increased as they prepared for a potential surge of patients. As a result, their cash reserves were quickly depleted, which could have disrupted ongoing hospital operations.

In response to this revenue crisis, Congress appropriated $178 billion to HHS for the PRF which provided reimbursement to eligible providers for health care-related expenses or lost revenue attributable to COVID-19. HHS was responsible for initial PRF program oversight and policy decisions, and HRSA administered the PRF program. Providers receiving PRF payments were to ensure that the payments were: (1) used to prevent, prepare for, or respond to COVID-19; (2) used for health care-related expenses or lost revenues attributable to COVID-19; (3) not used to cover expenses or losses reimbursed by other funding sources; and (4) not used to pay salaries in excess of a certain threshold or to pay for certain prohibited activities.

Why the OIG conducted the audit. As of October 2024, HRSA had distributed $145.9 billion of the PRF to providers. The instant audit was one of several OIG audits of various aspects of PRF payments, including: (1) HHS’s and HRSA’s controls related to the requirements for submitting revenue information and attesting to the acceptance or rejection of PRF payments, (2) HHS’s and HRSA’s controls over PRF payment calculations and provider eligibility determinations, and (3) claims for COVID-19 testing and treatment services for uninsured individuals. This audit was specifically designed to assess whether 30 selected hospitals expended taxpayer funds in accordance with Federal and program requirements.

How the audit was conducted. The audit covered $6.6 billion in PRF payments and related interest to a nonstatistical sample of 30 hospitals during calendar year (CY) 2020. The selected hospitals reported that they used $3.8 billion of their PRF payments to offset lost revenues, $1.6 billion for general and administrative expenses, and the remaining $1.2 billion for health care-related expenses. The hospitals were selected based on an analysis that considered the amount of PRF payments received, geographic location (i.e., areas most impacted by COVID-19, urban and rural areas), and organizational structure (e.g., hospital groups and stand-alone hospitals). The auditors reviewed the hospitals’ PRF payments used to offset lost patient care revenues or cover general and administrative and health care-related expenses.

Specifically, for each of the selected hospitals that reported expenditures, the auditors reviewed a nonstatistical sample of expenses that were selected based on materiality and expense descriptions (e.g., salaries, supplies, equipment). For the selected hospitals that reported lost revenues, the OIG reviewed the hospitals’ lost revenues calculations. The audit was conducted in accordance with generally accepted government auditing standards.

What OIG found. The audit revealed that of the 30 selected hospitals, 19 used the funds for allowable general and administrative and health care-related expenditures and to offset lost revenues attributable to COVID-19. However, the remaining 11 hospitals did not comply with federal requirements, i.e., 10 hospitals used PRF payments for unallowable expenditures and 2 hospitals inaccurately calculated lost revenues. Those deficiencies occurred because although hospitals attested to the PRF terms and conditions--and HRSA provided continuously updated guidance to PRF recipients--the hospitals made clerical errors in their reporting of expenditures and did not always correctly interpret HRSA guidance, maintain documentation to support reported expenditures, or have procedures to verify the accuracy of lost revenue calculations.

As a result of those deficiencies, 11 of the 30 selected hospitals used PRF payments for unallowable expenditures totaling $63 million and inaccurately calculated lost revenues totaling $645.6 million. Those funds could have been used to offset allowable lost revenues or to support other activities related to the COVID-19 public health emergency, including preventing, preparing for, and responding to COVID-19.

Audit recommendations. As a result of the audit findings, the OIG recommended that HRSA:

• require the 10 hospitals that were determined as having used PRF payments for unallowable expenditures totaling $63 million, return the unallowable amounts to the federal government or ensure that the hospitals properly replace the unallowable expenditures with allowable unreimbursed lost revenues or eligible expenses, if any; and,

• require the 2 hospitals that were determined as having inaccurately calculated and reported lost revenues totaling $645.6 million to identify and return to the federal government any PRF payments used to offset inaccurately calculated lost revenues or replace them with allowable unreimbursed lost revenues or eligible expenses, if any.

HRSA comments. In written comments on the OIG’s draft report, HRSA concurred with the recommendations and indicated that it would review the relevant records and seek repayment, as appropriate. HRSA further noted that it was legally required to allow providers to use “any reasonable” method to determine revenue losses, and that the OIG’s analysis and conclusion were at odds with flexibilities afforded to providers.

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