Update: This article was originally published April 2, 2020. It has been updated to reflect new guidance made available recently in federal responses to the COVID-19 pandemic and summarizes important interactions that healthcare companies should consider when seeking funding and benefits through multiple avenues.
Numerous financial relief programs have been established to support healthcare companies in the wake of COVID-19. In addition to considering the eligibility requirements and comparing terms of such programs described below, healthcare companies should be aware of the interactions between each loan program and other CARES Act resources and the accompanying tax provisions.
For example, advanced and accelerated Medicare payments are flexible with use in connection with other programs, while the Paycheck Protection Program loans will restrict participation in other programs (i.e., the employer retention credit under the CARES Act is not available to borrowers that receive paycheck protection loans). The interactions among these programs are discussed in the accompanying chart. Companies should consider these obstacles to avoid double-dipping loan proceeds or possible resulting ineligibility from other opportunities made available, which could then be recouped or lead to penalties, and determine what opportunities best suit the needs for each business.
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As countless U.S. businesses face unprecedented challenges due to the 2019 novel coronavirus (COVID-19), federal and state government and private organizations have mobilized to provide financial support to businesses impacted by the pandemic. The healthcare industry is a specific focus of many of these relief efforts, but the relief programs vary dramatically in terms of eligible businesses and attractiveness of terms. Thus, healthcare companies are moving at a dizzying pace to understand which relief programs are available to them.
In an effort to consolidate the programs, below and in the accompanying chart are 10 key areas of financial support established for healthcare companies in the wake of COVID-19 at the federal level or by federal prompting. There are a host of other municipal and state-level relief programs that may also be available for healthcare companies, which McGuireWoods will continue to monitor.
- CMS Accelerated and Advanced Payment Program. On March 28, 2020, the Centers for Medicare & Medicaid Services (CMS) released guidance expanding its Accelerated and Advanced Payment Program (AAPP), which now allows most Medicare Part A and Part B providers and suppliers to request an advance of up to 100 percent (or more) of the Medicare payment amount for a three- or six-month period, depending on the provider category. The AAPP offers healthcare providers and suppliers critical liquidity to help with cash-flow issues related to the postponement of non-essential surgeries and procedures, staffing challenges and disruption in billing related to COVID-19. As with all of the avenues of financial support summarized in this article, providers and suppliers need to review their contractual arrangements, including credit agreements and other lending documents, and consider how any advance payments received may impact existing or anticipated debt financing prior to seeking such additional funding. In a recent Dear Clinician letter, CMS announced that it intends to provide assistance first to those providers and suppliers that experience increased demand and surge in patients and that MACs responsible for processing accelerated/advance payment requests for different states will prioritize those states that were hit the hardest (currently, these states are reported to be California, New York and Washington). CMS also announced on April 7, 2020, that nearly $34 billion had been delivered to providers the preceding week, increasing to over $51 billion two days later on over 21,000 requests.Processing times for a request of an accelerated or advance payment have been reduced to between four and six days. More information regarding the AAPP can be found in a prior McGuireWoods legal alert.
- SBA Paycheck Protection Loans. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) made available government-sponsored emergency loan programs for U.S. businesses during the COVID-19 pandemic through the U.S. Small Business Administration (SBA). The CARES Act established a new paycheck protection loan program making available up to $349 billion of loans by banks and other lending institutions to small businesses and others. These loans are intended to cover the cost of maintaining payroll, insurance and other expenses arising from maintaining pre-COVID-19 employment and compensation levels (COVID-19 Paycheck Protection Loans) for eight weeks after funding of each such loan. All COVID-19 Paycheck Protection Loans are guaranteed by the SBA and are subject to cancellation/forgiveness of all or a portion of the principal amount if the applicable borrower satisfies certain full-time equivalent employment and compensation requirements. The new loan program will be available, retroactive from Feb. 15, 2020, so employers can rehire their recently laid-off employees through June 30, 2020. Prior to applying for a COVID-19 Paycheck Protection Loan, borrowers should review other contractual relationships (e.g., credit documents) to ensure the loans do not violate any covenants. Applicants should also consider the possibility that any disclosure or information submitted in connection with the COVID-19 Paycheck Protection Loans may be made publicly available. Small businesses were able to apply beginning April 3, 2020, and independent contractors and sole proprietors were able to apply starting April 10, 2020. The Paycheck Protection Program is subject to the affiliation rules of the SBA, which may preclude participation by certain private equity-backed portfolio companies and may require affiliation of affiliated physician practices in physician practice-management structures. Additional information regarding COVID-19 Paycheck Protection Loans is available in a prior McGuireWoods legal alert as updated with the application and additional guidance by a prior McGuireWoods Consulting alert and McGuireWoods legal alert discussing the maximum employee requirement and affiliation rules. McGuireWoods will continue to update this information as new regulations are released.
- SBA’s Economic Injury Disaster Loans. In addition to COVID-19 Paycheck Protection Loans, the CARES Act extended the availability of SBA’s Economic Injury Disaster Loans (EIDLs) to small businesses affected by COVID-19 until Dec. 31, 2020. The CARES Act appropriated approximately $10 billion for EIDLs, which will be offered as loans with interest rates of 3.75 percent for small businesses and 2.75 percent for nonprofits. Small businesses located within SBA-designated zones are eligible to receive up to $2 million in loans, in addition to any COVID-19 Paycheck Protection Loans they receive, so long as the expenses for each loan amount are distinct. The CARES Act waives the previous requirement of personal guaranty for EIDLs. It also allows for a $10,000 emergency advance during the period of time that a business’s loan application is pending. Additional information regarding EIDLs is discussed in McGuireWoods’ previous legal alert.
- Main Street Business Lending Program. On April 9, 2020, U.S. Treasury Secretary Steven T. Mnuchin and the Federal Reserve Board approved the establishment of a Main Street Business Lending Program to support the flow of credit to American workers, businesses, states, counties and cities impacted by the coronavirus pandemic. Two such programs are intended to provide up to $600 billion to facilitate lending to small and medium-sized business: the Main Street New Loan Facility (MSNLF) and the Main Street Expanded Loan Facility (MSELF). MSELF is intended to upsize loans originated before April 8, 2020, and MSNLF is intended for new loans originated after April 8, 2020. Using funds appropriated under the CARES Act, the Department of the Treasury will make a $75 billion equity investment in a special purpose vehicle established to implement the Main Street Business Lending Program. Eligible borrowers are businesses (1) with up to 10,000 employees or up to $2.5 billion in 2019 annual revenues; and (2) that are created or organized in the United States or under United States law with significant operations and a majority of their employees in the United States. Borrowers may not participate in both the MSNLF and the MSELF. Additional programs are available for larger businesses, with MSNLF and MSELF just two of the programs providing up to $2.3 trillion in financing in response to the COVID-19 crisis. The Federal Reserve is accepting comments on the program until April 16, 2020, and may adjust the program’s terms and conditions. Additional information regarding the Main Street Business Lending Program, the features and terms of eligible loans under each facility, borrower attestations and other considerations can be referenced in a recent McGuireWoods legal alert.
- Public Health and Social Services Emergency Fund and Hospital Preparedness Program. The CARES Act provided $100 billion to the Public Health and Social Services Emergency Fund for eligible providers (including hospitals) to prevent, prepare for and respond to the COVID-19 pandemic. Specifically, the fund seeks to reimburse providers for healthcare items, expenses and lost revenue directly related to the COVID-19 outbreak. The CARES Act provides that the fund may be utilized for, among other things, construction of temporary structures, leasing of properties, medical supplies and equipment, and emergency operation centers. The CARES Act also sets aside $250 million for the Hospital Preparedness Program, which supports regional collaboration and preparedness/response among health systems and includes the National Ebola and Special Pathogens Training and Education Center; regional, state and local special pathogens treatment centers; and hospital preparedness cooperative agreements. On April 3, 2020, HHS Secretary Alex Azar announced that a portion of the fund would be used to cover providers’ costs of delivering COVID-19 care for the uninsured through the same mechanism used for testing. Azar stated that providers will be reimbursed at Medicare rates and will be prohibited from balance-billing uninsured patients. During an April 7, 2020, White House briefing, CMS Administrator Seema Verma announced that the fund will be released in tranches in order to disburse dollars as quickly as possible, with the first $30 billion of the fund released to Medicare providers in the form of “no strings attached” grants based on Medicare revenue. Updated information regarding the fund can be referenced in a recent McGuireWoods legal alert and a prior McGuireWoods legal alert. HHS released more information on April 10, regarding direct deposits of the first $30 billion portion of the fund, based on each healthcare provider’s 2019 portion of all Medicare fee-for-service payments. Healthcare providers will receive such funds from UnitedHealth Group automatically and then will have 30 days to submit an attestation agreeing to meet certain terms and conditions to participate in the program. Providers should consider that, although the funds will be automatically deposited, providers may not be able to fully comply with the terms and conditions of the payment, and therefore may not be able to retain the funds. Additional guidance regarding how to access the remaining portions of the fund very likely will be announced soon.
- Suspension of Medicare Sequestration. From May 1, 2020, through Dec. 31, 2020, the CARES Act temporarily suspends the Medicare sequester, which will increase payments to hospitals and other providers during the COVID-19 outbreak. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. Additional information regarding these changes is available in a prior McGuireWoods legal alert.
- COVID-19 Government Program Reimbursement. The CARES Act provides for Medicare hospital payment increases of 20 percent for patients diagnosed with COVID-19. The CARES Act provides this add-on by increasing the weighting factor for diagnosis-related groups (DRGs) that a COVID-19 discharged patient is assigned by 20 percent, without any budget neutrality adjustment. Also, as discussed in a prior McGuireWoods legal alert, the CARES Act permits state Medicaid programs to pay for home- and community-based attendant services rendered in an acute-care hospital. The concept of this program is to allow caregivers to assist patients with activities of daily living to reduce the length of such patients’ hospital stays, particularly patients with disabilities. The CARES Act also provides additional Medicare payment adjustments, including but not limited to halting scheduled Medicare payment reductions for durable medical equipment and preventing scheduled reductions in Medicare reimbursement for clinical diagnostic laboratory tests furnished to beneficiaries in 2021, among others, and delays reporting private payer data for one year.
- Expansion of Telehealth Reimbursement. As discussed in a previous McGuireWoods legal alert, CMS has expanded coverage and reimbursement for telehealth services rendered on or after March 6, 2020, by waiving the “eligible originating site” requirement so that telehealth services can be provided in all care settings, including a patient’s home. Also, to the extent any telehealth service requires a patient to have a prior established relationship with his or her provider, HHS will not conduct audits to ensure such prior relationship existed (i.e., reimbursement is available for new and established patients). For reference, CMS published a fact sheet that identifies the most common HCPCS/CPT codes for reimbursable telehealth services. The full list of covered Medicare services that are reimbursable when furnished via telehealth are set forth on CMS’ website and summarized in an updated McGuireWoods legal alert.
- Federal Tax Relief. As summarized in a prior McGuireWoods legal alert, the CARES Act includes a number of targeted tax provisions designed to allow businesses deeply affected by COVID-19 to maintain operations and keep their workforce in place through the crisis. As part of such relief, the legislation temporarily reverses certain taxpayer-unfavorable changes to the Internal Revenue Code that occurred under legislation enacted in late 2017, commonly referred to as the Tax Cuts and Jobs Act. The CARES Act includes provisions regarding (i) a new refundable employee retention tax credit, (ii) deferral of payment of the employer’s share of the Social Security employment tax for the remainder of 2020, (iii) changes to net operating loss limitations, (iv) changes to “excess business loss” limitations, (v) acceleration of corporate AMT credits, (vi) modifications of business interest limitations, (vii) increased charitable contribution limitations for 2020, and (viii) expensing for qualified improvement property.
- CMS Encourages States to Enhance Medicaid Funding. States across the country are implementing changes to provide financial relief to healthcare companies impacted by COVID-19. On March 24, 2020, CMS provided guidance to states concerning enhanced federal Medicaid funding during the COVID-19 crisis. Section 6008 of the Families First Coronavirus Response Act, as amended by Section 3720 of the CARES Act, provides for a possible 6.2 percent increase in the federal match (FMAP) for each state and territory. The increase will be retroactive to Jan. 1, 2020. The funds are available for each calendar quarter during the public health emergency. Since the emergency was declared on Jan. 31, 2020, increased Federal Medical Assistance Percentages are available for qualifying expenditures incurred on or after Jan. 1, 2020, and through the end of the quarter in which the public health emergency ends.