Part I: Financial Assistance for Healthcare Providers Affected by COVID-19
On March 13, 2020, in the wake of COVID-19, President Donald Trump declared a national public health emergency under § 502(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”).[1] The Stafford Act authorizes the Federal government to enact and implement sweeping economic relief measures across all fifty states. Relying upon this authority, Congress passed the Coronavirus Aid, Relief and Economic Security Act (CARES Act) on March 27, 2020.[2] The CARES Act permitted the Government to establish and expand financial aid programs to provide liquidity to businesses which were affected by COVID-19. Some of the most important programs which were implemented under the CARES Act include the Paycheck Protection Program, which provided $349 billion in low-interest loans to small businesses which were forgivable if the businesses complied with certain requirements, and the Public Health and Social Services Emergency Fund (“Provider Relief Fund”), which allocated $100 billion for health care providers' expenses or lost revenues related to coronavirus.
On March 24, 2020, Congress passed the Paycheck Protection Program and Healthcare Enhancement Act (“PPPHEA”), which allocated an additional $484 billion in funding to the programs under the CARES Act, including $321 billion to the PPP and $75 billion to the Provider Relief Fund.
Since the declaration of the national emergency, Congress has appropriated approximately $2.9 trillion[3] to fund the CARES Act programs. Some of the most critical programs for struggling healthcare providers included the PPP, the Emergency Economic Injury Disaster Loan (“EIDL”), the Provider Relief Act, and the Main Street Lending Program. This article provides provides a general overview of each program.
A. Paycheck Protection Program: The PPP provided low-interest loans to small businesses (defined as businesses with no more than 500 employees) of up to 250% of the business’ average monthly payroll costs[4]. Under the PPP, a borrower could apply for complete loan forgiveness if they satisfied certain conditions, including maintaining their employee headcount and payroll levels, and spending at least 60% of the PPP funds on payroll expenses (including paid leave, 401Ks, and employee insurance) and no more than 40% of the funding on non-payroll expenses.[5] If the borrower does not satisfy the requirements for full loan forgiveness, the PPP loan will be subject to a two-year amortization with no payments for the first six months and an interest rate of one percent. To date, $130 billion of remaining PPP funds have not been allocated to eligible borrowers. Although the PPP application deadline ended on August 8, 2020, Congress is contemplating a PPP extension which would last until the end of 2020.
Eligibility: Both for-profit and nonprofit organizations were eligible to apply for a PPP loan if they had 500 or fewer employees. [6]
Paycheck Protection Program Flexibility Act (PPPFA) Revisions: On June 5, 2020, after receiving numerous complaints from businesses, institutions and third parties regarding the stringent nature of the PPP requirements, Congress revised the PPP by passing the Paycheck Protection Program Flexibility Act (PPPFA).
The PPPFA made various changes to the PPP which made it easier for businesses to borrow and use PPP loans, including:
Lowering the percentage of the PPP loan which borrowers had to spend on payroll expenses from 75% to 60%;
Extending the period of time that borrowers had to spend the PPP funds (“covered period”) from 8 weeks to 24 weeks, with the deadline to spend the funds extended until December 31, 2020;
Extending the period of time by which borrowers had to restore employee head counts to pre-COVID levels in order to qualify for PPP loan forgiveness;
Permitting borrowers who reduced their employee headcount to retain their loan forgiveness eligibility if the former employees refuse to return to work or if the borrower’s December 2020 revenue is lower than its February 2020 revenue;
Extending the PPP loan repayment due date (i.e., maturity date) from 2 to 5 years; and
Permitting PPP borrowers to take payroll tax deferments.
B. Provider Relief Fund: On April 10th 2020, Congress created the Provide Relief Fund, [7] allocating $100 billion to eligible Medicare and Medicaid-enrolled providers who experienced health care-related expenses or lost revenues as a result of COVID-19.[8] Congress allocated another $75 billion to the Program with the passage of the PPPHEA. Similar to the funds allocated under the PPP, the Provider Relief Funds were government grants which did not have to be repaid. The Department of Health and Human Services (“HHS”) distributed some of the Provider Relief Fund over the course of two General Distribution Phases and one Targeted Distribution Phase. To date, the HHS has yet to distribute all of the allocated funds.
General Distribution Phase 1:
The first round of distributions occurred between April 10th and April 17th, 2020. Provider Relief Funds were automatically deposited into the accounts of providers who received Medicare Fee for Service payments during the calendar year of 2019. The HHS distributed a total of $30 billion to 320,000 Medicare providers, based on each provider’s proportionate share of total Medicare Fee for Service reimbursement from 2019.[9]
Beginning on April 24th, 2020, HHS distributed an additional $20 billion to Medicare providers who billed Medicare Fee for Services in 2019 or who provided care to COVID-19 patients. The amount of funding that each provider received[10] was calculated in a way that, when added to the initial distribution, equaled the provider’s proportionate share of 2018 net patient revenues.[11]
General Distribution Phase 2: On Jun 9, 2020, the HHS allocated an additional $15 billion to Medicaid, CHIP, Medicaid Managed Care, and dental providers.[17] Eligible providers received funding equal to at least 2% of reported gross revenue from patient care, with the final amount determined by the provider data submitted, including Medicaid patients treated and total revenue. The deadline to apply for Phase 2 funds has been extended to August 28, 2020.
Eligibility: In order to be eligible for this distribution, providers must have met one of the following:
billed Medicaid, CHIP, or Medicaid managed care plans for healthcare or dental services between January 1, 2020 and May 31, 2020; or
billed Medicare fee-for-service during the period of Jan.1, 2019-Dec. 31, 2019; or
be a Medicare Part A provider who billed Medicare fee-for-service in 2019 or 2020 and who experienced a change in ownership that prevented you from receiving Phase 1 General Distribution payment; or
Billed a health insurance company for oral healthcare-related services as a dental service provider; or
Be a licensed dental service provider who does not accept insurance and has billed patients for oral healthcare-related services.
Additionally, the applicant must meet all of the following requirements:
Filed a federal income tax return for fiscal years 2017, 2018, 2019; or be exempt from filing a return;
Provided patient care after January 31, 2020 (Note: patient care includes health care, services and support, as provided in a medical setting, at home, or in the community);
Did not permanently stop providing patient care directly or indirectly;
Did not receive a previous General Distribution payment totaling approximately 2% of annual patient revenue; and
For individuals, reported gross receipts or sales from providing patient care using IRS Form 1040 or another tax form.
Targeted Distributions: On June 5, 2020, Congress allocated an additional $75 billion to the Provider Relief Fund when it passed the Paycheck Protection and Healthcare Enhancement Act (PPHEA). This funding, in additional to the remaining $50 billion allocated under the CARES Act, was used to distribute funds (“targeted distributions”) to providers and healthcare facilities who were the most affected by COVID-19. To date, the HHS has designated five targeted distribution groups:
Hospitals in High Impact Areas Distribution: The HHS allocated $22 billion to providers with high numbers of confirmed COVID-19 positive inpatient admissions. Providers are eligible for these distributions regardless of whether they had received funding from the initial $12 billion allocation.[18]
Providers Treating the Uninsured Distribution: HHS will reimburse an undisclosed portion of the funds to healthcare providers who provided COVID-19 testing and/or treatment to uninsured patients on or after February 4, 2020. The reimbursement will be at the current Medicare rates (excluding the 20% Diagnostic-Related Group Add-On).[19]
Rural Health Clinics and Hospitals: The HHS is allocating $10.2 billion to almost 4,000 rural health care providers and $1.1 billion to 500 specialty rural hospitals, urban hospitals with certain rural Medicare designations, and hospitals in small metropolitan areas
Skilled Nursing Facilities: The HHS is allocating $5 billion to assist skilled nursing facilities (i.e., nursing homes and long-term care facilities) which are struggling from the COVID-19 crisis. Each eligible facility will receive a fixed Payment of $50,000 plus $2,500 per Certified Bed. Facilities must have six or more certified beds to be eligible for a payment. The HHS expects to distribute the initial $2.5 billion in mid-August, and the remaining $2.5 billion throughout the fall.
Indian Health Service Facilities: HHS is distributing $500 million to Tribal hospitals, clinics, and urban health centers, distributed on the basis of operating expenses. This funding is intended to complement other funding provided to expand Indian Health Service (IHS) telehealth and COVID-19 testing.
Safety Net Hospitals Distribution: The HHS allocated $13 billion to assist hospitals, acute care facilities, and free-standing children’s hospitals which disproportionately provide care to the most vulnerable populations. Eligible providers must show a profitability threshold of less than of 3% averaged consecutively over two or more of the last five cost reporting periods. Eligible hospitals can receive between $5-50 million through direct deposits.
On August 14, 2020, The HHS announced that it would allocate an additional $1.4 billion in targeted distributions to free-standing children’s hospitals which are not affiliated with large hospitals. Eligible hospitals will receive grants equal to 2.5% of their net revenue from patient care.
Attestation and Terms & Conditions: In order to receive PRF distributions, providers have to sign an Attestation certifying that they will exclusively use the funds for “healthcare related expenses or lost revenues … attributable to Coronavirus,”[12] and agree to Terms and Conditions (T&Cs), including revenue reporting requirements.[13] Providers who received automatic distributions during the Phase 1 Distribution had to accept the funds and sign the attestation and T&Cs or reject the funds within 90 days of their receipt. [14] [15] [16]
Reporting Requirements: The HHS requires all Provider Relief Fund recipients to submit reports regarding the use of the PRF funds in order to demonstrate compliance with the Provider Relief Fund’s Terms and Conditions. The HHS will release detailed reporting instructions for each type of PRF distribution by August 17, 2020 through its website, www.hhhs.gov. The HHS reporting system will become available for reporting on October 1, 2020. All recipients will be required to report (within 45 days of the end of 2020) on their use of the PRF through the period ending on December 31, 2020. As a best practice, providers receiving PRF funds should keep detailed records (receipts, payments, etc.) of how the funds are spent, and retain these records for three (3) years from the date of receipt.
Future Recoupment Actions: The HHS has stated that it will not recoup funds allocated to the provider under the Provider Relief Fund as long as the provider’s lost revenue and COVID-related expenses are greater than the amount of Provider Relief funding received. To safeguard against potential future Government investigations and enforcement actions, however, providers should refuse any portion of the Provider Relief Fund allocation which exceeds the provider’s total lost revenues and COVID-related expenses.
C. Main Street Lending Program: The Main Street Lending Program was created on April 30, 2020 to assist small and mid-sized businesses[20] which were ineligible for PPP funding or for which PPP loans were insufficient. The Main Street Lending Program authorizes the Federal Reserve and the Treasury Department to issue $600 billion in low-interest loans to provide liquidity to eligible businesses which were financially harmed as a result of COVID-19. The program is operated by three different lending facilities: the Main Street New Loan Facility (MSNLF), Main Street Priority Loan Facility (MSPLF), Main Street Expanded Loan Facility (MSELF). Each lending facility offers different loan amount minimum and maximums, depending on different criteria.
Application Requirements: In order to apply for the Main Street Loan program, an eligible borrower must submit the application and the required documentation to an eligible lender.
Loan Amounts: Eligible loans range from $250,000 to $35 million for new loans and from $10 million to $300 million for expanded loans, with a loan term of five years.
Loan Interest Rates: The loans have an interest rate of LIBOR (1 or 3 months) plus 300 basis points.[21] Prepayment is permitted without penalty and interest payments can be deferred for one year.[22]
Eligibility Criteria: Both nonprofits and for-profits can apply for the Main Street Lending Program loans, provided that they satisfy the following requirements:
Employ 15,000 or fewer employees;
Earn less than $5 billion in 2019 revenue;
Have a profit margin of 5% or greater;
Have at least 90 days of cash reserves;
Have an asset-to-debt ratio greater than 65%;
If for profit, the borrower must have been in business prior to March 13, 2020; and
If nonprofit, borrower must have been created before January 1, 2015.[23]
Attestation and Certification Requirements: In order to apply for the Main Street Loans, the borrower has to attest and certify the following in the Main Street Lending Program Application:
The uncertain economic conditions at the time of the borrower’s application make the loan necessary to fund ongoing operations
The funds will be used to retain at least 90% of the borrower’s employees, at full compensation and benefits, until September 30, 2020.
Within four (4) months after COVID-19 is no longer declared a national emergency, the borrower will restore its employment levels to 90% of the workforce which existed on February 1, 2020.
The borrower was created or organized in the U.S. or under the laws of the U.S. and has significant operations in and employs a majority of its employee in the U.S.
The borrower is not a debtor in a bankruptcy proceeding.
The borrower will not outsource jobs abroad during the period of the loan and for two years after repaying the loan.
The borrower will not repeal existing collective bargaining agreement for the term of the loan and for two years after repaying the loan.
The recipient will remain neutral in regard to any union organizing activities for the term of the loan.
For additional information about the Main Street Lending Program well as individual term sheets, see the Federal Reserve’s Main Street Program FAQs Page.
D. Emergency Economic Injury Disaster Loans (EIDL)[24]: The EIDL is administered by the Small Business Administration which, to date, has advanced over $150 billion in EIDLs to businesses with no more than 500 employees who suffered “substantial economic injury” from COVID-19. The EIDL loan permits businesses to receive low-interest loans[25] of up to $2 million to cover a wide range of capital and business operating expenses, including health care benefits, rent, utilities, and fixed debt payments. In addition, the first $10,000 of the EIDL loan is considered a grant which does not have to be repaid.[26] Currently, eligible borrowers have until December 31, 2020 to apply for the EIDL
Eligibility: Small businesses and agricultural businesses are eligible to apply for the EIDL, provided that they have 500 or fewer employees.
Although businesses can apply for both the PPP and the EIDL, they cannot use EIDL funds to pay for costs which are covered under their PPP loan.
EIDL loans are likely to be subject to significant government oversight and scrutiny in the coming future, so borrowers should take care to keep detailed records of their EIDL expenditures.
For additional information and to apply, see the Small Business Administration’s Economic Injury Disaster Loans page.
[1] See Letter from President Donald J. Trump on Emergency Determination Under the Stafford Act, White House Briefings & Statements (Mar. 13, 2020), https://www.whitehouse.gov/briefings-statements/letter-president-donald-j-trump-emergency-determination-stafford-act/; see also 42 U.S.C. §§ 5121-5207.
[2] See Pub. L. No. 116-136 (2020).
[3] See Patricia Sabga, Federal Chief Warns the U.S. Economy Could Be Weak For a Long Time, Al Jazeera News (May 13, 2020).
[4] Eligible businesses have to apply through a Small-Business Administration approved lender.
[5] For a detailed breakdown of the conditions which borrows must meet in order to obtain full PPP loan forgiveness, see Paycheck Protection Program, SBA (last visited Aug. 4, 2020), https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.
[6] In addition, eligible healthcare practices must satisfy the following standards: (1) acute care providers must have an annual revenue under $41.5 million; (2) skilled nursing facility must have an annual revenue under $30 million; (3) eligible public hospitals must be tax exempt under §501(a) of the Internal Revenue Code and receive less than half of their funding from the Government (excluding payments received from Medicaid).
[7] The Provider Relief Fund is administered by the Health Resources and Service Administration (HRSA), which distributes the PRF payments to healthcare providers and facilities.
[8] The definition of “eligible health care providers” are Medicare- or Medicaid-enrolled suppliers and providers, and other for-profit and nonprofit entities that provide diagnoses, testing, or care for individuals with possible or actual cases of COVID-19. Permissible expenses under the Provider Relief Fund include lost revenues from cancelled procedures, the construction of new structures or retrofitting of existing structures, purchasing supplies or equipment used to provide healthcare services to possible or actual COVID patients, training staff, and other costs related to COVID-19. See Dep’t of Health and Human Servs., FAQ Guidance (June 2, 2020), https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/faqs/index.html.
[9] Eligible providers received payments equal to: (eligible provider's 2019 Medicare Fee-For-Service Payments / $453 Billion) x $30 Billion. See Dep’t of Health & Human Servs., Provider Relief Fund General Information: Summary of Eligibility & Methodology (last visited Aug. 3, 2020).
[10] Specifically, eligible providers received an amount equal to: ((Most Recent Tax Year Annual Gross Receipts x $50 Billion) / $2.5 Trillion) – Initial General Distribution Payment to Provider. FAQ Guidance, supra at note 8.
[11] The net patient services revenue is equal to the total charges resulting from the services which the provider had given minus the actual charges which were paid under the contractual allowance rates, and the cost of charity care, bad debt, and insurer denials.
[12] See, generally, Dep’t of Health and Human Servs., CARES Act Provider Relief Fund: For Providers (updated Aug. 3, 2020), https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/for-providers/index.html#enhanced-provider-relief.
[13] Distribution recipients have to submit reports outlining their revenue data, including estimated revenue losses from March and April of 2020, to the Department of Health and Human Services.[14] Providers have to attest to a separate Terms and Conditions for each source of funding which they receive under the Provider Relief Fund.
[15] The attestation must be signed and submitted by the provider within 90 days of receiving the funds.
[16] However, the requirement that the funds be used to treat COVID-19 patients has been broadly interpreted by the Department of Health and Human Services, which clarified that this requirement was met by providers who were treating patients who were potentially positive for COVID-19 or by providers whose revenue declined as a result of COVID.
[17] The provider allocation amount was equal to 2% of Revenues multiplied by the Percent of Revenues from Patient Care (based on the provider’s 2017, 2018 or 2019 tax filings).
[18] The payment for each eligible hospital is calculated by the hospital’s COVID-19 admission rates between January 1st, 2020 and January 10th, 2020.
[19] In order to be eligible, the claims must have been submitted on or after February 4, 2020.
[20] Defined as businesses with 15,000 or fewer employees.
[21] For additional information and requirements, see the Term Sheet for the relevant Main Street Program lending facility.
[22] However, any unpaid interest will be capitalized.
[23] In addition, the nonprofit cannot receive more than 30% of its annual revenue from donations and cannot have an endowment greater than $3 billion.
[24] See generally Small Business Admin., Economic Injury Disaster Loans, SBA (last visited Aug. 4, 2020), https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loans.
[25] The EIDL loan is subject to a 3.75% interest rate over a 30-year term, with payments deferrable for up to one year. Eligible borrowers receiving less than $25,000 in EIDL loans do not have to provide any collateral.
[26] However, if the EIDL borrower also receives a PPP loan which is forgiven, the borrower’s amount of PPP loan forgiveness will be reduced by the amount of the EIDL advance which is forgivable (up to $10,000).
