Update #2: 10 Financial Support Opportunities for Healthcare Companies During the COVID-19 Crisis

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.

As funding has begun to deplete in many of the programs below, Congress faced public pressure to authorize additional appropriations. This article provides updates about the $484 billion in funding authorized by Congress in the Paycheck Protection Program and Health Care Enhancement Act on April 23, 2020 (Enhancement Act).

*          *          *

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. A host of other municipal and state-level relief programs may also be available for healthcare companies, which McGuireWoods will continue to monitor.

1. 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. The advance and accelerated payments are loans that providers must pay back. 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. CMS 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 more than 21,000 requests. Processing times for accelerated or advance payment requests are around four to six days. More information regarding the AAPP can be found in a prior McGuireWoods legal alert.

2. 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. Through April 16, 2020, the SBA has guaranteed 1,661,367 loans under the Paycheck Protection Program, with an overall average loan size of $206,000. The Enhancement Act authorized an additional $310 billion to this program, including a specific allocation of $60 billion for community banks and small lenders. 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 borrower satisfies certain full-time equivalent employment and compensation requirements. The new loan program is available, retroactive to 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 of information submitted in connection with the COVID-19 Paycheck Protection Loans may be made publicly available. Small businesses (i.e., applicants and affiliates (i) with 500 or fewer employees, or (ii) within the annual revenue limits prescribed by SBA) were able to apply beginning April 3, 2020, and independent contractors and sole proprietors were able to apply beginning 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. Information regarding the latest funding increase is available in a prior McGuireWoods legal alert. Additional information regarding COVID-19 Paycheck Protection Loans is available in another previous 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.

3. 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. Then, the Enhancement Act appropriated an additional $50 billion for EIDLs and $10 billion for emergency grants. Through April 20, 2020, the SBA has approved a total of 26,919 EIDLs and processed a total of 755,476 EIDL advances in response to COVID-19. 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 an emergency advance of up to $10,000, during the period of time that a business’s loan application is pending, that will not have to be repaid. Additional information regarding EIDLs is discussed in McGuireWoods’ previous legal alert.

4. 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. Comments related to the term sheets for the Main Street Business Lending Program closed on April 16, 2020. Interested parties are awaiting final term sheets for the program. Two such programs are intended to provide up to $600 billion to facilitate lending to small and medium-sized businesses: 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 U.S. 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. Eligible lenders are U.S. insured depository institutions, U.S. bank holding companies, and U.S. savings and loan holding companies. Potential borrowers should be aware that the leverage ratio for MSELF is six times EBITDA and MSNLF is four times EBITDA. Also, both programs have (i) a maturity date of four years from the date of the loan, (ii) amortization and interest will be deferred for one year, (iii) interest will be SOFR + 2.50-4.00 percent, and (iv) no prepayment penalties will apply. Finally, the funds may not be used to refinance or repay existing debt and borrowers must certify that the financing was obtained, due to exigent circumstances presented by COVID-19. 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. 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 and in the current MSNLF and MSELF term sheets.

5. 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. The Enhancement Act funded an additional $75 billion for this program. Specifically, the fund seeks to reimburse providers for healthcare items, expenses and lost revenue directly related to the COVID-19 outbreak. The additional funding from the Enhancement Act is expected to be distributed primarily at frontline providers, but this restriction is not an explicit requirement of the Enhancement Act. 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. HHS released more information 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. As discussed in a recent McGuireWoods legal alert, on April 22, 2020, HHS announced the release of the remaining $70 billion of the $100 billion fund as follows: (i) $20 billion for general distribution to healthcare facilities and providers; (ii) $10 billion for hospitals determined to be in areas particularly impacted by COVID-19, with the application deadline for hospitals to submit information extended to 3 p.m. (ET), April 25, 2020; (iii) an unspecified portion for the treatment of the uninsured and possibly other further releases for Medicaid providers; (iv) $10 billion for rural health clinics and hospitals; and (v) $400 million for Indian Health Service facilities. Additional guidance regarding how to access the remaining portions of the fund are likely to be announced soon. For updated information regarding the fund, the attestation portal and the various terms and conditions, see April 17, April 14 and April 10 McGuireWoods legal alerts.

6. 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.

7. 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 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.

8. 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 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 is set forth on CMS’ website and summarized in an updated McGuireWoods legal alert.

9. 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 alternative minimum tax credits, (vi) modifications of business interest limitations, (vii) increased charitable contribution limitations for 2020, and (viii) expensing for qualified improvement property.

10. 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. For additional information on enhanced Medicaid funding, refer to the appropriate state Medicaid agency and a prior McGuireWoods Consulting alert.

Please contact the authors for additional information on each of the funding mechanisms listed above that are available to healthcare companies. McGuireWoods has published additional thought leadership on how companies across industries can address crucial coronavirus-related business and legal issues. The firm’s COVID-19 response team stands ready to help clients navigate urgent and evolving legal and business issues arising from the COVID-19 pandemic.