Keeping healthcare organizations open, funded and operational has never been more critical as we continue to see the impact of the COVID-19 pandemic.
While healthcare entities stand poised to be the frontlines in the fight against the coronavirus, we have also seen them take large hits. Many have lost revenue on cancelled procedures and are funneling extensive resources into the fight against COVID-19. Other medical practices have had to close their doors indefinitely.
How do healthcare entities begin to make sense of the relief provisions available and the workforce protections offered for their employees? We’ve summarized the key provisions that will impact the healthcare industry and what you can do to weather the storm.
Families First Coronavirus Response (Families First) Act
The Families First Coronavirus Response Act (FFCRA) was signed into law on March 18, 2020. The FFCRA has two separate provisions that require employers to provide paid leave to employees:
Both acts apply to organizations with fewer than 500 employees. In addition, there is an exception for employers whose employees are healthcare providers or emergency responders that makes complying with the Families First Act optional. For this purpose, a healthcare provider is anyone employed at any doctor’s office, hospital, healthcare center, clinic, post-secondary educational institution offering healthcare instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home healthcare provider, any facility that performs laboratory or medical testing, pharmacy, or any similar institution. An employer of healthcare providers or emergency responders may choose to follow FFCRA, and in doing so will be subject to one or both provisions. The optional exclusion of healthcare providers and emergency providers answers concerns that the industry would be severely crippled by essential staff taking employee and family leave.
Coronavirus Aid, Relief, and Economic Security Act Loan Provisions
The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27, 2020, is a broad economic stimulus and tax bill intended to provide relief and assistance to individual taxpayers and businesses alike. Many of the provisions that apply to businesses do not limit the aid and assistance to specific entities or industries but rather apply limitations based upon the number of employees.
Healthcare organizations can utilize many of the provisions of the CARES Act in the same manner as other corporate businesses, provided they meet the employer specifications.
Paycheck Protection Program Loans
The Paycheck Protection Program (PPP) under 7(a) will provide $349 billion in federally backed loans to small businesses with fewer than 500 employees (subject to some modifications for affiliations, industry and other SBA size standards) including 501(c)(3) and (c)(19) organizations. The PPP loans are available in amounts up to $10 million or 2.5 times the organization’s average monthly payroll from the prior year.
The PPP loans must be used to cover payroll expenses (not in excess of $100,000 per employee), certain mortgage or debt obligation interest payments, utilities and rent. The CARES Act defers payments of principal, interest and fees for at least six months on the loans and caps interest at 1%. In addition, organizations may apply to receive loan forgiveness for eight weeks of eligible costs, but the amount forgiven may be reduced if the organization reduces the number of employees compared to the prior year or if employee pay is reduced more than 25% as of the last calendar quarter. The application period for these loans runs from April 3, 2020, to June 30, 2020.
Economic Injury Disaster Loan (EIDL) Grants
The CARES Act modified the existing Economic Injury Disaster Loans (EIDL) by expanding eligibility and waiving certain requirements. These loans are available to employers with fewer than 500 employees and nonprofit organizations regardless of the number of employees. The EIDL loans provide working capital for organizations that cannot meet their ordinary and necessary financial obligations as a result of a disaster.
EIDL loans have an interest rate of 3.75% for small businesses and 2.75% for nonprofits and include a $10,000 emergency advance payment that can be received within three days of the application. This $10,000 emergency advance payment may be forgiven even if a borrower is denied EIDL funding, thus effectively being treated as a grant. If an organization receives a loan under the PPP program, the $10,000 advance payment would be considered as part of the forgiveness of that loan. Healthcare organizations that receive a PPP loan may also receive an EIDL loan as long at the loan is not used for the same purpose.
Assistance to Mid-Size Employers
The CARES Act provides relief to mid-size employers, including healthcare organizations, through programs established by the Federal Reserve which will provide loans to employers with 500 to 10,000 employees. These loans will be funded at interest rates no higher than 2% and provide a relief period of at least six months before payments are due. The loans are intended to be used by organizations to retain at least 90% of their workforce with full wages and benefits through September 20, 2020, and to restore at least 90% of workforces in place as of February 1, 2020. Guidance on the implementation of these loans is still being addressed and expected to be released soon.
Credits, Deferrals and Other Employer Provisions for Relief
Employee Retention Payroll Tax Credit
The CARES Act also created an Employee Retention Credit, a refundable payroll tax credit of up to $5,000 per employee that is available to all businesses that have closed or partially reduced operations due to COVID-19. While many healthcare organizations have not closed, they may be experiencing a decrease in revenue. The refundable credit is equal to 50% of qualified wages (up to $10,000) for each employee. For eligible employers with more than 100 employees, “qualified wages” are wages paid to employees unable to work because of COVID-19.
For eligible employers with 100 or fewer employees, “qualified wages” include all wages paid whether the employees are working or not. An organization is eligible for the credit if (a) its operations were fully or partially suspended during the calendar quarter due to government restrictions limiting travel, commerce or group meeting due to COVID-19 or (b) remained open but gross receipts declined by more than 50% compared to the corresponding quarter in 2019. Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes by the amount of the credit. The Employee Retention Credit is not available if the organization has received a loan under the PPP.
Deferral of Payroll Taxes
The CARES Act also provides for the delayed payment of certain employer payroll taxes, i.e., including the 6.2% employer portion of Social Security tax. All healthcare organizations (with exception mentioned below) will be eligible to take advantage of this benefit to help with cash flow issues. Payments due from the date of the CARES Act’s enactment of March 27, 2020, through December 31, 2020, may be paid in 50% installments on December 31, 2021, and December 31, 2022. Employers receiving PPP loans that are forgiven are not eligible to utilize the payroll tax deferral.
“Reimbursable Employer” Reimbursements
The CARES Act includes a provision for exempt organizations that reimburses the state dollar-for-dollar when former or furloughed employees file for unemployment benefits (reimbursable employers). The provision provides that these reimbursable employers may be reimbursed for 50% of the costs associated with benefits provided to employees that are laid off or furloughed due to the COVID-19 pandemic between March 13 and December 31, 2020. These reimbursements are state specific with respect to the unemployment trust funds, and organizations are encouraged to seek advice with respect to these provisions with employment counsel.
Coronavirus Relief Funds
The CARES Act created a $100 billion fund for healthcare providers through the Coronavirus Relief Fund and Spending Provisions. The funds will be distributed through the Public Health and Social Service Emergency Fund to reimburse hospitals and other healthcare organizations for expenditures related to certain costs and lost revenues due to the COVID-19 pandemic. Currently, not all details are not readily available to provide direction on how the funds will be disbursed. However, on April 7, 2020, CMS announced an initial wave of funding of approximately $30 billion would be released based on Medicare revenue. As of Friday, April 10, organizations are starting to receive these funds via direct deposit. Additional information of the $100 billion HHS program and conditions of participation can be found here. Entities with lesser Medicare revenue (children’s hospitals, nursing homes, and certain physician practice groups) will likely receive priority for future rounds of funding.
Once released, the funds are intended to be used to assist with expenditures such as construction of temporary structures, property lease, medical and testing supplies and equipment, workforce training and surge capacity in response to the coronavirus, in addition to the lost revenue impacts healthcare providers are facing.
Other Tax Provisions
Net Operating Loss
Taxpayers including exempt organizations that file Form 990-T may benefit from updates to the net operating loss (NOL) rules, which reverse the NOL rule changes implemented by the 2017 Tax Cuts and Jobs Act. Specifically, the new provision temporarily allows losses incurred during 2018, 2019 and 2020 to be carried back five years (instead of only carried forward). In addition, losses carried over to 2019 and 2020 can fully offset taxable income rather than being limited to 80% of taxable income. Organizations that are able to take advantage of these rules can file amended returns to use these losses to offset prior year income and obtain refunds.
Charitable Contribution Expansion
The CARES Act includes charitable giving incentives targeted towards individual and corporate donors. The act allows individuals not itemizing deductions a $300 “above-the-line” deduction for 2020 charitable contributions of cash to 501(c)(3) organizations.
For taxpayers who itemize, the adjusted gross income (AGI) cap on cash contributions will be temporarily changed from 60% to 100% of AGI for 2020; any excess contributions will be provided the usual five-year carryover period. For corporations, the annual contribution limit is changed from 10% to 25%. In addition, the corporate food donation cap has been raised from 15% to 25%.
Other Stimulus Impacts for Providers
Advance Payments for Medicare and Medicaid Programs
The Center for Medicare and Medicaid Services (CMS) recently expanded the accelerated and advance payment program to a broad group of Medicare providers and suppliers.
Other Medicare and Medicaid Adjustments
Medicare will also provide a 20% increase to the MS-DRG weight for COVID-19 discharges. Discharges may be identified by use of diagnosis codes, condition codes or other means.
Medicare will also suspend the 2% Medicare sequester from May 1 through Dec. 31, 2020. The sequester will then be extended by one-year beyond the date currently stated in law (through 2030).
Medicaid DSH cuts will go into effect on December 1, 2020, instead of May 23, 2020.
Telehealth Expansion and Reduced Regulatory Burdens
To protect healthcare workers and their patients from transmitting COVID-19, the federal government has greatly expanded Telehealth services, the types of healthcare practitioners who can provide the service, and the settings in which it can be provided. Many other regulatory requirements have been reduced including waiving of cost sharing for beneficiaries for COVID-19 related diagnoses.
In addition to the expansion and reduced regulatory burden for telehealth, the FCC also has released a grant program related to telehealth expansion that providers should consider.
Regulatory Waivers and Adjustments
The following waivers and adjustments to regulatory provisions related to COVID-19 are also of interest to providers:
Question on how this will impact your medical practice or hospital?
FEMA Emergency Programs
Those seeking public assistance through FEMA and in coordination with other federal agencies may apply for such assistance through a simplified federal portal. Your organization MUST first contact the state or local emergency management agency to set up an account. Please note that by law, applicants must seek reimbursement through a legal recipient of Stafford Act-authorized federal dollars, i.e., a state, locality or tribe. Applicants may be state, local, tribal and territorial governments as well as eligible nonprofits and facilities of public entities, including and especially state emergency management agencies. More specifically, a public facility is one that a state, the territorial, tribal or local government owns or has legal responsibility for maintaining. A private nonprofit facility is one that provides certain types of care, including emergency and medical care, and care for the aged and disabled.
FEMA allowable costs eligible for reimbursement include incremental costs over and above your normal operating costs that are related to COVID 19. Examples include but are not limited to the following: emergency operation center costs, training specific to COVID 19, excessive cleaning costs, medical supplies, temporary medical facilities or enhanced capacity, medical waste disposal, and specialized medical equipment. Payroll costs for existing salary and hourly staff are not allowable costs. Overtime for hourly staff related to COVID 19 is eligible for reimbursement, however FEMA will not provide duplicate assistance provide by other federal agencies.
The Impact of COVID-19 on Healthcare Organizations
The coronavirus pandemic will leave a lasting impression on healthcare organizations. As we face these current and fast-moving changes it is important to stay up to date with the latest information to ensure compliance as you work to protect your organization.
Questions and concerns surrounding COVID-19’s impact on your healthcare organization?