Helping You Find Relief: Update on CARES Act and CMS Funding for PPMs and Other Part B Providers
Thanks, Jason. Absolutely. So, we can go ahead to the first line. Thank you, Hillary. So, I’ll start out by just mentioning that the Public Health Emergency Fund was created as part of the CARES Act. The CARES Act included $100 billion for that fund. And the language of the CARES Act is relatively broad in terms of who that fund can go to. There was some language in there around providing care to patients and responding to COVID, but overall, broad parameters around where that money could go, including physicians, hospitals and other types of entities. We can go ahead to the next slide, please.
So, what we’ve seen happen since the passage of the CARES Act at the end of March, is the first distribution of $30 billion out of the $100 billion to, predominantly, fee for service providers. So, on April 10th, folks woke up, and in their bank account, like the, you know, CMS or HHS fairy had deposited some amount of money that is pegged to your 2019 fee for service Medicare revenue. So, note very important. It does not take into account your Medicare advantage or your Medicaid or other types of payers, only looking at that traditional Medicare amount. The funds were intended to, according to the formula published by HHS, equal roughly 6.2% of an eligible recipients 2019 Medicare fee for service revenue. I’ll note here that we’ve heard some inconsistencies and feedback there around that, the amount actually received in the bank not necessarily matching that 6.2% number, some over some under. And I think there are certainly some irregularities to be worked out there, especially in light of the next piece we’re going to talk about. But, in some ways some good news for physician practices who are looking for relief, in receiving that deposit. But it certainly raised a number of challenges, and we’ll talk about those a little bit more as well. In order to keep those funds, providers need to accept payment terms and conditions. It’s about a 10-page document posted to the HHS website. There is a provider portal where you can go ahead and go in and attest. I will warn you that if you want to just look at it, you need a provider 10 to get in there, so you can you can go ahead and attest if you have your 10. If you don’t have a 10 you will not be able to view what is behind the wall of the magic portal. But it is a pretty straight forward clicking exercise, and then you go ahead and certify to the terms and conditions, which are less straightforward. So, let’s talk a little bit about that. We can go ahead and move to the next slide.
When HHS announced, HHS officials first announced this distribution of money, they had noted publicly that they were going to be no strings attached. Important to note that this pool of money is not a loan, it is a gift. So, providers are receiving these funds and are eligible to keep them, provided that they accepted the terms and conditions that come along with that distribution of money. In the terms and conditions, there are a number of issues that we are encouraging our clients and friends at the firm to look at very carefully, and to consider and just be thoughtful about, before you accept those funds. And so, just to walk through at a high level, some of the issues that we flagged, this isn’t going to be totally comprehensive, we’re happy to talk to you about it more offline. I think one of the big issues, at least at the outset of distribution of the fund, was whether or not the recipients were eligible to retain the money that had been deposited in their bank accounts. So, a little bit of a backwards sort of action by HHS here. The language of those terms and conditions talked about the need to have provided or be providing care to patients who were possible or actual cases of COVID 19. That caused many folks to look at it and say, well, you know, if my practice is closed or if I’m not actually treating COVID patients, what does that mean for me? HHS subsequently released some clarifying language on its website, so not as part of the Trump stated conditions, but on its website, clarifying that what they mean is that they broadly view every patient as a possible case of COVID 19. So, some attempts by the agency to clear up a little, a little bit of a sticking point there around who is intended to receive the funds, trying to provide that clarity around what is a possible or actual case of COVID 19. The next issue is around how you use the funds. You are attesting that you’ll use the funds to prevent, prepare and respond to Coronavirus. That has raised some questions, you know, if my practice is closed or, sort of, how do I apply these funds? What are the reasonable purposes to use these funds and am I going to, perhaps importantly, document that I’ve used them, and how do I plan to use them going forward and, and tie them back to Coronavirus expenses or lost revenue? I will bump ahead a couple of items here. Hopefully I didn’t just lose you guys, a little funkiness on my screen. There are some reporting requirements around the fund, one of which is a quarterly reporting requirement for anybody who receives more than $150,000 of distribution. That’s something important to keep tabs on. The terms and conditions make mention of an OMB process. We don’t know what that process is yet, and we don’t know how burdensome it’s going to be. So, that’s something that we’re certainly keeping a close eye on. And then perhaps, I think, one of the issues where we’ve gotten the most questions are the most concern is around a prohibition on balance billing. So, when the terms and conditions first came out, there was a balance billing prohibition that spoke about possible or actual cases of COVID 19, and because that possible or actual language was subsequently clarified to mean all patients through the website, that caused a lot of I think, heartburn and concern for many of our clients. We want to note that recently, the website and, sorry, the terms and conditions document, not the website, the terms and conditions document was updated to clarify that that balance billing prohibition is now limited to presumptive or actual cases of COVID 19. So, a language change there that is small, just a single word, but has significant meaning for many people who are looking at this money and trying to figure out what those terms and conditions mean. So, we view that as a small step in the right direction in terms of clarifying that we’re talking about presumptive or actual cases of COVID 19 for that balance billing prohibition. And then, the final thing is that there are some standard appropriations restrictions around use of the money. So, things about like salary limitations or types of services, think about abortions, for example, as an area where appropriations language is limiting in terms of how federal funds can be used. And the specifics of the application of those restrictions necessitate a look into your practice and the types of services that you’re providing and the types of expenses where you want to apply these dollars. And we are actively talking to folks about how, how we can assist and how we can identify others who can assist with some more on the accounting side of that calculation. So, let’s go ahead to the next slide.
This is a little that have a timeline in terms of thinking about the 30 days that you have to attest to receive the terms and conditions. I want to note a question that we’ve gotten a lot. If I don’t like the terms and conditions, can I just not attest to them and pretend they don’t exist and keep my money? The answer to that is no. HHS says pretty clearly that if you don’t attest, they’re going, but you keep the money, you’re deemed to have attest. So, no, no easy escape on that one. We’re advising many clients to keep an eye out for this May 10th deadline for the attestation. The reason being that we’ve already seen a number of changes from HHS to clarify the application of those terms and conditions in ways that we think, at least to date, have been moderately favorable to physician practices and so, probably worth hanging on a little bit longer if you’re able to do so. And keeping an eye toward that May 10thdate, monitoring closely for additional changes to those terms and conditions. We can go ahead and move to the last side.
I’m going leave a lot of what comes next to Brian Fortune to talk about, you have potential for additional funds and additional distributions coming out of the fund. I will just say that we expect more guidance on terms and conditions based on what we’ve seen. Again, several updates have already happened. We think more updates are in the works but encourage all of you to think about your questions and where you see ambiguity and potentially reaching out to HHS to get clarity about that. And then the final thing is the next $70 billion. So, we’ve only talked so far about the first $30 billion and out of that $100 billion, the next $70 billion is expected to be released sometime in the near future or, we’re hoping the end of this week. We were also hoping the end of last week, so I’ll just caveat that everything in this environment very unpredictable. Our sense is that Congress and the administration are reaching a deal on this remaining $70 billion and the next $75 billion that may flow from legislation. So, we’re hopeful to see more of that money come through with a focus on those providers who maybe haven’t received any distribution yet or who would be disadvantaged by a distribution based on fee for service Medicare. So, think about providers who, for example, have a lot of Medicare advantage, a lot of Medicaid, certain specialties where there’s not so much Medicare, you know, children’s hospitals, OBGYN, things like that. So, all of that to come and we’ll be happy to keep you updated and gather you all again, to share more news. With that, I will hand the microphone over, perhaps back to Kevin?
Sure. Thank you, Mara. Now let’s connect with Sam Dewey. Sam, do you want to give us an update on developments with the Payroll Protection Program? Sam, I think you might be muted.
Absolutely. Thank you very much. So, the Paycheck Protection Program, can we have the next slide, please? The Paycheck Protection Program is focused on providing relief through the SBA loan process for small business concerns and entities with less than 500 employees, is the general test. As I’m sure many of you all are familiar with, in determining eligibility, the SBA applies, so called, affiliation rules. Those rules determine when employees, or in some cases, receipts or other financial metrics, are aggregated among controlled or related companies for the purpose of determining eligibility. And one of the main things that we’ve seen in the PPM states in particular, is that the common structure will generally render those networks ineligible for loans because of the affiliation rules that will end up combining employees due to a relationship based on management agreements. There’s been some recent lobbying underway, a lot of the major position advocacy groups have submitted that they should have an exemption from the affiliation rules, which allows each practice to be treated individually. There is an existing exemption in the CARES Act that applies that way for restaurants, under the theory that each restaurant should be treated individually, particularly in the case of franchisees. And the argument is being made that medical practices should be treated that way. The current treatment is unfair. TBD how that lobbying effort goes. For now, we know that generally speaking, some high-level provisions of the PPP focus on payroll. 75% of the loan must go towards payroll costs. The remaining 25% on other allowable expenses, such as rent or things of that nature, and there is a forgiveness provision for reductions for forgiveness if the workforce is reduced and not restored by June 30th. It’s at a 1% interest in six-month payment deferment. So even in the event that you don’t get forgiveness, it’s still low interest loan. The fund is currently out of money. We expect that it will be replenished sometime this week. We’re told that there is a deal in principle between the White House and Congress. The deal could pass the Senate as early as today, but that’s not for sure. And then the deal will go to the House on Thursday, where we expect some Republicans in the House to force a full roll call vote, which will require the House coming back into session and will delay the timeline. We don’t know the exact numbers, but we expect substantial funding to the added under the agreement. We also expect some of this funding to be earmarked for really small businesses, minority businesses, and underbanked businesses. That’s been a major push of the Democratic caucus and, as we understand, the deal will include some of those provisions. Everything I flag about PPP, were not only monitoring the legislative landscape in Congress, but we’re also monitoring the regulatory landscape. Treasury and SBA have a lot of discretion and key regulations remain to be issued. For example, on the topic of forgiveness, which Kevin has occupied an entire webinar, we expect further regulations to be issued, clarifying a lot of the detailed calculations. We also expect that there may be further regulations implementing earmarks in the expected funding allocation that we expect to pass this week. Finally, I’d note that, in terms of interpretation of the affiliation rules and the application of existing SBA regulation, there’s still ongoing developments. Treasuring and SBA are still issuing the rules, they’ve been issuing frequently asked questions, and there’s even litigation about aspects of the program. There’s litigation pending in the District of Maryland, in DC district courts, in Michigan, and in Minnesota, challenging various restrictions on the use of funds and challenging restrictions on eligibility imposed by banks and by, in certain cases, the SBA. So that’s the PPP landscape in a nutshell. It’s moving quickly and stay tuned. If we could have the next slide, please.
We’ve also seen a lot of questions about setting aside the PPP program. What type of relief is out there, both in terms of its additional relief beyond PPP as needed, but also from the perspective of those who are ineligible for PPP. And there are other programs out there, most notably the Federal Reserve’s Main Street Lending Facilities, which is designed to provide loans to increase liquidity to small and mid-size businesses. There are two components of these facilities. The Main Street New Lending Facility is designed to originate new loans to small and mid-sized businesses, whereas the Expanded Loan Facility is designed to allow the upsizing the creation of an upside tranche of an existing loan from a financial institution to a small business lender. Structurally, these loans would be loans from a financial institution, and the loans will be backed by the Federal Reserve, which would buy 95% of the loans or the upsize loan tranche through a special purpose vehicle. These facilities are still being unrolled. We do not expect them to be operational for a couple of weeks. There are also a lot of key details in these facilities that remain to be clarified by regulations, guidance, and the issue of the paperwork, which will likely govern these transactions. Some of the key details that we do know are that they’re designed for small to mid-sized businesses, which is up to 10,000 employees or under $2.5 billion in annual 2019 revenue. Another restriction on these programs that they contain leverage limits that are measured against 2019 EBITDA. We’re not exactly sure how these limits will be calculated. That’s TBD. That will come in the guidance, but what we do know is that it will be a 4X leverage cap for the new loan program and a 6X leverage cap for the extended loan program. These are also the loans that come with restrictions on items such as share buybacks, stock distributions and executive compensation. Those don’t apply to the PPP; they do apply to this program. So that, in a nutshell, is what we’re seeing on the PPP front, and in terms of other options that are out there. Thank you very much.
All right. Thank you, Sam. I think now, we’ve touched on adding additional color to three of the programs that are out there already. Obviously, still more to gel on those alone. Maybe, now, to look further down the road, both on those developments as well as, kind of, moving on what additional things are in the hopper. Brian Fortune Farragut Square can start us off, and then I’ll invite the rest of panelists to chime in as well.
Yeah. Thanks, Kevin. Thanks everybody for joining us for these series. Obviously, we’ve done a lot of these and I generally think they’ve been pretty helpful. Part of it’s just the fact that, as you guys know, we’re in crisis mode. So, Washington is, is literally kind of flying by the seat of their pants, and they’re just sort of throwing everything they can at this to see what sticks. So, what we’d like to talk about now is sort of the future. And when I say future, we’ll probably talk out for the next six months, and Mara and Jason, some others will feel free to jump in as well, but, you know, let’s kind of think through from now until the end of the year. So, we mentioned the fact that this week really is kind of about what, what I’ve been calling for clients, the mini-stim, you know, if a, if a $400 billion bill can be considered mini stimulus, but in this era, it is. So, you, know that the timing is a little fluid, still. They’ve been talking about it for two weeks, but obviously, by, I think, by the end of this week, we will have that. And as mentioned, you know that, that is more money for the SBA loan program, about $250 billion. And then there’s, our understanding is that there’s $75 billion in there towards this public health fund for hospitals. So, it sounds like Congress might be directing that next tranche directly towards just hospital providers. You know, one question that, that means if you’re advocating is, what about the $70 billion that hasn’t been allocated that’s already in there. So, if you’re a provider that’s in the middle of this food fight, you want to make sure that, if the next $75 billion tranche is for hospitals, that maybe this current unreleased $70 billion can, again, go to everybody. And Mara did a great job of teeing up the fact that there’s a lot of questions about that. I mean, I won’t revisit those, but just to say that this is what you get sometimes when different committees write things. So, you know, you’ll notice that a lot of the programs that flow through Medicare, the money has, with a few glitches, generally flowed pretty fast to a broad range of people. This one, the way it was written, has kind of caused a lot of confusion and even within the agency. So, you know, down the road there, there will obviously be, I think, a conversation about, should Congress clarify how HHS can set rules and get this money out the door. So that’s one thing. We’ve got mini-stim coming up. Three things to think about if you’re a health care provider or a PPM on this call. You’ve got mini stim coming up. That’s really just about re-upping the money. Second one though, is there, when lawmakers get back to town, they will be expected to talk about a big fourth stimulus bill. So, kind of a CARES Act 2.0. That one will be big, and our understanding is that they’re talking about a lot of things in the healthcare arena. So, you know, at a minimum, they may be talking about more money for things that are already out there. So, you know, let’s see how this next tranche of SBA loan funding goes or, you know, look at the public health fund again. But there are a lot of things that are on the table that I think are important to consider, not just from the standpoint that it may affect you, but so that, you know, because you have time, you might choose to, kind of, step up and participate a little bit and advocate for yourself. So, here’s some things I want to throw out that I think are going to be looked at between now and stimulus four. And then, the end of the year, there we one final piece of healthcare legislation in the form of a new Medicare extenders bill. So, one, we talked about advanced payment. You’ve already seen that various physician groups are asking for things that I think are quite relevant. One is, get the same timeline, at least that the hospitals would get, instead of 210 days, either a full year, or, as you know, some groups have asked for even longer. That’s a very good thing to ask for. Second, you know, the SBA loan program has very favorable interest, whereas, you know, this one, even though it’s dropped down from 10.25%, you know, 9.6 in change is still a pretty high interest rate. So, that’s something that would probably require congressional action. Possible forgiveness. You know, my personal opinions is it is a lot easier to get people to loan you money at a very favorable interest rate. But, you know, by all means there are people asking for potential forgiveness, and that is on the table. Another thing to think about is, is potential regulatory relief. So, I think you’ve already seen this. CMS has, in the middle of a crisis, responded by, kind of, taking a lot of things they had been working on in a regulatory front, off the table for now, because they just don’t, I think, have time or the bandwidth to, you know, sort of litigate those through regular comments. So, we’ve seen it in Medicare Advantage. They had a whole host of new MA policies that came out in February, and then when the final rates came out, that rate completely disappeared. So, it’s not even listed at OMB as existing anymore. So, they basically tabled that conversation on drug management tools and star ratings and some other things. You know, those of you who are in the D & E world, though, that they pulled a noninvasive ventilators out of the next round of competitive bidding. So, obviously, those are much in the news. Skilled nursing. You know, maybe they are spending too much under the new PPM system, and, you know, they mentioned that they’re watching it, but they did not decide to get into a fight about doing any type of baseline reset or anything for that. See, I mentioned the fact that that larger firms or PE owned practices or others will be having an opportunity to lobby in the stim four conversation about maybe getting access to the SBA loan program. So, I think, you know, this is this is a very important time to talk about that. As you noticed, the administration’s put out some guidelines for reopening the economy. So, in phase one of that, they anticipate that elective procedures in a state that can reopen will go back online. But obviously, there are some conditions for whether a practice or facility can do that. So, I think, you know, that’s going to be important to look at because you’re going to want to work with your state to make sure that there’s ample supplies of PPE and other things. And, you know, again, the last thing I remember is that, you know, if you’re advocating for changes in this, there are multiple passes at the target. There is a fourth stimulus this bill coming. There is a healthcare extenders bill toward the end of the year. And then there’s also the CMSs regulatory process. So, it’s just getting underway and physician fee schedule will be coming up in the next few months. So, I’m going to pause there and pull in my advocate extraordinaire on the M Plus side and see what else Mara wants to add.
Thanks, Brian. The only thing I would really add to that is, don’t take for granted that HHS and CMS and the Hill know how their existing help has either worked or not worked. I think there is a big communication gap between what’s happening on the ground for physician practices who we know are still really hurting. We’re struggling with terms and conditions and trying to figure out accelerated payments and looking at all these different options. Even by the time you figure that out, it’s probably a pretty small drop in the bucket compared to your total loss due to Coronavirus. I think there is, surprisingly, a lot of opportunities still, to talk to the Hill, to talk to HHS about where there are gaps, to try to start filling that in and to advocate for more relief. And certainly, these future stimulus efforts are, are one piece of that, and the regulatory pieces as well. So, with that, I think others have may have some live updates for us on what’s going on with Capitol Hill.
Yeah. Excuse me, Sam. We can get you back online here. I know we were just chatting on the side bar, because while we’re doing this webinar, Congress is obviously working on what they’re doing as well. Quick update on the numbers around a new potential deal?
Absolutely. Thank you very much. So, we understand that it may be voted it for unclear if the text is still being finalized, but the numbers that we’re hearing right now, are $310 billion more for the PPP fund with $60 billion of that reserved for unbanked, rural, and minority communities. We’re hearing $75 billion for some sort of hospital fund. We’re hearing part of a hold up in getting a language out may be the precise details of that. $25 billion to help the states with testing. That was a key negotiating point. And an additional $ 60billion for EIDL loans, which are another sort of small business loan, would provide very low value loans to small businesses dealing with emergencies.
Thanks, Sam. And with that, was that just a numbers report or any insight on potential T and C changes in any of these programs’ worth mentioning?
So, I think, what we’re hearing right now is that there will be a six in the bill for an issue that rendered certain agricultural operative’s ineligible just because they were traditionally not eligible for SBA funding. That was a priority for some very powerful senators from agricultural states. We haven’t heard anything about a potential fix that Brian had referred to, and that I was discussing earlier, for medical practices. So, it would seem like that’s not in this one, but as Brian said, on opportunity for the COVID fourth legislation.
All right sounds good. We’ll all have to stay tuned and watch how that develops. As we’ve been speaking here, you know, questions and answers, you know, we’ve got the Q&A function up and running. We’ll follow up as best we can to the extent that questions were not answered in the course of the discussion today, we can follow up offline. I’d recommend for those specific questions, please feel free to fall with your regular McDermott attorney or anybody on the panel here. A lot of development, I guess, any closing thoughts? Otherwise, we can probably cut this short and let folks get back to their days. All right, well, thank you, everybody, for joining. We will continue to monitor the situation in Washington and more broadly, internationally. Good luck, as we move forward, and we’ll do our best