Washington’s Response to COVID-19: Impacts to Healthcare Organizations

Date: March 30, 2020
Well, good afternoon. Thank you all for joining us. My name is Brian Fortune, head of the Farragut Square Group, which is now part of the McDermott Will & Emery family. Welcome to our call today. I know many of you are enormously interested in what Washington has been up to. Over the last few weeks, Washington has mounted a massive effort to help federal agencies, states, healthcare organizations, individuals, and businesses cope with public health, the public health and economic impacts of the Coronavirus pandemic. Congress has enacted two stimulus packages already and HHS and other federal agencies have made a number of regulatory changes, both to aid healthcare providers and state response efforts as well to make it easier to provide services in a time of lockdowns and social distancing. This very day, Congress is on the cusp of enacting a more than $2 trillion third stimulus package that includes billions for healthcare research and supplies, billions in relief for states, cities, industries, and businesses, large and small, and healthcare providers, both for the cost of coping with the crisis as well as revenue losses from a major reduction in elected services. We’re going to talk about these major actions. We have a great call for you today. We have assembled a very deep and knowledgeable team who have been on the frontlines of working with Congress and federal agencies, and, as well as the healthcare stakeholders helping them navigate these unprecedented times. So, just a quick overview of what we’re going to do today after I introduce all of our speakers, we will talk a little bit about what we’ve been up to for the last few weeks to help out our clients. Then some of my colleagues are going to walk you through both the recent near-term actions as well as the Coronavirus third stimulus package that should be enacted by this weekend. And they’ll be offering key takeaways on what those high-level points mean for you. Then we’re going to break down a very specific section that I think many of you are interested in, in that there is a $377 almost $400 billion program in the stimulus package through the Small Business Administration that offers loans to various types of small businesses. And then we’ll be also taking a selection of your questions. So, I’d also like to say that if at any time during this you would like to submit a question, you can follow these instructions and submit those through the Zoom Q&A function. We’ll be able to see all those and, and we will be answering a selection of them. But also, feel free to submit a question at any time, because if we can’t get to it during the webinar, we will be sending follow up materials to all of you, and we may be able to reach out and give you a more specialized answer. So, with that, let’s introduce our great cast of speakers today. Obviously, I’m Brian Fortune, one of the folks around the Farragut Square Group. We are part of McDermott. We, we focus on a regulatory and reimbursement diligence for companies, healthcare companies, as well as the financial institutions that back them, so private equity bankers, lenders. We also help clients with clinical coding in compliance diligence. Also, with us is Jason Caron. He is a partner in charge of the Washington DC health group practice at McDermott. Before that, he worked for the HHS office of the General Counsel in their public health division during 9/11. And he also was operating through the anthrax scare in in 2001. So, he will be, he will be talking in just a moment. We’re also joined by Mara McDermott who is a part of McDermott + Consulting, which we like to say, our, kind of, super lobbyists. They don’t just advance their interest on the hill. They usually think about how to formulate policy and help congress and agencies, kind of, get there through their interactions. And Mara comes to McDermott after having run a trade association that focuses on physicians and has lot of depth in that. So, she represents clinical societies, trade associations, and, and other provider clients every day, and calls the CMS and Capitol Hill. Also, my colleague Cary Gibson, one of our senior staffers in the DC office of Farragut Square Group. Carry is a longtime veteran of Capitol Hill. She also worked for a very long time with physicians at the AMA and has lobbied for many years for a variety of healthcare clients. And, last but not least, is another partner out of the Washington DC office, James Kim, who has, is very, very knowledgeable and specialized about the SBA loan program and other things. So, great cast for you today, and with that, I’d like to turn it over and start with Jason because, you know, I know that I mentioned at the beginning of this call that Washington has been very, very busy for the last few weeks, and so have we. So, we’ve been working very, very hard within the McDermott family to provide as many useful resources for our various clients to both, you know, react to and prepare ahead for things that are related to Coronavirus. So, with that, I’d like to turn it over to Jason to tell you a little bit about these things.

Thank you very much. Brian. I hope all of you are, well, safe and otherwise healthy. Coming from the team here at McDermott, we wish you all the very best this we go through these challenging times. I also like to note that our firm leadership had done a lot of preparation and allowed our firm to move to a remote support function quicker than a number of our peers, and, I think, in a much more seamless fashion. And so, we have been, I think, very quickly meeting our client’s needs. Been available through remote media and as a result, have been able to quickly stand up a multi-disciplinary team across the firm, across the firm globally, including here in our health industry practice group to support our clients as they’re rising to this challenge, the public health emergency that we’re all dealing with. As a result, we’ve been able to quickly deploy the McDermott Coronavirus Resource Center, which again is a multi-disciplinary resource for our health clients, our healthcare community clients, put more broadly. The topics we’ve been focusing on sit in a number of different buckets. Given the crisis, many of the issuances, and I’ll use that term carefully, that are coming from local, state and federal government are quite dynamic and definitionally are not going through what we typically see in terms of notice and comment. And so, as a result, we’re seeing these developments occur very dynamically, with a number of intended and unintended consequences flowing from them. We’re seeing additional regulation in some areas, and we’re seeing deregulation in some areas. We’re seeing some relief in funding as well, and today we’re going to spend some time talking about, in part that relief in funding that flows from this. In the early days, we saw a lot of testing, questions, testing as it relates to FDA clearance, CLIA related issues, given that the folks at CMS regulate testing at some level, coding coverage and payment issues associated with testing, starting to see more and more questions around the 1135waivers, which are, as a number of folks in the community may know, is a mechanism under the statutory framework, federal statutory framework, that allows HHS and CMS to relax a number, but not all, of the Medicare program requirements, as an example. Given this, we’ve had a number of webinars knowing that there’s different media available to different folks. We’re doing our very best to make these webinars available in real time, of course, but also recording them like this webinar here so folks can review it as this, this public health crisis evolves. So, as we think about the topics you’ve got, and we’ve named a few here, telemedicine continues to be a hot topic across the healthcare ecosystem, and again, as it relates to the interplay between federal and state government, seeing federal government serving, in some respects, as a coordinating rule. These of the state government knowing, in that particular instance, a number of commercial payer dynamics come into play, state licensure dynamics come into play, and the like. So, with that said, this is a resource on our website. Our multi-disciplinary team has been, sort of, comprised of folks like myself to have a former clinical background, individuals in our labor employment team, our real estate team, our finance and restructuring teams across the firm really trying to have a cohesive resource for our client base. With that said, I’ll ask Brian to go ahead and advance the deck and we’ll take a dive into some of the specific upcoming webinars. One in which a number of folks have been trying to understand the import of privacy and security landscape as it relates to a number of the, I’ll call it, deregulation efforts that are underway. And so, the Office of Civil Rights has made some strides there, and our experts in our privacy and security team will be spending some time talking through three contours from a HIPPA perspective. Our informant team will be talking about, on a more generalized basis, but does impact the healthcare ecosystem, the implications related to employment. And then a very large one as well that we’ve been seeing more and more folks again across the ecosystem address is the impact as it relates to real estate and leases, in particular. And so, our real estate team that does have significant experience in healthcare real estate issues has an upcoming webinar as well. You’ll see on our resource center that will continue to have additional resources flowing in real time, if there are any particular topics that you have, we do have a multi-disciplinary team that’s identified on the website. Of course, reach out to your normal traditional channels, to your normal traditional channels with McDermott and let us know if their particular topics you want us to spend more time on, if you’d like, of course, a consult, what have you. And so, from there I will transition over to the next slide, Brian. And here I’m going turn it over to Mar and Carry to spend some time on where we sit today on this most recent round of relief.

Thank you for that. Take it away.

Thanks, sorry about that. The challenges of a virtual webinaring. Hi, everybody. We hope you’re doing well. Cary Gibson and I obviously drew the short straws on this team to get the opportunity to talk about close to 1000 pages of legal text and regulatory guidance, much of which was finalized over the past 24 hours. But we’re going to do our best. I’m going to split my comments into three buckets. What was in the CARES Act, what is not in the CARES Act, and what, what you should do next. I’m going to start with, I think, the biggest orange circle in the middle of your screen and the area where we have gotten the most questions in the past 24 hours, which relates to the creation of this $100 billion Public Health Emergency Fund. One of the things that has gotten a ton of attention in the CARES Act are sources of direct relief for hospitals and providers and other types of entities. The CARES Act creates this $100 pool of funding. There are a ton of questions about who’s eligible for this fund, and the very short answer to that is that we don’t know. But there is a lot of information that you can glean from just three pages out of those many, many pages that talk about what this funding is for. And rather than walk you through all of that, read it to you. I would say, we’ll send that around as part of our follow up email. But if your question is, can my entity qualify? I would highly encourage you, as a starting place, to look at that language, especially where it talks about eligible entities, which are, which is definitely broader than hospitals. It includes other types of Medicare providers and suppliers and other types of entities overall, for profit and not for profit entities, as the HHS secretary deems fit. But there is some language in there around treatment of COVID patients or prevention of COVID that may inform your thinking about where the federal government is heading. This also is headed into a new process that will be directed by the Department of Health and Human Services. We are expecting to see guidance on the distribution of funds in very short order. We’ve been working with congressional staff contacts and with the administration to try to get a handle on that and are hearing that they’re hoping to have some more of that process guidance out as soon as next week. So, we know you’re all anxious to get more information about that, and we will be tracking it just as quickly as we can. The other significant source of potential relief for physician practices and other types of entities comes from the Small Business Administration loan provision that James Kim is going to talk about toward the end of this presentation. So, outside of those direct funding sources, the legislation aims to do a few things to try to increase cash flow for providers. I’m just going to talk, hit on a couple of the high notes. One of them is that there is an inpatient DRG bump, 20% for COVID-related cases, and that, that is intended to create some cash flow. I think we’ll have to do some modeling to see if that’s enough, and I don’t know that we’re, sort of, deep enough in here or to the COVID crisis to know the answer to that. But something to take a look out there. There’s going to be a temporary break from that Medicare sequester. So those of you who are paid by Medicare know that many years ago there was a 2% across the board reduction applied to your Medicare payments. That 2% reduction will be temporarily lifted from May 1st through the end of the year. And our understanding is that that May 1st deadline is due to process issues with CMS. They need that much time to adjust the claims. So, keep an eye out for that. And that’ll be across traditional Medicare and Medicare Advantage. And then the final thing that, that’s, sort of, caught our eye for many of our hospital clients and friends who are on this webinar, really, it’s to pre-payment. There’s a section in the CARES Act that allows hospitals to receive some amount of funds on a prepaid basis, and this, in our, at least cursory view, would operate sort of like a no interest loan for hospitals where you could be prepaid, you have an extended amount of time to pay it back, and, you can, sort of, have that cash flow up front. We know many of our hospital clients have been working with health plans on a similar type of model just to get some cash flow. So, something to take a look at there. It’s section 3719 for those that are following along in their notes. I will just briefly mention that there are a number of telehealth changes that may be worth digging into, especially if you are rural and have been struggling with some of the restrictions around rural health centers and FQHCs. Additional provisions for coverage of an eventual vaccine and diagnostic tests. And then, finally, that this package includes the healthcare extenders. There are a number of healthcare provisions that expire on a, in my opinion, far too frequent basis and need to be reupped. Those of you that follow the Washington space more closely will know that that, the deadline for extending those provisions have been May 22nd, 2020. All of us have been living under that deadline for a variety of reasons for a long time. That deadline now goes away from an extenders’ perspective. Those, those health care programs subject to extension are, are now renewed through November 30th, putting us past the presidential election into what’s called lame duck, the period between the election and the new Congress taking their seats. So, that’s what’s in the bill. I saw a question related to telehealth coding. This is a question that we’ve gotten a lot, and we’ve been working closely with our managed care team on. The issue relates to whether, with the new flexibility around telehealth, will CMS accept risk adjustment codes collected through those telehealth visits? We’ve been in regular contact with CMS on this problem, I, in fact, talked to somebody just this morning before this call. We’re still waiting on that guidance, and we’ll be sure to push it out to those of you who have reached out when we receive it. I want to spend a couple of minutes talking about what’s missing from this bill many of you know that we’ve been closely following for over a year. Two issues in Washington, DC. One of them being surprise medical bills, so trying to relieve patients from what they view as surprising situations where they receive a medical bill they weren’t expecting to receive because they’ve gone to an in-network hospital or something, you know, situations like that. And the second is prescription drug pricing. In the, sort of, opening salvo from Nancy Pelosi on the House side, there was mention of surprise billing in terms of a sense of Congress. A sense of Congress around the issue of surprise billing but no specific legislative text around a surprise billing proposal. All of that falls away in what we have with the final CARES legislation, at least as of the time we’re getting this talk. So, that issue remains on the table, and I think will be, you know, continue to surface as we have discussions about stimulus four and five and however long we think this, this crisis goes on and there is a need to respond to it. I think it’s, the policy there has just been very difficult. It’s been very difficult to find agreement on how you address surprise medical bill payments, and we’re going to continue to see that play out. The second one is prescription drug pricing. We similarly have spent what feels like years, although every COVID day feels like a year or so, maybe it hasn’t been exactly that long, talking about the issue of how to address prescription drug pricing. And there have been proposals all through Congress, over 100 bills introduced in the session, relating to the topic of prescription drug pricing. Some, some have a question, I think, whether you could get some of the low hanging fruit drug pricing provisions into these bills. I defer to others on the team who may want to weigh in, but I think it’s very hard to do that when we’re at asking manufacturers to save us from COVID 19. So, something to keep an eye on, but I think is very difficult in the context of this conversation while were looking at vaccine developments and other things. The final bucket that I’ll talk about before handing it over to Cary to talk more on the regulatory guidance side relates to what to do now. And I think we have a slide that speaks to this. If we can go to the next one, Brian. Maybe.

So, I think what you all want to be thinking about, advances all the way to the end. I think what, what folks want to be thinking about is how to clearly communicate what’s going on in your community, in your practice, in your hospital to Washington DC. I think we still see a lot of opportunities for touchpoints with the administration and with Congress to talk about what CARES does to help you, but also where there are still gaps. And we know from all of our conversations with all of you that there are still a lot of gaps and that folks are hurting and are responding to this crisis just as fast as they can every day, but that there are additional things we’re going to need the federal government to step in and do. I would say you can leverage a lot of your trade and professional associations and that we are all here to help you as you think through these challenges. And I think with that, I’m going to hand it over to Cary to do a deeper dive on some of the regulatory guidance materials that we’ve seen come out related to waiver flexibility and other things of that nature, so.
That was really great. And, Cary, then when Cary, when you’re done, let’s keep you both unmuted and we’ll, let’s tackle a couple of questions were getting in on these, and then we’ll go to James. So, take it away, Cary, thank you.

Great, thanks, Brian. So, I’ll just touch a bit on what I really consider it to be the, the higher points of what CMS has, has put forward for, for guidance, for regulatory guidance, from some of these issues. You know, since the day the public health emergency began, CMS has put on a ton of information. They’ve been able to do a lot through their 1135 labor authority, which Jason touched on earlier in the presentation, which is available to them through the duration of the public health emergency, not just for Medicare, but also for Medicaid programs as well. So, CMS has been offering flexibility to providers, certainly supporting … to operate better in this public health emergency environment, but also … of course, access to care locations, but all beneficiaries, not just those beneficiaries… COVID 19 at this point in time. From my point of view, we have a big, significant flexibilities on a telehealth front, .and actually we see that in Congress as well. The finance title, the finance title of the, of the third stimulus package it is, sorry, I think I am having some audio problems, I’m told.

Yeah. Little bit of echo on end Cary.


There, there you go. You’re fine.

It’s better? Okay. Sorry about that, just moving some things around, webinar learning, sorry everybody. Anyway, so as I said, one of the biggest flexibilities that CMS has offered is on a telehealth front… Congress… The third stimulus package just passed through the Senate, also…. More telehealth flexibilities in the, in the finance title as well. But what CMS was able to do through their waiver authority is… requirements… in telehealth… Medicare… restrictions on originating site and also restrictions on regions of the country where that can be performed. abilities. In addition to the telehealth flexibilities, CMS has offered, also offered…

Cary, let’s, let’s pause.


I think there may be some issues on your end. What I might do is just audible, and maybe what we’ll do, Brian is pivot to some questions and then switch to James. It sounds like Mara, Brian and I are doing, probably, fine on our ends, but, you know, every, every community is getting impacted differently, as we all know, and it probably makes sense to make best use of this time and just hit pause on that thread. And, maybe we’ll take a couple of questions generally on the package from Mara, Brian and I, and then we’ll flip it over to James.

Yeah, I wanted to revisit a little bit about the bill. And, Cary, you can chime in to I’ll take your path of audio. But, so let’s go back to the $100 billion fund. So, James is going really illuminate a lot of the SBA fund. And so, really in this bill, it’s important to note that there are, you know, if you’re a healthcare provider there’s potentially different funding streams, you may be able, depending, to access. But obviously, there’s this $100 billion public health fund. So, you know, just upfront, to Mara and Cary, as far as you know, from the language, who is this targeted for? And how is it prioritized? You mentioned earlier that obviously you can access it if you’re treating, you know, actual, if you’re doing actual COVID treatment, but, you know, there was a lot of mention in, kind of, the descriptive language from the committees that it might help compensate people for, say, lost revenue or other things. So, what do you know about it right now?

Sure. Thanks, Brian. So, what I think we have now is a pretty open field in terms of, not totally open, but pretty open. I mean, to me the language reads to try to speak to providers, certainly hospitals, physician groups, and possibly others. I don’t think we have a lot of information on the parameters around who will ultimately qualify. And we definitely don’t have any information on the parameters about how it will be prioritized. So, as you think about the impact that we’re seeing across America today, and you think about how that might be different, totally different in three weeks, as we see increased testing and the disease just, you know, sort of further develops. I think that it is a challenging time for HHS to come up with a formula. What we do know, Brian is that there are going to be applications on a rolling basis, and, and that there’s going to be more information soon. And so, if that is an avenue that you’re interested in, I would say the best thing that you can do is take a look at the criteria that are available now, which are not totally illuminating, but a little bit helpful. And then, you know, stay close to us as we continue to dig in and get information from HHS and others.

Yeah. Just to add to that, kind of, reiterate again that McDermott and McDermott + and Farragut have all published a lot of material on the stimulus package. So, you should be able to access that, all of you on the call, through the resource center that we linked up in the beginning. And we’ll probably be sending out some of our most relevant documents that we talk about today in a follow up to everybody. So, that way we could just keep focusing on, kind of, the most important high stuff. But to Mara’s point, it’s probably important, I know everybody in the call, a lot of you are very, very sophisticated and you deal with Washington all the time, but, you know, I would remind everybody a lot of times Congress quite often deliberately writes vague language and they leave it up to the agencies to, sort of, put flesh on meat on the bones. So, you know, a lot of this, who qualifies and under what conditions, will probably be punted to CMS. Is that a fair statement?

Yeah, I think that’s fair. Seeing ASPR HHS, I think that’s there. We have a question. I see a question, Brian, not to cut you off, but about how physicians can demonstrate the economic harm to access the 100 billion. And I know that’s something Jason’s given a ton of thought to and started to, you know, help, help think, help people think through like how they’re documenting their losses and things. So, I would love to give him the opportunity to jump in on this conversation, too.

Yeah, thanks, Mara. I think, so to touch upon that delegation concept. That’s, that’s a consistent concept through the legislative process, which is, you know, concepts, parameters defined by Congress and then showing some deference to the agencies and then the agencies to provide typically some opportunity for engagement with the impact of community here. Given that we’re under compressed engagement time frames, I think what you touched upon Mara is critical, which is using your existing channels and those that have existing channels to policy makers. Often professional associations, trade bodies and the like is going to be critical to make sure your voice is heard. One thing that I’d also caution people, and we’ve seen a bunch of feedback, you know, Mara, I think you and I have spent some time talking about this, is COVID- related issues being the focus right now. We’ve seen a little bit of noise around other issues that people are trying to tack on, and there’s been a lot of, I’ll call it, apprehension pushback as it relates to non COVID related issues being brought up in the context of the COVID crisis. And so, wanting to make sure folks understand that that’s an issue that has certainly percolated up and is top of mind for a number of folks. In terms of how physicians are going to spend some time documenting and thinking about how they’re structuring this, I know James is going to touch upon that in the context of, to the extent physicians fall into some of the small business structuring, but another mechanism I think we’ve been spending a lot of time with in the physician community side, which I’ll touch upon first, is dealing with the guidance that’s come down from CMS, as well as what’s percolating up from the various state and local governments related to Elective non-essential services and understanding where people are striking the right balance, or not striking the right balance, between the preservation of personal protective equipment, making sure we can redeploy healthcare resource is to communities that need them most, be it people and other tangible resource. As well as the context around, if we shut down or we unduly restrict outpatient medicine, are we going to incentivize patients to either go across borders in one instance? Or are we going to incentivize patients to flood emergency departments? Those being, I think, some unintended consequences that have not played out. And we’ve been working with the physician community in large part to really help them document whether their services meet the essential, non-essential definitions under various state governor issuances, local health department issuances, and of course, there’s, some CMS as well as other federal guidance. But I think I’ll defer that documentation piece, as it relates to documenting the losses, to James because I think that will be the primary context by which a lot of folks, we’re going to be seeking relief, at least at this point in time. Not necessarily the only context, as we see what HHS and others do, to coordinate amongst the different agencies.

Yeah. We have a couple more minutes before we’re going to move on to James. So, a couple of lightning round questions, if you will. First off, let’s talk little bit about the state relief. So, you know, one thing that that’s happened, both in this bill and in some of the earlier actions, is that CMS has put out a number of waiver and waiver modifications to states. Someone kind of wanted to talk about that, and, and coupled with the fact that, you know, they’ve also increased temporarily the Medicaid match. So, how far do you think this goes in terms of maybe shoring up some of the, the state budgets in the near term?

I can try to answer that if you guys can hear me. I don’t know if this is any better.

That is better.

Okay, great. So, I think, listen, states are… because of this, it’s difficult to know right now exactly what the impact will be on state budgets because we haven’t had the totality of the public health emergency. And I think that… impact of this event for quite some time. I think Congress is doing everything they can to help states along. Congress is helping out with an increased effort for this great time. CMS is offering a number of flexibilities within the 1135 labors. They’re also trying to get states… licensure flexibilities as well. So, these will help, but states will have to continue to find ways to recover from this after, after the emergency is over.

We just got a question that that is, in fact, I think, relevant what’s been going on? Can anyone talk about the special enrollment period that CMS has been talking about? We don’t have all of our managed cared focused colleagues on the call today, but for the panelists, for the video audience member who asked that question, we are aware of it. We can get you some more information as that goes. I just want to reel off a couple more things, and then we’re going to move on to the SBA loan programs. I know a lot of you guys called in specifically to hear James’s wisdom on who’s going to qualify and how to access that stream. And, when you get a chance, I strongly encourage you to read a lot of our summary material in the bill because there are a lot of things in here that affect providers. So, you know, for one, they suspended the sequester temporarily throughout this year. And that’s kind of an across the board suspension of that 2% sequestration head. Now, you know, as usual, when they do that, they often, you know, add years of its life on the back end, and they, that was also true here. But they have also changed a number of near-term requirements. So, they’ve lifted some requirements on admissions. I thought it was significant that they lifted requirements for LTAC admissions, which, you know, in some ways makes sense, and that LTACs, obviously, specialize a lot of times in ventilator dependent patients. You know, the last thing we would mention is that, of course, there is a degree of healthcare relief to individual patients in this bill as well, in terms of payment responsibilities for testing or treatment and co pays. All right, so we’re going to have a chance to circle back and do some more questions, but in the meantime, queued up is James Kim who is going to tell us about this nearly $400 billion fund that will be running through the SBA. So, welcome, James.

Thank you very much, Brian. And thank you very much for the attendees who have decided to join us. We understand this is a critical time, and hopefully I can give you a brief but concise summary of what’s going on. As discussed, we’re still waiting for the bill to be signed. So, there is the possibility of change, as already, already stated. We will preface with that. The 7a loan program, in particular, provides for up to $10 million in loan assistance through SBA guaranteed loans provided through existing SBA lenders. They’re expecting to expand the number of lenders. The relief is provided for specific types of purposes, including payroll, mortgage payments, debt service payments, continuation of group health benefits and the like, with the expectation that the loan is going to be used for those specific purposes. The SBA will, it expects to generate the maximum loan value based on calculation of payroll using an average monthly payroll amount multiplied by a factor of 2.5. We’ll expect to put out some guidance on this shortly, and we’ll publish that to the Coronavirus website, which will provide great detail on this. But just to get through this more, the more specific portions. One, there is loan forgiveness in the program for 8 weeks’ worth of payroll, expenses, and other specific expenses that are discussed before, not inclusive of group health benefits and debt service payments. So, utilities, rent, mortgage. Those tie payments and payroll could be forgiven for up to an eight-week period. Most importantly, they’ve also waived all of the collateral and personal guarantee requirements ordinarily required for SBA disaster loans. I think to get to the meat of the call here, how do you qualify? The statute, well, the bill and final draft that we have provides for one, well, a few categories and we’ll go through them. First, is individually owned businesses that that employ, the lesser, of the greater of the of the number which is the existing SBA size standard based on revenue and employee size. That’s in the NAICS code list. We have a link to that in our publication. Or, 500 or fewer employees. That is mentioned, that has come at a measured entity-wide for the purposes of individually and separately owned entities, that’s the measurement test. 500 or fewer is, by far, the least, as far a much, much higher, than the vast majority of other SBA codes. So, if you are an individual physician practice, you are a separately owned organization with under 500 employees it is very possible you may qualify. The second category is for businesses that are in the hospitality or food services business. Those are hotels and restaurants. The specific description is called NAICS code 72 and there’s a publication by the SBA that describes, but that, but in essence, those are really hotels and restaurants. For those organizations, it is measured on a per location basis. And what is called the affiliation rules are waived for those, for those organizations. So, if you are in the hospitality business, food service, restaurant, B and B, hotel, you, at an entity level, you would be separately eligible on a per location basis. Going to the affiliation rule, however, it is not expressly waived for any other type of business. What the affiliation rule provides for, in the SBA regulations, which can be found at 13 CFR 121301f. Again, we’ll have in our publication. We’ll send that around. Those are the operative affiliation rules for disaster assistance relief. Those rules were modified in 2016 by the SBA to deviate from those originally used for organizations who are familiar with government contracting SBA affiliation rules. The affiliation rules mean this. Where there is ownership and/or control between two entities that is shared, those entities are combined for asset for purposes of qualification for SBA loan assistance. So, if you are majority owned, there is a presumption in the rule that if you have greater than 50% of equity ownership of voting equity stock of an entity between two organizations, there is a presumption you are affiliated for qualification purposes. And so, all entities, if you are in a PE portfolio, for example, where it is true 100% subsidiaries, it is unlikely, if you are not in the hotel or restaurant business, again, based upon the traditional structure of a PE portfolio business, it does appear that is unlikely those kind of companies would qualify because in most cases the aggregation across the portfolio would get, owe greater than 500 employees. Again, this, there have been modifications to the regulation. There are exemptions in place. The exemptions are for hotels, restaurants, franchises as well. And for SBIC funded entities. So, if you have received some sort of funding through small business investment companies, you are essentially also eligible for a 7a loan. The process is still to be established. There is a lot to be discussed in terms of the overall finalization of how this works. We are very much in front of how this is developing, and we will be providing as much information as possible to our, to our clients and the people on this call. We think there is significant relief available for businesses with the favorable loan forgiveness provisions and the low interest rates. For organizations in the right situation, this could be very, extraordinarily helpful. But I do think it is critical for companies who are interested in this to go through the appropriate analysis under the affiliation on other qualification rules. We have done so in number, number a number of times and are happy to discuss it further if you’d like to do so. As I said, this is quickly evolving. There are many other pieces to be developed, and we are, we will be publishing additional information as soon as this, as soon as it gets finalized. We are planning also a second webinar specific to loan relief programs in the CARES Act after the bill is finalized. Should expect that sometime early next week as well. The last piece I will reference in my discussion is there is a portion of the bill under the 343 program, which allows for a loan program for mid-sized businesses. That is, for business is between 500 to 10,000 employees in size. The, the loan amount interest is capped at 4% but is a program to be developed. So, there is quite a bit to be understood about how that program is administered, whether or not the affiliation rules I just discussed apply, and also what the specific obligations will be because there are more restrictive requirements with regard to retention and or recovery of workforce associated with that form of relief. And finally, almost just as critical, it is intended expressly to be a last resort. So, there is a substantial amount of diligence that would need to go into providing for that application, again, to be developed. But that is very different from the 7a loan process I just mentioned, where there is a presumption you are in need of assistance.

Hey, James. One thing I’d love to zero in on, just obviously, as you know, a lot of my clients are private equity firms as well as, you know, Jason deals them as well, and Cary and, and all of us. So, all of them want to know, are there any specific limitations in either the legislation or in the SBA program that would somehow bar them from qualifying for any of this relief?

It’s the affiliation rule. The affiliation rule is the most difficult hurdle for PE portfolio companies and PE funds to overcome. It is a presumption of affiliation that exists. It is not 100%. As I mentioned, there are specific modifications that have occurred in 2016 to the affiliation rule that could be examined, and we are doing so. But it is not under traditional analysis. It is not an easy pathway to follow.

And I would just say for the audience as well, if you, if you are on this call, and you either are a PE owned provider or you are a private equity sponsor, I strongly encourage you to, to follow up and continue listening to both James’ specific webinar coming up on this. But, but also, my understanding is that, you know, why there’s been a big discussion about this in terms of, you know, how the law might be interpreted or sort of creative things that people can do. So, I strongly believe that those of you on this call will have a number of opportunities to engage with us and keep, kind of, working this problem as we move forward.

I agree entirely.

Brian, pause there. One thing we’ve been putting a lot of thought into, and I saw a question come up on this topic, which is in relation to the broader affiliate rule analysis that James was just providing a high-level summary on. And I’ll underscore that, in fact, as we sit here, this is all very dynamic and subject to ongoing through subsequent packages, as Mara had suggested potential updates, further advocacy for the refinement, further clarity. This is just an initial assessment under the existing affiliate rules, and I think James clearly said that, and I think that’s one thing to bear in mind. The other thing is, it is a facts and circumstances analysis in many respects, and so, your facts and circumstances could very well be different than, you know, I’ll call it, you know, the fairway model that James is trying to have folks start to socialize around. Another big area where we spend time is in physician practice management, and this is not unique to, I’ll call it, the traditional physician independent physician practice management context, but could be in the hospital context, where a hospital has a physician practice management or a faculty practice plan, what have you, with multiple practices. Health plans, of course, have their own affiliated physician practices now as well. And so, these questions are coming up in the context of physician practice management and the degree to which, particularly in corporate practice of medicine states, the panoply of documents that align the physician practice with the practice management company, if that triggers the affiliation rules one way or the other. And again, we’ve been spending a lot of time talking to clients about their relevant facts and circumstances under this evolving model that James is talking about, coupled with existing financing considerations and senior lender considerations, but also coupled with that traditional underlay of corporate practice of medicine as well. So, that piece is something we’re focused on. We’re spending some time unpacking from multiple facets, including working with James and team to understand, is there a mechanism where physician practice across the ecosystem has a potential for some relief here? And to the extent we’re not finding it, its san area where we believe there are, there’s pockets where that’s not going to be available, we believe that relief should be provided, and as a result, there are some significant advocacy opportunities there.

I completely agree. And I have to say, 100%., I would say that as well. I agree. That is a generalized statement. There are, obviously, many facts and circumstances that are considered. We are thinking of particular solutions as well. We have, if there are, I did see a discussion, a couple questions come across that I’ll just quickly address. Something there is, and, in fact, I would suggest that are relevant. One, as discussed by Jason, there are instances where there are different types of relationships that are being considered, where that is a very important consideration. Two, if you look at the modification of the SBA rule in 2016, there were removal of specific affiliation considerations. Those are relevant to consider, particularly is a multiple minority interest rule and a joint venture affiliation change restriction. That is, again, important to the facts and circumstances discussion for each one of these analyses.

A lot of questions coming in, James, about minority owners.

Yeah, that was about to get to that next. Thank you. So, the rule is this, right? The initial, the formal rule for affiliation in 1 21 103 states that here is a presumption where there are multiple minority owners or minority interests where there may be a presumption of affiliation. In 2016 that rules was deleted. The affiliation rule at 301 f. states, right now, there is a presumption of affiliation only when there is a 50, a majority interest in voting equity stock of the company. So, it is voting equity of the company. It is not a statement that a minority interest is a presumed affiliation. There are six factors to consider in the affiliation analysis that include management, control, identity of interest, and other factors. So, it is not an absolute, but, but from a standpoint of is there a presumption that could be, that is, that is, maybe, that is applicable in other circumstances? That is not, that has changed here, absolutely. So, it is more possible for a minority owned company to be qualified.

Well, that’s great. I’m sure we’re going to have a continuing series of things to say on this coming up because other questions people are asking, of course, is there still time to lobby this on the hill? And, I’m going to throw that out to everybody, but particularly to Mara and Cary in that, you know, when we think about the future, this is stimulus three. But already you’ve had speaker Pelosi and other folks mention this idea of a fourth, or even a fifth stimulus related to COVID. So, what’s your early prognostication on that? As, you know, you mentioned that, you mentioned that there’s going to be likely another healthcare bill at a minimum because they pop the extenders only until the end of November. So, Congress has to come back and do some type of health care bill. But, you know, talk about that in the context of, like, opportunities for people who want to keep kind of shaping policy on COVID related things.

Sure, so I see a lot of comments, perhaps suggesting frustration, or voice venting frustration about relief for physician organization, physician entities or maybe practices that are not currently treating COVID patients and wouldn’t be well positioned to do that, is there anything in here for me? And I have, sort of, two different answers that. One is, there are other buckets of money in this law that we haven’t talked about today around, you know, telehealth and other categories. And we’re going to send around a summary that will have a nice appendix for you at the end. Just, it’s a chart that lists all the different buckets of money, and I would encourage you to take a look at that. I’ll also say, if you’re a physician, practice and you’re feeling frustrated and you’re feeling left out, now is the time to communicate the impact of COVID on your practice to your members of Congress and the administration. As Brian mentioned, we are expecting to see additional forms of relief. The trade associations that operate in that space have been working really hard to communicate those frustrations and the extreme loss of revenue. And while the telehealth can be helpful in certain situations, it’s not making people whole, by any means. And I think the best thing to do is continue to advocate and educate on those two points, and to take a look at what’s in the bill that may provide you some relief.

Yeah, absolutely. Hey, Cary, I’m informed by, by our fabulous audio techs that that we might be able to hear you loud and clear. So, I wanted to go back a little bit, and that we’ve had a lot of questions coming in to ask about, was there, was there additional state relief in this, this third stimulus package? And then maybe you could use that as an opportunity to, sort of, reiterate what’s already been shipped out to the states.

Sure. So, hopefully everyone can hear me. Great. So, I think one of the biggest items for the states that Congress is done is the increase in the FMAP. I think that was back in the in the second stimulus bill for the time during the public emergency, public health emergency period. There was some clarifying language int his package regarding some of the requirements on not having premiums for services in order to qualify for that match. But not, on the whole in this package, you know, especially the finance provisions were really directed a lot toward Medicare providers, although there were some, one or two additional Medicaid provisions there, and we can certainly distribute, elaborate on that in our materials that we will distribute. But one of the other things I really want to emphasize are the flexibilities that CMS is offering to states through the 1135 waiver authority. I think 35 states have already taken advantage of those increased flexibilities for their Medicaid programs. So, I think that has been a tremendous help to states as well to be able to alter their Medicaid programs to better deal with the, the influx of patients that they’re seeing now.

That’s great. As we run down in the end of time, one last series of questions to everybody, and that is particularly Mara and Cary, is when you think about the future, you know, that independent of COVID, CMS has done a number of major payment system overhauls, in particularly in the physician services realm. You know, they’ve come up with a whole new way to, to pay for primary care visits. And, you know, that’s been a running three-year debate. Some specialties, they’re kind of on the downside on that one. And one question that we’ve gotten a lot is, do people feel that because of all of this crisis that CMS might hit the pause button and, and maybe, you know, either modify in an ameliorative way or just outright postpone some of these changes that otherwise would go live next year. What do you, what do you both think?

I can, I can answer my take on it first. I’d love to hear Mara’s thoughts as well, but, you know, we’re about to enter into a regular rulemaking cycle of for all of the Medicare physicians fee schedules. Post-acute care fee schedules come out end of April and then you see a lot of the remaining calendar year fee schedules come out in July. I think, through that process, stakeholders will continue to advocate for regulatory relief that they will need related to, related to this, this situation that we’re dealing with right now.

I’m happy to add there, too. Go ahead, Mara.

Yeah, I was just going to say, you know, I think we have yet to fully understand the disruption of COVID 19 at CMS. I was talking to somebody this morning in the value-based payment space at the agency and there’s a tremendous amount of resources being redeployed to deal with COVID 19. And I think, depending on how long that goes on, we could see a substantial amount of disruption. I just wanted to such on a couple of things in the alternative payment model space for those of you in ACOs and who have been pursuing direct contracting, who are worried about mandatory models coming down the pike, like radiation, oncology, and things like that. I think this causes a massive disruption in terms of the ability to do that. To, you know, create downward pressure on people’s rates at a time when we’re trying to also provide economic relief. I just think we’re going to see a slowdown and we may lose some of those, which may be good news for some of you, and bad news for others. But I would be expecting a flurry of documents to come out from CMS addressing all of those timelines on, on payment models.

And I’ll underscore what Mara said in relation to the paradigm for normal the regulatory cycle and in turn, where we see it going, which is, really, in a couple of other conversations separate from ours with the agency, but also knowing a lot of the messaging is being managed from the White House as it relates to COVID 19. That, the whole concept of our regulatory cycle being delayed, I think is a is a real likely scenario. And then those drastic changes that have been on the horizon as it relates to E&M services, as it relates to mandatory APMs, and the like are going to be things that we’d anticipate the agency is going to get feedback. You know, the one that Mara touched upon, for example, the professional society sent the letter, just recently, asking for a delay of the agency in the White House, specifically related to COVID 19. And so, we would expect that type of ongoing engagement, you know, and that particular society was actually looking to advance the APM, and now they’re looking to delay the APM. So, even with stakeholders that are otherwise embracing different dynamics, that, that is unfolding. So, I would expect some degree of thoughtfulness coming out of this process, but that thoughtfulness needs to be reinforced actively with trade associations and professional societies in terms of ensuring that these issues state, front and center, to folks that are working like many of us, night and day, to understand this, impact and deal with the impact of it, and then respond in a way that they believe is appropriate. Again, without formal notice and comment. So, it’s not going through the normal process of stakeholder feedback, and as a result, we’re seeing these unintended consequences. Hence, why so much effort on the front end is so critical at this juncture.

Thank you for that. Last question for James before we wrap. How fast do you think it’s going to take for some of the money to flow?

Absolutely. Thank you for getting to that question. I think I’ll be honest. I have had heard that question 100 times over the last few days. The answer is, we don’t know, right? Let’s start there. We don’t know. But if you look at the way the legislation’s drafted, if you look at the deadlines for release of regulations on other portions of the bill, the early page of payments made accelerate for any EDIL loan recipients on the small business side. And the rapidity of the way in which 7a loans were issued post disaster in other situations and discussions with other people who are in this area. My guess, again, guess, would be you’d see flow of money in the 7a loan program going out, probably within three weeks.

Well, that’s, that’s quite fast. All right, first off, I would like to thank all of our wonderful panelists. This was, I believe, very, very informative. I know that all of you continue to both speak right and advocate on these manners. So, certainly those of you in the audience look for more to come from everybody here as well as the broader McDermott family. As Jason mentioned, again, keep track of the of the resource center. There will be additional webinars and quite a bit more of helpful print publications. I encourage everybody to stay home, stay safe, stay positive and productive. And we thank you for your time.


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