Healthcare Providers Paycheck Protection Program Loans

The paycheck protection program is a key resource for small healthcare organizations and the program is established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This act provides loans up to USD 10 million for businesses with fewer than 500 total employees. The loans can be fully forgiven if at least 60 percent of the money goes to payroll expenses, among other criteria.

Beneficiaries for Paycheck Protection Program loans

Healthcare providers and social assistance businesses are major beneficiaries of paycheck protection program loans. Healthcare and social assistance organizations including physician practices and small hospitals received 12.92 percent of the over $521.5 billion in the potentially forgivable loans distributed through June 30, 2020.

Various industries including construction, manufacturing, hospitality, real estate, and transportation have participated in the paycheck protection program. However, the healthcare industry is affected the most due to the pandemic, enduring clinical and financial strain from the novel coronavirus.

The pandemic has led to widespread layoffs at hospitals and physician practices. Some practices need to closed temporarily due to the loss of revenue stemming from COVID-19 and the cancelation of non-emergency care during shelter-in-place orders.

Now, these healthcare organizations need funds for their operations as well as provide care to the patients in this pandemic hence, CARES Act and subsequent legislation have helped to support healthcare organizations of all sizes. For instance, data shows that the healthcare and social assistance sector received 506,263 loans during the period for a total of USD 67.3 Billion.

The sector narrowly beat out the professional, scientific, and technical services industry, which accounted for 12.74 percent of all paycheck protection program loans distributed through the end of June 2020.

Now let’s look at how this Paycheck Protection Program helps small healthcare providers:

How paycheck protection program rules help small healthcare providers?

Healthcare providers and other small business owners participating in the paycheck protection program will have more flexibility to use the funds on non-payroll expenses.

Key provisions include:

• Expansion of the covered period to 24 weeks from 8 weeks and through Dec. 31, 2020, from June 30, 2020
• Extension of the minimum loan term to five years from two years
• Deferral of payments until the date on which the amount of loan forgiveness is remitted to the lender, and if the borrower neglects to apply for loan forgiveness within 10 months after the end of the covered period, the borrower must begin making payments on the loan
• Deferral of payment of the employer share of Federal Insurance Contributions Act (FICA) taxes unless employers already had a loan through the program forgiven
• Extension of rehiring deadline to Dec. 31, 2020, from June 30, 2020

Paycheck protection program loans particularly help small hospitals that are simultaneously building costly surge capacity while experiencing significant declines in revenue as a result of canceled no emergent care.

However, program restrictions have been a barrier to providing access to loans. Hospitals have experienced a number of issues with determining whether they qualified for the loans. Hence small business administration published an interim final rule to clarify that government-owned hospitals are not disqualified from participating in the program as long as it is eligible to receive a loan as a business concern or non-profit organization. In addition to this, Healthcare providers have also been hesitant to accept Paycheck Protection Program loans because of the unique nature of the revenue cycle.

Now, many physician practices have been debating whether returning the loans is a better business decision in the long-run.

Should Physician Practices Return Paycheck Protection Program Loans?

Like many small businesses, physicians have experienced significant financial hardships due to the pandemic. The purpose of the PPP loans is to help cover payroll expenses to mitigate against the need to lay off employees.

Patient volumes at practices dropped since the country declared COVID-19 a public health emergency, and physicians have been furloughed or taken a pay cut as a result of the pandemic.

Healthcare organizations usually operate with a two-month lag between rendering a service and getting reimbursed by payers for that service. This means April numbers reflect services delivered to patients in February when there were virtually no confirmed cases of COVID-19 in the US.

Borrowers with loans below the USD 2 million thresholds are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.

Moreover, all other borrowers, however, will face a review by the SBA. Although there is a chance to demonstrate that the loan was requested in good faith based on necessity. If the SBA determines the practice did not need the PPP loan, then the loan amount must be repaid after SBA’s notification or face further enforcement activity.

According to the federal data, nearly USD 132 billion remains in funding for the Paycheck Protection Program. However, a law signed by the president on July 4, 2020, that extended the program through August 8, 2020, offering small and midsize businesses extended opportunity to collect the remaining $132 billion in program funding.