New Paycheck Protection Program Rules to Aid Small 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.

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Signed by the president late last week, the Paycheck Protection Program Flexibility Act of 2020 (HR 7010) now allows borrowers to use up to 40 percent of the loan on non-payroll expenses. Previous program rules limited these costs to 25 percent of the value of the loan.

The law also eases other program restrictions, including loan periods, repayment timeframes, and potential loan forgiveness. According to the American Hospital Association (AHA), 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

The Paycheck Protection Program was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide small businesses with loans to keep their staff on payroll. Eligible small businesses with fewer than 500 employees can access up to $10 million through the program, and the loans may be forgiven if businesses use a certain percentage of the loan to pay for payroll costs.

The program has been a key resource for small healthcare providers struggling with payroll and other expenses during the COVID-19 crisis.

“This is particularly true of small hospitals that are simultaneously building costly surge capacity while experiencing significant declines in revenue as a result of cancelled nonemergent care,” the AHA stated in support of HR 7010. “This program could mean the difference between a small hospital making payroll and retaining access to care in the community or closing.”

Physician practices have also leveraged the loans to prevent furloughing providers and staff at a time when ambulatory visits declined suddenly due to shelter-at-home restrictions and the cancellation of most elective, non-emergency healthcare services.

According to a poll conducted by the Medical Group Management Association (MGMA) in April, 76 percent of practice leaders reported applying for a loan through the Paycheck Protection Program.

However, program restrictions have been a barrier for provider access to the loans.

Hospitals have experienced a number of issues with determining whether they qualified for the loans. The issues led to the Small Business Administration to publish an interim final rule on April 24, 2020, 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.

The interim final rule also stated that an organization involved in a bankruptcy proceeding at the time it submits the application or any time before the loan is disbursed would be deemed ineligible for the loan. Three bankrupt hospitals were previously denied loans through the program until federal courts ruled the Small Business Administration could not block the hospitals from applying to the program.

Healthcare providers have also been hesitant to accept Paycheck Protection Program loans because of the unique nature of the revenue cycle.

“There is a concern some providers have about the lag time between when they provide services and when they actually get paid. It maybe makes it look like they weren't certifying [their need for the PPP loan] in good faith if you look just at the April numbers,” said William W. Horton, partner and co-chair of the healthcare practice at Jones Walker LLP.

The Small Business Administration has released guidance since to address provider concerns, including a FAQ clarifying good faith certifications.