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COVID-19 Relief And Its Impact On Secured Healthcare Lenders BY DOUG NAIL AND KEITH TAYLOR Like so many other sectors of the economy, the healthcare industry faced unprecedented challenges over the past year due to the COVID-19 pandemic. For secured lenders, the months ahead will create new and unique issues to focus on when assessing healthcare borrowers post-COVID. While the news cycle often has focused on how hospitals have handled the challenges of surging patient volume during the pandemic, COVID-19 has wreaked havoc on other healthcare providers in a very different way. Among others, skilled nursing facilities faced significant economic challenges and providers of elective surgeries and preventative care also saw sharp reductions in demand. As the federal government offered COVID relief to the broader economy, it expanded existing programs and implemented new ones focused on the healthcare sector. As a result, a significant amount of federal aid to healthcare providers during COVID has come through one of the following five categories of relief channels:1
Paycheck Protection Program (“PPP”) loans – These
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THE SECURED LENDER APRIL 2021
loans have impacted a broad range of borrowers across all industries, and lenders to the healthcare sector will typically assess them in the same manner as nonhealthcare lenders. Because the loans are forgivable if used for permitted purposes under the CARES Act, lenders desire assurances that borrowers will use the proceeds of these loans in a manner that should ensure forgiveness under the Act.
Deferral of payroll taxes – The CARES Act also permitted employers to defer deposit and payment of the employer’s portion of Social Security taxes for the period beginning March 27, 2020, through December 31, 2020. This relief
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channel is not unique to the healthcare industry, but has been frequently utilized by healthcare providers. Because this program is a payment deferral, the taxes are ultimately required to be paid. Currently, 50 percent of any eligible deferred amount is required to be paid by December 31, 2021, with the remainder to be paid by December 31, 2022.
Provider Relief Fund
DOUG NAIL Parker, Hudson, Rainer & Dobbs LLP
Program – Established by the CARES Act and subsequently expanded, the Provider Relief Fund Program acts largely as a grant program to healthcare providers to defray COVIDrelated expenses and account for lost revenue as a result of COVID. To date, it has provided for the distribution of KEITH TAYLOR up to $178 billion Parker, Hudson, in funds to various Rainer & Dobbs LLP healthcare providers in a series of general distribution phases as well as targeted distributions to certain specific portions of the healthcare industry (including hospitals heavily impacted by COVID, certain rural and tribal providers, safety net hospitals, skilled nursing facilities and other long-term care providers). Healthcare providers that receive Provider Relief Funds are required to use those funds for expenses attributable to COVID-19 and then for lost revenues attributable to COVID-19. Under the program, providers are required to submit reporting to the U.S. Department of Health and Human Services (“HHS”) in order to help verify that funds are properly used. However, the specific timeline and requirements for that reporting have been repeatedly updated and refined, so healthcare providers still face some uncertainty about the specific reporting they will need to provide and how they will need to determine the amount of expenses and lost revenues that are applicable. To the extent that a provider receives
1 Although the federal government utilized other methods for infusing COVID relief funds into the economy (including the healthcare sector) and healthcare providers received additional liquidity from state Medicaid funding, this article concentrates on the five categories described herein.