The House of Representatives on Thursday passed legislation that would allow healthcare providers that received forgivable small business loans more flexibility on how they can spend the money.
The House overwhelmingly passed the Paycheck Protection Program Flexibility Act 417-1. The bill is timely because the current eight-week deadline for borrowers to use funds is approaching for the first businesses who received Paycheck Protection Program loans. There is a similar proposal in the Senate, though it is unclear what shape final legislation could take.
The House bill would give borrowers 24 weeks instead of eight weeks to spend the PPP funds, allow them to delay paying payroll taxes, and would only require them to spend 60% of the loan expenses on payroll costs instead of 75% as stipulated in the CARES Act, Congress' third and largest COVID-19 response legislation.
PPP loans are only open to businesses with 500 employees or fewer. The Small Business Administration allowed community-owned rural hospitals to begin receiving the loans in April.
The formula the Small Business Administration used to determine PPP loan amounts made it difficult for healthcare providers to meet the 75% payroll requirement, said Hall Render Killian Heath & Lyman attorney James Willey.
"If I had to pick, I don't have a voice, I do think I like the House's version a little better, primarily because I like reduction in threshold for healthcare providers," Willey said. The leading Senate legislation in its current form does not reduce the proportion of the loan that would have to go toward payroll costs.
The House legislation's payroll tax deferral would also be a help to providers that employ highly compensated physicians, Willey said.
Proskauer Rose partner Rick Zall said the extension of the time frame from eight to 24 weeks to spend PPP funds would be especially useful to physician practices that had to nearly or completely shut down due to the pandemic.
"They are looking at the PPP as a bridge to be able to maintain staff and reopen promptly," Zall said.
The flexibility could also be helpful for hospitals. Magnolia Regional Medical Center in Arkansas received a PPP loan, and CEO Rex Jones said extensions on time to use the funds and flexibility to spend more on operational costs would be helpful, especially since furloughed employees are eligible for generous unemployment benefits.
"Since our volumes have not returned, if we don't have to bring people back and have to use the money for payroll, it would allow us to use the funds for operations. We are still open for business and have plenty of operational expenses that have to be covered," Jones said.
If providers can prove they weren't able to re-hire staff or hire qualified replacements, the House legislation would allow them to get a break on employee retention requirements for loan forgiveness.
The National Rural Health Association advocated for public hospitals to be eligible for PPP loans, and Vice President Maggie Elehwany said the group supports longer time lines and more flexible spending. However, Elehwany said the group is also pushing for more long-term solutions like relaxing eligibility requirements for providers to become classified as critical-access hospitals because rural health providers were already in crisis before the COVID-19 pandemic.
"It doesn't make sense to throw money to allow rural hospitals to tread water without giving them the tools they need, and there are more sustainable steps out there," Elehwany said.
American Hospital Association Executive Vice President Tom Nickels wrote a letter in support of the House bill introduced by Reps. Chip Roy (R-Texas) and Dean Phillips (D-Minn.). However, Nickels said AHA still wants changes that would allow hospitals to qualify regardless of bankruptcy status and waive affiliation rules for not-for-profit entities, which would allow more hospitals to qualify.
A bipartisan group of senators introduced a bill with a similar goal to the House legislation, but with different specifics. The Paycheck Protection Program Extension Act, introduced by Sens. Marco Rubio (R-Fla.), Susan Collins (R-Maine), Ben Cardin (D-Md.) and Jeanne Shaheen (D-N.H.) would allow businesses 16 weeks to use loan money. The bill would still require businesses to spend 75% of the loan on payroll to qualify for full forgiveness, but would allow PPE purchases to qualify for the remaining funds.
While the PPE provision could help other businesses without access to other funds, experts noted that it would be less important for healthcare providers that received CARES Act relief grants and could qualify for disaster relief funds that could also be used to buy PPE. Providers can't double-dip and reimburse the same expense from two sources.
Proskauer Rose partner Yuval Tal said that one part of the Senate legislation that could be helpful to healthcare providers is a safe harbor that ensures borrowers don't lose forgiveness if they maintained payroll for a consecutive eight-week period but didn't meet the requirements for the extended time.
Both bills would extend the application deadlines for the PPP, but it's unclear whether the changes would cause any more health providers to apply for the loans.
Tal said some providers may have been skittish about ensuring they could meet the forgiveness requirements and wanted to ensure they wouldn't end up saddled with more debt.
Some rural hospitals are concerned that CMS may penalize them in the future for accepting the loans on their cost reports, which is not addressed in either the House or Senate legislation, Elehwany said.
