Some of the physician practices that received millions of dollars' worth of small-business COVID-19 relief loans are affiliates of major health systems like Sutter Health, Adventist Health and CommonSpirit Health.
But just because the medical groups' websites feature the health systems' logos and branding doesn't mean they get financial support. The health systems, which themselves got hundreds of millions in aid under the CARES Act, explained that their finances are separate from that of their affiliate medical groups, making those practices eligible for the Paycheck Protection Program loans for small businesses with 500 employees or less.
"There was no overlap or duplication," Chicago-based CommonSpirit said in a statement.
All told, physicians' offices collected at least $8.4 billion in PPP loans, according to a partial list released by the Treasury Department and Small Business Administration that includes loans above $150,000, about 75% of the total $521 billion in PPP loans that have been distributed. The loans will effectively become grants as long as borrowers use the money for specified expenses, such as payroll and personal protective equipment.
Sutter affiliates that received PPP loans include Sutter Gould Medical Group in Modesto, which received between $5 million and $10 million, Sutter North Medical Group in Yuba City, which received between $2 million and $5 million, and Sutter Medical Group of the Redwoods in Santa Rosa, which received between $1 million and $2 million. The three practices said the loans helped them retain more than 600 jobs.
Sutter spokeswoman Amy Thoma Tan explained in a statement that those are independently owned medical groups Sutter contracts with to provide services to its patients at fair market rates.
"During the first few months of the year, patient volumes steeply declined across the board impacting both Sutter Health and affiliated physicians, who are independent contractors," Thoma Tan said.
Physician practices were particularly devastated by the suspension of elective procedures, and the ongoing COVID-19 spikes in some areas are likely slowing the return of patients. Physicians' offices shed more than 240,000 jobs in April alone, the hardest hit sector behind dentists' offices.
In California, hospitals can't employ physicians directly, so some practices work for medical foundations that contract—in some cases exclusively—with a particular hospital or health system. This model closely affiliates the medical group with the health system's medical foundation, yet the group remains a distinct corporate entity.
"They have a client that is well funded or well capitalized by a large health system, but the medical group itself needs to periodically roll up its sleeves and negotiate its contract with the foundation," said Raja Sekaran, a partner in the law firm Nossaman's healthcare practice group. "So it is a separate entity."
Santa Cruz Medical Group, which received a PPP loan worth between $2 million and $5 million, operates under Dignity Health, one half of the 2019 merger that formed Chicago-based CommonSpirt Health. CommonSpirit—a more than $20 billion system—said in a statement it did not receive any PPP funds, and medical groups under its brand that received the loans did not share in the more than $1 billion in CARES Act funding CommonSpirit received.
The foundation model offers more stability for practices because they know they'll have volumes and a hospital partner, Sekaran said. It also relieves doctors from administrative duties like contracting with insurers, billing and human resources. But that doesn't make those practices any less deserving of the PPP aid than those that are totally independent, Sekaran said.
"I would look at it on a case-by-case basis," he said.
Health system-affiliated practices might be more likely to practice in low-income areas than small providers that locate in upper-middle-class areas where patients have commercial insurance, Sekaran said.
Some physician groups aren't guaranteed salary or funding under the foundation model, said Thomas Jeffry, Jr., a partner with Arent Fox.
"Just like hospitals have taken a hit with COVID-19 in terms of non-essential surgeries and that type of thing being down, a lot of these physicians, their practices have suffered as well," he said.
Adventist Health California Medical Group in Saint Helena, Calif. got between $1 million and $2 million under the PPP, while Glendale Adventist Emergency Physicians got between $350,000 and $1 million. Roseville, Calif.-based Adventist did not respond to a request for comment.
Cleveland Clinic affiliate Glenbeigh, an inpatient addiction treatment facility in Rock Creek, Ohio, received a PPP loan worth between $2 million and $5 million, which helped it retain almost 300 jobs. A Cleveland Clinic spokeswoman said Glenbeigh is a separate organization.
The SBA defines a small business as having 500 employees or fewer including affiliates. The regulations, however, contain specific requirements about what it means to be an affiliate. The physician practices in question may have qualified for PPP loans because they have their own governance and aren't controlled by the health systems, said Terra Lord Parten, a shareholder with the law firm McAfee & Taft.
Even if the practices are separate, it's possible being part of a big-name health system gave them a leg up in the PPP loan process, said Glenn Melnick, a health economist at the University of Southern California.
"The well-heeled, well connected know how to access the systems better than the others, so they'll get to the front of the line," he said.
In the end, the point of PPP is to ensure the U.S. economy is able to manage through a period of unprecedented shock prompted by the pandemic, said Thomas Brown, a partner in Paul Hastings' litigation department in San Francisco. He said he's seen articles "naming and shaming" some who received money, but anyone who met the eligibility criteria should have applied.
"I appreciate the entertainment value of the articles, but this is an unprecedented economic issue," Brown said. "The federal government is the ultimate backstop to help us all get through this."
