In only a few short months, COVID-19 has put many LTPACs in untenable financial positions as they scramble to meet myriad obligations and ensure adequate cash flow.
The crisis is far from over, and with so much uncertainty, the full scale of its financial impacts may not be fully understood for months—possibly even years. Beyond obvious steps like eliminating nonessential costs, what measures can LTPAC CFOs and controllers take now to promote financial stability as this unprecedented crisis unfolds?
Track and trend census data in your facility or facilities.
Are you seeing a decline in census, or are you noticing fewer patients/residents being admitted? And, if you’re accepting COVID-19 patients, how is that affecting your census? As you well know, census impacts cash and the bottom line, so make sure you’re aware of where this stands—and look online to see if you can uncover insights from other providers about COVID-19’s impact to date on their census.
Leverage government relief programs.
Some notable programs worth considering include:
Small Business Administration (SBA) Economic Injury Disaster Loans (EIDL) low-interest disaster loans. On March 13, the president declared COVID-19 a national emergency which, in turn, made these loans available to businesses across the country, including LTPACs. These loans, which are offered directly by the SBA (as opposed to lending institutions), are intended to help eligible businesses maintain operations until the effects of the declared disaster have passed. Loans of up to $2,000 can be used to pay payroll, fixed debts, accounts payable and other debt obligations that otherwise could have been paid had this declared disaster not occurred. They’re not intended to replace lost sales or profits, or to be used for expansion. You can apply here; however, eligibility varies by state, so you should first check applicable guidelines.
Paycheck Protection Program (PPP). This program provides loan funds to support small businesses and other eligible entities impacted by COVID-19. At least 75% of loan funds received must be used for payroll (and payroll-related costs, including commissions), while other approved expenses include rent, insurance, utilities, interest on mortgage obligations and paid sick or medical leave incurred from February 15, 2020 to June 30, 2020. You can apply here.
PPP loans are designed to be forgiven, but that doesn’t happen automatically. You should devise and deploy a plan to pursue maximum forgiveness as soon as you receive a PPP loan. To that end, the American Institute of Certified Public Accountants (AICPA) has created a PPP loan forgiveness calculator to help businesses achieve that and, as the name implies, determine what portion of the loan will be forgiven. You can access it here. Additionally, the SBA will review borrowers’ required good-faith certification concerning the necessity of their loan request based on the stated criteria below:
One more important PPP-related update: The PPP Flexibility Act, which became law June 5, 2020, triples the number of weeks business owners have to use the loans, from eight weeks to 24 weeks while still retaining full loan forgiveness protection. New borrowers now have a 24-week covered period which expires on December 31, 2020. The Act allows business owners the ability to spend more of the loans for overhead expenditures. It also changes the ration of funds that must be spent on payroll from 75/25 to 60/40, although it does becomes a cliff. Additionally, it requires borrowers to spend 60% on payroll or none will be forgiven, and the FTE Reduction Safe Harbor was rolled back from June 30 to December 31.
Finally, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law on March 27 provides for a six-month loan subsidy by the SBA on behalf of eligible borrowers for certain existing SBA loans made prior to March 27, 2020.
Important note: On April 16, the SBA announced it stopped accepting applications for these two programs. Money ran out for the EIDL program, while funds for the PPP were exhausted as well. On April 21, the Senate approved a $484 billion relief package which includes an additional $310 billion for the PPP (plus $10 billion to cover administrative costs), as well as $60 billion in disaster relief loans and grants, $75 billion for hospitals, and $25 billion to expand coronavirus testing. Pending approval by President Trump, you should be prepared to take immediate action if you wish to pursue these opportunities.
Explore potential delays in debt service or other payable obligations.
If you haven’t done so already, approach your lenders and inquire whether they can offer delayed debt service arrangements. Likewise, talk with landlords and other providers (e.g., software as a service (SaaS), office/capital equipment) to potentially defer payments and preserve cash.
Ensure your LTPAC is not penalized for failing to meet debt covenants due to COVID-19—particularly if you currently experience dips in revenue, or have forecasted them in the near-term. Most covenants are based on financial performance, including revenue and expenses. Certain covenants can also be based on census. Typically, if your facility doesn’t meet debt covenants, it can fall out of compliance with loans, so this merits close attention.
Understand paid sick leave and expanded family and medical leave requirements, and manage the associated financial considerations.
On April 1, 2020, the U.S. Department of Labor implemented a temporary new action regarding how U.S. workers and employers will benefit from the protections and relief offered by the Emergency Paid Sick Leave Act (EPSLA) and Emergency Family and Medical Leave Expansion Act (EFMLA), both part of the Families First Coronavirus Response Act (FFCRA).
Specifically, the FFCRA requires employers with fewer than 500 employees to provide 12 weeks of protected leave to eligible employees if an employee’s child is not able to attend school or day care for COVID-19-related reasons. This new requirement amends the Family and Medical Leave Act (FMLA) and will expire Dec. 31.
Additionally, all full-time employees, regardless of their length of employment, now are eligible for up to two weeks (80 hours) paid sick leave under the EPSLA. This leave is in addition to any paid sick leave, vacation or personal time off that employers currently offer. Part-time employees are entitled to sick leave equal to the number of hours they work on average over a two-week period.
What does all this mean for you and your facility?
LTPACs don’t typically have HR professionals to manage regulatory requirements around employment regulations. If you’re a LTPAC CFO or controller, you should study these new requirements, understand their impacts on your organization’s financial position and confirm with accounting which employees are utilizing these programs.
Benefits that are paid out to those employees would then reduce your LTPAC’s payroll tax liability for that pay period. It’s very important, then, to make sure that the accountant or payroll service provider (if payroll is not performed internally) first understand which employees are receiving those benefits, because that’s a direct deduction from that pay period’s federal tax submission. For payroll tax returns that are submitted each pay period, CFOs and/or controllers must ensure that those pieces are lined up and cohesive. From there, make sure your HR and accounting staffs are communicating effectively so that those benefit payments are accounted for in each pay period, and your LTPAC isn’t overpaying.
View your revenue cycle process through a fresh lens.
Specifically, you’ll want to understand how the claims submission process could potentially be impeded by conflicting priorities within your LTPAC. Perhaps your clinicians are laser-focused on patient care right now, so they’re not completing the required assessments that drive billing. That, in turn, could hinder the claims submission process, which then could impact cash flow.
Overall, you should carefully examine your LTPAC’s revenue cycle process to determine COVID-19’s current or anticipated impact on that process.
Consider interim third-party assistance to address staffing shortages in accounting, clinical and revenue cycle functions.
Maintaining adequate staffing levels has long been a challenge throughout the LTPAC industry. Yet, the COVID-19 crisis has caused acute shortages for many facilities—and we expect that trend to continue, even when the crisis subsides. To combat staffing challenges, many facilities turn to outsourced service providers to fill needs in accounting, clinical and revenue cycle functions. Contract professionals from established and respected providers have deep backgrounds in their given practice area and are specially trained to perform essential duties—which oftentimes require higher-level sills and capabilities. During challenging times like these, the assistance they offer can be invaluable.
Finally, start planning the upside of this crisis.
We may be knee-deep in the COVID-19 crisis now; but as a CFO or controller, you should be looking ahead to plan how your LTPAC emerges as it begins to subside. Ask yourself: What could the recovery phase look like? What could that entail (e.g., resumption of vendor relationships, resumption of debt covenants, loan forgiveness). It’s important that you keep up-to-date on news surrounding COVID-19, along with guidance from our nation’s health experts and state and federal agencies. Understand what advice they’re offering, what forecasts they’re making, and use that information to help guide you in mapping out the road ahead. There is no crystal ball; but as with anything, sound information guides informed decision-making.
To aid you in promoting financial health for your LTPAC and other issues surrounding COVID-19, we have developed a COVID-19 Resource Center for skilled nursing facilities which will be regularly updated with the latest information.
Contact Richter’s Healthcare Financial Consulting Professionals
Do you have questions about COVID-19’s impact on your long-term post-acute care organization, or other financial management challenges? Call Richter’s healthcare financial consulting professionals at 866-806-0799 to schedule a free consultation.
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