Since the onset of the COVID-19 pandemic in the United States, the federal government has implemented several waves of unprecedented financial stimulus to shore up the economy. For healthcare providers, the primary sources of federal assistance to date have come by way of two programs: (1) the Paycheck Protection Program (“PPP”), which is administered by the U.S. Small Business Association (“SBA”), and (2) the Provider Relief Fund (“PRF”), which is administered by the U.S. Department of Health and Human Services (“HHS”). We have written several articles addressing the various requirements of both programs, as guidance from SBA and HHS has been released. In this article, we will focus on the certification and attestation requirements under both programs, their significance, and how to avoid potential pitfalls.
The PPP loan program, originally passed as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), has been subsequently modified by the Paycheck Protection Program and Health Care Enhancement Act and the Paycheck Protection Program Flexibility Act. Since early April, SBA has regularly updated both its formal and informal regulatory guidance regarding the PPP loan program.
Generally, an eligible borrower can receive PPP loan proceeds up to a maximum of two and a half times its 2019 average monthly payroll. PPP loan proceeds may be used for payroll costs and certain non-payroll costs through December 31, 2020. Subject to certain conditions, expenses paid or incurred during the 24-week period (or eight-week period, at the borrower’s election) following disbursement of the loan proceeds are eligible for forgiveness up to the entire amount of the PPP loan plus interest.
The PPP loan program is designed to provide financial relief to eligible small businesses in order to keep their workers employed during the COVID-19 pandemic. So, where is the catch? Here’s what you should know:
Required certifications. The CARES Act, as well as its accompanying regulations, require borrowers to make certain certifications as part of their PPP loan application as well as their application for PPP loan forgiveness. These certifications are not simply boxes to “check” on the way to obtaining financial relief. Instead, just as with submitting claims to government payors, healthcare providers should be aware that these certifications could expose borrowers to liability under the False Claims Act. The United States Justice Department has already reported numerous cases charging individuals with making false and/or fraudulent statements on PPP loan applications in an attempt to wrongfully obtain PPP loans. All indications are that the Justice Department will continue to investigate and prosecute whatever it considers to be “fraud” related to the PPP loan program. As healthcare providers are no doubt aware, what the federal government considers to be “fraud” may not necessarily be clear, so potential liability can often stem from a good faith difference of interpretation. The False Claims Act broadly defines the term “knowingly” to include actions taken with “deliberate ignorance” or “reckless disregard” of the truth of a claim. Accordingly, you must understand, and document thoroughly, the basis for the certifications made as part of your PPP loan application and your PPP loan forgiveness application.
For instance, on your loan application, you were required to certify to the following (among others):
For a full copy of the certifications on the loan application, review your PPP loan documentation and/or click here to review the most recent version of the form. In addition to these (and other) specific certifications related to the PPP loan, you must also make a broad range of other certifications, such as certifying that you are “not engaged in any activity that is illegal under federal, state or local law,” you (to the best of your knowledge) comply with OSHA and will remain in compliance during the life of the loan, and you do not “discriminate in any business practice, including employment practices and services to the public” under applicable federal laws and regulations.
Similarly, on the PPP loan forgiveness application forms issued by SBA, you are required to certify to the following (among others):
In addition, you must certify to one of the following two items:
For a full copy of the certifications on the loan forgiveness application, review your PPP loan forgiveness application from your lender and/or click here and here to review the most recent versions of the form as of the initial publication date of this article.
Due to the high volume of PPP loans made during the course of the COVID-19 pandemic, some borrowers may feel tempted to cut corners or otherwise “fudge” documentation in order to maximize their PPP loan and/or loan forgiveness amount. Do not be mistaken or misled about the seriousness of these certifications or the government’s interest in combatting fraud related to this program. As with many other areas of your healthcare practice, the mantra of “Document! Document! Document!” is the best advice for ensuring compliance with this program.
Potential for recourse against unauthorized use of PPP funds. In addition to potential liability under the False Claims Act, the language of the CARES Act makes clear that the scope of potential liability may extend beyond the business entity applying for a PPP loan. Unlike other SBA loan programs, PPP loans are set up to be non-recourse loans (meaning that SBA does not have recourse against the owners of a borrower entity in the event of a default). In other words, there is no requirement for personal guarantees or collateral to obtain a PPP loan. However, a borrower who knowingly uses the funds for unauthorized purposes may be charged with fraud. In addition, if one or more of a borrower’s shareholders, members, or partners uses loan funds for unauthorized purposes, SBA may have recourse against such individuals for the unauthorized use.
Public backlash may lead to additional scrutiny. The CARES Act was passed on March 27, 2020, and SBA authorized lenders to originate loans the following week as the federal government rushed to inject financial relief into an economy just beginning to shut down. A few weeks later, the initial allocation of PPP funds was exhausted before many businesses were able to receive the much-needed funding. Public backlash soon followed, especially when the media reported stories about some national restaurant chains and other well-positioned companies obtaining PPP loans. While Congress acted quickly to allocate additional funding, SBA set its sights on borrowers through updated regulations. Following negative reporting about the program, SBA declared that, although the CARES Act had suspended the usual SBA requirement that borrowers be unable to obtain credit elsewhere, borrowers still had to certify that they needed the PPP funds. So, PPP borrowers were required to take into account their current business activity and their ability to access “other sources of liquidity” before certifying that the “current economic uncertainty” made their PPP loan request necessary to support their ongoing operations. This SBA guidance was cause for concern for many healthcare providers that, while feeling the economic impact of COVID-19 and related shutdowns, might have other sources of liquidity (e.g., lines of credit, shareholder loans, etc.) which may have made it inappropriate for them to seek a PPP loan. SBA later created a safe harbor for borrowers receiving PPP loans of less than $2 million, i.e., SBA would deem those borrowers to have made their necessity certification in good faith. Although many independent healthcare providers met this safe harbor, the federal government demonstrated that public criticism of the PPP loan program would prompt retroactive action to tamp down participation in the program for borrowers who were perceived not to have needed the funds, even if they had complied with program requirements. On July 6, 2020, SBA released its “Round 2” report on the PPP loan program with a downloadable database of loan recipients’ names, addresses, and PPP loan amount range. Do not be surprised if additional reporting about PPP loan recipients results in further retrospective scrutiny of the PPP loan program.
The PRF was also established pursuant to the CARES Act. On April 10, 2020, HHS issued a press release announcing the first round of funding ($30 billion) based on a provider’s share of 2019 Medicare fee-for-service reimbursements. Direct deposits into healthcare provider accounts followed promptly. Following the initial distribution, HHS made available additional PRF funding for providers as well as hospitals, skilled nursing facilities, and clinics in a variety of settings. The additional PRF funds available to providers included an additional $20 billion for “general distribution” and $15 billion for providers that participate in Medicaid/CHIP. To obtain these additional funds, however, eligible providers had to submit an application to HHS.
The PRF payments are not loans to healthcare providers and, per HHS, do not need to be repaid. In fact, CMS Administrator Verma Seema announced at the Coronavirus Task Force Briefing on April 7, 2020, that CMS was issuing $30 billion in “grants,” stating “there are no strings attached, so, the health care providers that are receiving these dollars can essentially spend that in any way they see fit.” Unfortunately, Ms. Seema’s pronouncement has not stood the test of time.
Whether you received PRF funds through the initial distribution or through the application process, you are required to make certain attestations to HHS in order to receive (or, in the case of the initial distribution, retain) your payment. Generally, the attestation portal (hosted through the HHS website) requires PRF recipients to (1) confirm they received a payment and the specific payment amount that was received; and (2) agree to the applicable “Terms and Conditions.” Copies of the Terms and Conditions for the initial $30 billion general distribution may be found here, for the $20 billion general distribution here, and for the $15 billion Medicaid/CHIP distribution here. The several PRF Terms and Conditions are all fairly similar, and each requires the applicant to make certain certifications, including the following:
Providers may have incurred eligible healthcare-related expenses attributable to coronavirus prior to the date on which they received their payment. Still, providers may use their PRF payment for such expenses incurred on any date, so long as those expenses were attributable to coronavirus and were used to prevent, prepare for, and respond to coronavirus. However, HHS noted that it would be “highly unusual” for providers to have incurred eligible expenses prior to January 1, 2020.
The term “lost revenues that are attributable to coronavirus” means any revenue that you as a healthcare provider lost due to coronavirus, including losses associated with fewer outpatient visits, canceled elective procedures or services, or increased uncompensated care. HHS advised that you may use any reasonable method of estimating your lost revenue. For example, if you have a budget prepared without taking into account the impact of COVID-19, the estimated lost revenue could be the difference between your budgeted revenue and actual revenue.
Providers may use PRF payments to cover any cost that the lost revenue otherwise would have covered, so long as that cost prevents, prepares for, or responds to coronavirus. HHS “encourages” the use of funds to cover lost revenue so that providers can respond to the coronavirus public health emergency by maintaining healthcare delivery capacity, such as using PRF payments to cover employee or contractor payroll; employee health insurance; rent or mortgage payments; equipment lease payments; and electronic health record licensing fees.
HHS regularly updates its FAQ guidance related to the PRF, which can be found here.
As with the PPP loan program, thorough documentation is vital for compliance. HHS will conduct significant anti-fraud monitoring of the funds distributed, and the OIG will provide oversight as required in the CARES Act to ensure that federal dollars are used appropriately. Providers are required to demonstrate that lost revenues and increased expenses attributable to COVID-19 exceed total payments from the PRF, and submit documents to substantiate that (1) these funds were used for increased healthcare-related expenses or lost revenue attributable to coronavirus, and (2) those expenses or losses were not reimbursed from other sources and other sources were not obligated to reimburse them.
Although HHS has stated that it “does not intend to recoup funds as long as a provider’s lost revenue and increased expenses exceed the amount of Provider Relief funding a provider has received,” HHS reserves the right to audit PRF recipients in the future and collect any Relief Fund amounts that were made in error or exceed a recipient’s lost revenue or increased expenses due to COVID-19. But, take note: If, “at the conclusion of the pandemic” (whenever that may be), you have leftover PRF funds that you could not expend on permissible expenses or losses, HHS expects you to return those funds. That means that you have an affirmative obligation, whether or not audited, to return any funds that you are unable to use in accordance with the Terms and Conditions. HHS will provide directions in the future about how to return those unused funds.
Note that HHS has posted a public list of providers and their payments once they attest to receiving the money and agree to the applicable Terms and Conditions. All providers that received a payment from the PRF and retain that payment for at least 90 days without rejecting the funds are deemed to have accepted the applicable Terms and Conditions.
Mr. Hennessey is an attorney with London Amburn, a law firm dedicated to delivering client-driven legal services to its healthcare clients. Its practice areas encompass healthcare (including medical malpractice and nursing home defense, corporate, transactional, regulatory, and compliance matters), mergers and acquisitions, general corporate and business, employment, cybersecurity, arbitration and mediation, products liability, and a general civil trial practice in both federal and state courts. For more information, visit our website: www.londonamburn.com.
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