Three Ways Medical Providers can Maximize Funding and Liquidity

June 15, 2020

As COVID-19 cases decrease in many states, the full reality of the economic impact is emerging. The unprecedented effects on medical practices are particularly severe, causing many practices to look for innovative solutions to improve financial liquidity.

Why are medical practices struggling during a global health crisis?

While strict social distancing guidelines and shelter-in-place orders aimed to help prevent overwhelming healthcare resources and to keep the population safe, the approach inadvertently crippled medical practices. As the country shut down, executive orders led to canceled elective procedures and drove patients to postpone preventative visits. Although the rise in telehealth services created more flexibility for medical practices, these services were developed with the intent to supplement, not replace, in-person visits. Telehealth services will help providers expand their capacity for patient services in the future and provide a crucial additional revenue stream. However, over the last few months, the services paradoxically generated less fees than traditional office visits and created new complications related to technology and staffing that many practices weren’t equipped to handle. As a result, healthcare spending by Americans dropped 18%, and medical practices are scrambling to generate funding and develop a re-opening plan that will maximize their revenue while continuing to put patient health first.

What can medical practices do to mitigate the financial impact?

For medical practices concerned about liquidity, you have options. Here are several considerations to help improve your financial outlook in both the short- and long-term:

  1. Maximize your funding options

As part of the CARES Act, the Department of Health and Human Services (HHS) received $100 billion in funding to distribute to healthcare providers through a variety of programs. They allocated $30 billion to providers who receive Medicare fee-for-service reimbursements, and an additional $20 billion for a second round of grants paid to eligible providers impacted by COVID-19.

The CARES Act also established the Paycheck Protection Program (PPP), which provides emergency funding through the Small Business Administration (SBA). The intent of the program is to provide immediate relief to small businesses through financial assistance with critical costs like payroll and overhead. These loans are generally available to businesses with 500 or fewer employees, and businesses that receive the funds can potentially achieve full loan forgiveness.

Medical practices can also pursue Economic Injury Disaster Loans (also managed by the SBA) or take advantage of various tax benefits created by the CARES Act and other relief legislation. For instance, the Employee Retention Credit and the payroll tax deferral programs aim to provide immediate financial relief to businesses impacted by COVID-19 while also providing a means of keeping as many employees on your payroll as possible.

Each relief funding option provides a potential lifeline for struggling medical practices, but these funding sources also carry strict and complicated reporting and eligibility requirements. If you think one or more of these funding options might be appropriate for your medical practice, it’s important to work with a knowledgeable advisor to maximize your funding and mitigate your risk. Aprio has a dedicated PPP Loan Forgiveness team, as well as a host of other advisors available to evaluate your practice’s current financial situation and strategize a funding plan.

  1. Create a strategic plan

While there are many potential sources of funding available to help your medical practice, it’s important to be strategic and balance your short- and long-term business decisions. While some relief may be beneficial in the short term, the long-term risks may outweigh the benefits.

For instance, while PPP loans provide enticing immediate access to funding, fulfilling the stipulations of receiving loan forgiveness may not be advantageous in the long term. Creating a strategic plan for utilizing various funding sources will be critical to maximizing your practice’s liquidity. Likewise, creating a strategic plan for re-opening will ensure your practice is maximizing revenue while prioritizing patient health. Whether your medical practice remained open throughout the pandemic or is just beginning to see patients again, the gradual re-opening of states and other businesses will drive many important changes in your practice. Considerations include how you will implement and communicate new safety practices to protect staff and patients and to put patients at ease as they schedule preventative visits again. Additionally, reevaluating your practice’s staffing model and considering how you will prioritize procedures can help improve liquidity without sacrificing patient care.

  1. Consult a knowledgeable advisor

Working with a knowledgeable advisor can help create a more holistic approach to improving cash flow. Our dedicated PPP Loan Forgiveness team can also help you evaluate your practice’s current needs and concerns and assess eligibility for forgiveness.

Aprio’s advisors are continually monitoring new guidance, regulations, and legislation related to COVID-19 relief. For example, Congress passed the Paycheck Protection Program Flexibility Act of 2020 on June 3rd. This new legislation, awaiting signature by the President, will extend the PPP Loan Forgiveness period while relaxing other terms like payroll cost spend requirements and length of the loan. These changes could have a significant impact on medical practices’ business strategies.

Aprio is here to help

While the future of the American economy and the entire healthcare system is still very uncertain, it is important now more than ever to create a careful and deliberate plan forward focusing on liquidity. The magnitude of these decisions can be overwhelming, but there are many resources available to guide you through the process.

If you would like to discuss how to maximize PPP loan forgiveness, contact Aprio’s dedicated PPP loan forgiveness team for a consultation. 

Disclaimer for services provided relative to SBA programs and the CARES Act
Aprio’s goal is to provide the most up to date information, along with our insights and current understanding of these programs and regulations to help you navigate your business response to COVID-19.

The rules regarding SBA programs are constantly being refined and clarified by the SBA and other agencies In certain instances, the guidance being provided by the agencies and/or the financial institutions is in direct conflict with other competing guidance, regulations and/or existing laws.

Due to the evolving nature of the situation and the lack of final published rules, Aprio cannot guarantee that additional changes or updates won’t be needed or forthcoming and the original advice given by Aprio may be affected by the evolving nature of the situation.

You need to evaluate and draw your own conclusions and determine your Company’s best approach relative to participation within these programs based on your Company’s specific circumstances, cash flow forecast and business strategy.

In situations where resources are provided by third parties, those services should be covered under a separate agreement directly with that service provider. Aprio is not responsible for the actions of any other third party.

Aprio encourages you to contact your legal counsel to address the legal implications of the impact of the CARES Act and specifically your participation in any of the SBA programs.