Member Article

The initial $350 billion in forgivable loans under the Small Business Administration’s Paycheck Protection Program (PPP) were claimed within 13 days. Given the initial interest, Congress on Thursday, April 23 approved an additional $484 billion of coronavirus-relief funding, including an additional $310 billion for the government-backed PPP and $75 billion in new funding for healthcare providers. President Trump is expected to sign the bill into law on Friday, April 24.

While some groups supported by private equity investments voluntarily opted to forgo PPP funding, the PPP’s “affiliation” rules caused other physician groups who contracted with a private equity-backed management services organization (MSO) to sit on the sidelines after taking those rules at face value. Some physician groups were approved and others tried but were too late, and then there were some that missed out because they did not give a closer look at their own specific contracts, structures and options.

Bottom line for physician and other healthcare provider groups backed by private equity:

• Youmaybe eligible for a PPP loan to support your clinical operations.
• The affiliation rules donotautomatically disqualify you.
• Don’t wait. Now that Congress has approved a second round of funding, talk with your advisors to ensure you are exploring all available options — and their pros and cons.
  
  

The Affiliation Rule

To be eligible for a PPP loan, a healthcare practice applicant together with its “affiliates” must have 500 or fewer employees combined. In the below example, because Company 1 and Company 2 are “affiliates,” their combined 600 employees make both ineligible for a PPP loan.

Confusion from Industry Reports

On April 14, Modern Healthcare wrote: “Private equity-owned doc practices shut out of small business bailout.” While the title is technically correct, this does not capture the full story. In most states, PE doesnotown the practice; instead, PE invests in an MSO whereas the practice continues to be owned by the doctor.

Because these platforms come in many flavors, it is not necessarily the case that the practice will be an “affiliate” of the PE-owned companies. In fact, the only government decision on the matter, which found that a physician practice wasnotan affiliate of a hospital-owned management company, turned on a close reading of the contract terms. Moreover, because the SBA recently clarified that some problematic terms may be “waived,” it may be possible to fix poorly drafted language from dated forms. The only way to know is to look at them closely.

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