Expanded Relief for Healthcare Providers and Nonprofits Under the CARES Act

August 27, 2020 | Kim Hunwardsen, CPA

Kim Hunwardsen, CPA; Partner; Eide Bailly

The government has recently taken steps to extend, or expand, CARES Act support for nonprofit organizations affected by the COVID-19 pandemic.

Medicaid and Children’s Health Insurance Program Distributions
Nonprofit service providers participating in state Medicaid and CHIP programs may now be eligible for federal assistance as part of a new $15 billion Provider Relief Fund. To be eligible for this program, providers must meet all of the following criteria:

  1. Have not received an HHS payment from the $50 billion general distribution to Medicare providers.
  2. Have directly billed Medicaid or CHIP for healthcare related services from January 1, 2018, to December 31, 2019, or own an included subsidiary that has billed Medicaid or CHIP.
  3. Have filed either a for-profit or exempt organization tax return for 2017, 2018 or 2019 or be an entity exempt from federal income tax return filing requirements (such as a state-owned hospital or clinic).
  4. Have provided patient care after January 31, 2020.
  5. Have not ceased providing patient care.

The new relief fund payment to each provider will be approximately 2% of reported gross revenue from patient care. The amount will not be subject to repayment if terms and conditions are met. The deadline to apply for this program has been extended to August 28, 2020.

A fact sheet explaining the application process and summarizing the permitted uses for relief distribution funding can be found here. The application can be accessed here.

Relief for Reimbursing Employers
The Protecting Nonprofits from Catastrophic Cash Flow Strain Act, which was signed by the President on August 3, will provide relief to certain “reimbursing employers” who reimburse states, dollar-for-dollar, when former or furloughed employees collect unemployment benefits. Many nonprofits operate as reimbursing employers rather than contribute to their respective state unemployment insurance systems.

The CARES Act provides for federal assistance designed to pay reimbursing employers 50% of the costs associated with benefits collected by employees laid off or furloughed due to the COVID-19 pandemic between March 13 and December 31, 2020. Department of Labor guidance previously required states to collect 100% of the balance due from nonprofits first and then reimburse them later. To alleviate this cash flow strain on nonprofits, the new legislation enables states to collect just the 50% portion of the unemployment reimbursement from nonprofits upfront. The federal government will still fund the remaining 50% portion of the costs to the state.

Main Street Lending Program – Nonprofit Loan Options
The CARES Act established and funded $75 billion in equity relief via the Main Street Lending Program to provide loans to mid-size employers with 50 to 10,000 employees. Guidance initially released on the implementation of these loans indicated the funds were not available to nonprofit organizations. However, the Federal Reserve Board recently modified the program to provide loan options suited to the needs of nonprofit organizations.

After receiving comments on the nonprofit loan proposals released on June 15, the Main Street Lending Program now has two new loan options for nonprofit organizations exempt under section 501(c)(3) or 501(c)(19) of the Internal Revenue Code with the hope that this will allow for greater access to credit for hospitals, educational institutions and social service organizations.

The two new loan options are available to nonprofit organizations that were in sound financial condition prior to the COVID-19 pandemic and, in general, the terms mirror those offered to for-profit businesses with respect to the interest rate, deferral of principal and interest payments, five-year term and loan size.

The nonprofit “New Loan” and “Expanded Loan” options, however, have a lower employment threshold of 10 employees (down from 50), allow non-donation revenues equal to or greater than 60% of expenses (down from 70%), a 2% or greater 2019 operating margin (down from 5%), 60 days cash on hand (down from 90 days), and a current debt repayment capacity of 55% or more (down from 65%).

These criteria were adjusted to accommodate nonprofit organizations and the wide variety of operating models seen in the industry. More information on the recent release and links to the respective term sheets for the two new loan facilities can be found here.

Understanding the Impact of Relief Provisions on Your Organization
As the COVID-19 pandemic continues to impact organizations, relief has come in various forms. Even long-standing relief packages, like the CARES Act, have gone through multiple revisions as the effects of the pandemic unfold. It’s important to stay on top of these updates and how they can impact your organization and its potential application for relief.

Kim Hunwardsen, CPA, is a partner at Eide Bailly. You may email her at khunwardsen@eidebailly.com.