Selling Your Practice: PPP, MAAP, and CARES Act relief fund compliance

November 11, 2020
Ericka L. Adler, JD
Ericka L. Adler, JD

Shareholder at Roetzel & Andress

Physician practices that are engaged in any purchase or sale of stock or equity must be sure to comply with the requirements tied to funds that were loaned or granted during COVID.

Despite the pandemic, business is back to normal for many in the health care industry. Transactions that were put on hold, are now moving forward to close. This includes physician practices being sold to physicians, private equity, and hospitals. Additionally, physicians continue to engage in internal stock transactions as senior providers retire and/or new physician acquire ownership in existing medical practices.

While the substance of these transactions largely looks the same as before COVID-19, it is important to keep in mind that many medical practices accepted a variety of funds during the COVID pandemic. This may have included Paycheck Protection Program (PPP) loans, Medicare Accelerated and Advance Payments (“MAAP”), as well as CARES Act relief funds. In any transaction in which physician practices now enter (until complete forgiveness or repayment is achieved), it is key to comply with the requirements of these advance/loans programs and assure appropriate documentation.

PPP LOANS

Although the guidance keeps changing, the Small Business Association (“SBA”) issued guidance related to lender consent for change of control transactions involving a PPP borrower. The terms of all PPP loans require lender consent to certain transactions involving a PPP borrower. The notice can be found here: https://www.sba.gov/sites/default/files/2020-10/5000-20057-508.pdf. The SBA allows a PPP lender to approve a change of ownership transaction without getting prior SBA approval below certain percentage change thresholds or, when those thresholds are exceeded, if the PPP borrower prior to closing both: (i) submits a loan forgiveness application showing use of all PPP funds and (ii) escrows those funds with the PPP lender for the outstanding balance of the PPP loan (the “Apply and Escrow Process”).

In the case of a sale of equity or merger, if the amount of borrower equity sold/transferred is:

  • Less than 20%, then there is no change of ownership and no consent is needed (by lender or SBA).
  • 20-50%, lender consent is required, but can be done without (i) SBA approval or (ii) Apply and Escrow Process.
  • More than 50%, lender consent is required, which consent cannot be granted without (i) SBA approval; or (ii) Apply and Escrow Process.

In the case of a sale of assets, if the fair market value of the assets sold/transferred is:

  • Less than 50%, then there is no change of ownership and no consent needed (by lender or SBA).
  • More than 50%, lender consent is required, which consent cannot be provided without (i) SBA approval; or (ii) Apply and Escrow Process.

Any party buying or selling some or all of the assets or stock of an entity that took PPP funds must be aware and comply with these requirements. These requirements can severely impact timing on a closing and most lenders are not yet familiar with handling these requirements. These requirement may also change and have many details, so please be sure to obtain legal advice.

MAAP

These amounts advanced by CMS are required to be repaid by practices. More information on the repayment approach can be found here: https://www.cms.gov/files/document/accelerated-and-advanced-payments-fact-sheet.pdf. This repayment obligation should be taken into account in any transaction involving the purchase or sale of assets or stock of practice. Many practices are simply choosing to repay the advances upfront prior to a physician departure in order to avoid any issues or dispute.

Cares Act

Information on the CARES Act relief funds can be found at: https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/for-providers/index.html.

As of the latest guidance, the portal will not be available until January 15, 2021. The first reporting deadline for all providers is February 15, 2021. Providers who do NOT fully spend relief funds prior to December 21, 2020 must make a final report no later than July 31, 2021.

All providers are expected to report information including the general and administrative expenses they incurred as well as health care expenses and lost revenue related to the Coronavirus. Physicians should also keep in mind that as a requirement of retaining Cares Act funds, a provider must comply with the associated “terms and conditions,” which require a provider to implement certain policies and procedures. This can be an important representation and warranty in transaction documents.

Physician practices that are engaged in any purchase or sale of stock or equity must be sure to comply with the requirements tied to funds that were loaned or granted during COVID. It is essential to consult with legal and financial advisors to obtain guidance on meeting legal requirements in order to prevent any negative consequences.

About the Author

Ericka L. Adler, JD, LLM has practiced in the area of regulatory and transactional healthcare law for more than 20 years. She represents physicians and other healthcare providers across the country in their day-to-day legal needs, including contract negotiations, sale transactions, and complex joint ventures. She also works with providers on a wide variety of compliance issues such as Stark Law, Anti-Kickback Statute, and HIPAA. Ericka has been writing for Physicians Practice since 2011.