CARES - SFF is here to help navigate uncertain water

April 7, 2020 • Charles A. Lyman

In an effort to minimize the potentially devastating economic disruptions from the COVID-19 pandemic, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), a $2.2 trillion stimulus package offering relief to businesses of all sizes as well as individuals. The CARES Act includes a range of programs that may provide economic assistance to you, your business, your employees, and your community. Schlemlein Fick Franklin is here to provide useful resources and information in these uncertain times, and to help you understand how the CARES Act might work for you.

With any questions or concerns about how the CARES Act applies to you we will walk through it with you and help with any other concerns that you may have in these challenging time.  With respect to loan processing, general small business issues, commercial lease matters, creditor/debtor problems, or bankruptcy, please contact Charlie Lyman or Ben Lance.  With respect to construction industry specific issues, please contact Garth Schlemlein, Jim Fick or Jesse Franklin.  With respect to employment and payroll issues, please contact Brian Keeley.

Below, you will find summaries and helpful analysis of key sections of the CARES Act. 

Title I – Keeping American Workers Paid and Employed Act

Sec. 1102. Paycheck Protection Program.

The CARES Act expands eligibility for, and use of, small business loans made under Section 7(a) of the Small Business Act by enacting a new Paycheck Protection Program (the “Program”) that provides short-term cash flow assistance to eligible businesses to help them through some of the immediate economic effects of the public health emergency. The Small Business Administration (the “SBA”) is authorized to make up to $349 billion in loans available to eligible employers and self-employed individuals under this program. The loans will be administered by the SBA, and eligible borrowers must apply through SBA-approved lenders. The U.S. Department of Treasury is already approving new lenders.  Under the Program, eligible businesses include: (a) small businesses, other business concerns, nonprofits, and veterans organizations that generally have fewer than 500 employees or the industry size standard set by the SBA; (b) sole proprietors; (c) independent contractors; (d) self-employed workers; (e) certain tribal business concerns; and (f) businesses in the accommodation and food services sector with fewer than 500 employees per location. An eligible borrower must have been in operation on February 15, 2020 and must have paid employee salaries and payroll taxes. 

The Program expands permitted use of the SBA loans, allowing funds to be used to cover payroll, health care costs, mortgage interest payments, rent and utility payments, and interest on pre-existing debt obligations during the covered period (February 15, 2020, to June 30, 2020). The Program further allows for the refinancing of economic injury disaster loans made between January 31, 2020, and the date on which loans are made available under the program. Qualifying entities are generally permitted to borrow in an amount equal to the lesser of $10,000,000 and 2.5 times the borrower’s average monthly payroll costs over the one year period preceding the loan. The maximum interest rate is 4%. “Payroll cost” is a specifically defined-term under the Section, and certain restrictions apply. “Employees” include those employed on a full-time, part-time, and other basis. Further, the SBA “affiliation” rules will generally apply. Certain fees are waived, payments are deferred by at least six months (but not more than one year), and the SBA’s test (the ability to obtain funding from other sources without undue hardship) is waived. In the event of default on a covered loan, the SBA will have no recourse against an individual shareholder, member, or partner for except to the extent that such shareholder, member, or partner uses the covered loan proceeds for an unauthorized purpose. Collateral and personal guarantees are not required. Borrowers must make a good faith certification that the uncertainty of current economic conditions makes the loan necessary to support their ongoing operations and that they will use the funds to retain workers and maintain payroll or other certain obligations and utilities.

The CARES Act mandates that the SBA issue regulations implementing the program within 15 days of enactment. If an eligible business uses the loan for qualifying expenses while maintaining its workforce, some or all of the loan may be forgiven (see Section 1106).

Paycheck Protection Program applications are now available here.

Sec. 1106. Loan Forgiveness.

This Section authorizes forgiveness for eligible recipients of loans covered under Section 1102 in certain circumstances. Recipients are eligible for forgiveness of indebtedness on a covered loan in an amount equal to the sum of payroll payments, interest payments on mortgage obligations, rent payments, and utility payments made during the eight-week period following loan origination, as long as the amount does not exceed the original principal. This amount of forgiveness will be decreased if the loan recipient either: (a) reduces the average number of employees on their payroll; or (b) decreases employee salaries or wages in excess of 25% of the salary or wages received by the employee during the most recent quarter prior to the covered period. Recipients of covered loans may avoid a reduction in amount of forgiveness by rehiring employees or correcting the decrease in salary and wages by June 30, 2020.

Eligible recipients seeking loan forgiveness must document and certify information associated with their covered loan. Any forgiveness granted under the Program will not be included as part of the loan recipient’s gross income. Amounts not forgiven continue to be guaranteed and will have a maximum maturity date of 10 years from the date the borrower applied for loan forgiveness. This Section mandates that the SBA is to issue additional rules and guidance within 30 days.

Sec. 1110. Emergency EIDL Grants.

The CARES Act expands the SBA’s Economic Injury Disaster Loan (“EIDL”) Program by broadening the types of entities eligible to receive EIDLs and creating a grant program to support small businesses and nonprofits affected by the public health emergency. The eligible businesses expansion applies to (a) businesses with not more than 500 employees, (b) sole proprietorships, (c) cooperatives with not more than 500 employees, (d) employee stock ownership plans (“ESOP”) with not more than 500 employees, or (e) tribal small business concerns with not more than 500 employees.

Private nonprofit organizations, small business concerns, and small agricultural cooperatives continue to be eligible for EIDLs. Applicants must be able to establish that the claimed economic injury is both substantial and a direct result of the COVID-19 pandemic. An EIDL applicant may request an advance of up to $10,000 from the SBA to cover certain expenses, including making rent or mortgage payments, maintaining payroll to retain employees, meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains, repaying obligations that cannot be met due to revenue losses, and providing paid sick leave to employees unable to work due to the direct effect of the pandemic. The SBA will issue an advance within three days of the SBA Administrator’s receipt of the grant application. An EIDL grant recipient will not be required to repay the advance, even if the applicant is subsequently denied an EIDL; however, if the EIDL grant recipient also seeks loan forgiveness from the SBA, the forgiveness amount will be reduced by the EIDL grant amount.

Sec. 1113. Bankruptcy.

The CARES Act amends the Small Business Reorganization Act of 2019 (SBRA) to increase the eligibility threshold for businesses filing under new subchapter V of Chapter 11 of the U.S. Bankruptcy Code from $2.75 million of debt to $7.5 million.

In addition to revising the SBRA/Chapter 11, the CARES Act makes minor revisions to Chapters 7 and 13, such as allowing debtors in those chapters to exclude certain pandemic-related payments from being treated as income for bankruptcy purposes.

The bankruptcy amendments provided by this Section expire in one year.

TITLE II – ASSISTANCE FOR AMERICAN WORKERS, FAMILIES AND BUSINESSES

Subtitle A – Unemployment Insurance Provisions

Sec. 2102. Pandemic Unemployment Assistance.

Section 2102 creates the temporary Pandemic Unemployment Assistance program (the “Program”), effective January 27, 2020, to remain in effect until December 31, 2020, which covers individuals who would not otherwise be eligible for unemployment insurance and benefits (i.e., independent contractors, those who are self-employed, those who lack sufficient work history, those who have exhausted their unemployment benefits under existing schemes) provided they are able to self-certify that they are unemployed, partially unemployed, or unable/unavailable to work because:

  • They have been diagnosed with COVID-19 or are experiencing symptoms of COVID-19 that require a medical diagnosis.
  • A member of their household has been diagnosed with COVID-19.
  • They are providing care for a family member or member of their household who has been diagnosed with COVID-19.
  • A member of their household for which they have primary caregiving responsibility is unable to attend school or another facility that has been closed as a direct result of the COVID-19 public health emergency and because of this closure they are unable to work.
  • They are unable to work because of a quarantine imposed as a result of the COVID-19 public health emergency.
  • They are unable to work because they have been advised to self-quarantine by a health care provider.
  • They were scheduled to start a job but are unable to do so as a result of the COVID-19 public health emergency.
  • They have become a “major support for a household” because the breadwinner in the household has died as a direct result of COVID-19.
  • They quit their job as a direct result of COVID-19.

Note that individuals who are able to work remotely with pay or who have received paid sick leave or other paid leave benefits are ineligible to receive assistance under the Program.

Covered individuals may receive assistance under the Program for a maximum of 39 weeks, including any weeks for which the covered individual received regular unemployment benefits provided under Federal or State law. The amount provided to a covered individual under the Program is equal to the amount of unemployment benefit the covered individual would otherwise be entitled to under Federal or State law plus an additional amount (referred to as Federal Pandemic Unemployment Compensation) in the amount of $600 per week. Further, the Program waives any waiting periods before individuals become eligible for benefits as established by state unemployment laws.

Subtitle B – Rebates and Other Individual Provisions

Sec. 2201. 2020 Recovery Rebates for Individuals.

This Section concerns the direct cash benefits to individuals that have been the topic of much discussion over the past several weeks. The CARES Act provides a refundable tax credit in the amount of $1,200 for eligible individual filers and $2,400 for eligible joint filers, plus an additional $500 for each eligible child. Those amounts are limited based on adjusted gross income; the rebate starts to phase out at adjusted gross income of $75,000 for singles, $112,500 for heads of household, and $150,000 for taxpayers filing joint returns at the rate of $50 per $1,000 of income in excess of the phase-out amount. It phases out entirely at $99,000 for single taxpayers with no children and $198,000 for taxpayers filing joint returns with no children.

A taxpayer generally does not need to do anything to claim the rebate. The IRS will calculate the amount of the rebate based on a taxpayer’s 2019 federal income tax return, or the 2018 tax return if the taxpayer has not filed the 2019 tax return and send the payment to the taxpayer. The credit is refundable, and the IRS intends to issue cash payments to eligible taxpayers in the upcoming weeks. Taxpayers receiving rebates do not have to pay income tax on the rebates.

Sec. 2202. Special Rules for Use of Retirement Funds.

The CARES Act provides retirement plan sponsors with the ability to make additional opportunities for participants to take distributions and request loans from tax-qualified retirement plans. Further, the Act provides relief from required loan repayments to tax-qualified retirement plans. These new provisions can be implemented immediately following the enactment of the CARES Act, so long as such tax-qualified retirement plans are amended to retroactively provide for such provisions on or before the last day of the first plan year beginning on or after January 1, 2022.

Under § 2202(a), the CARES Act permits a hardship withdrawal by a Qualified Individual of up to $100,000 from a qualified retirement plan or an IRA, if made on or after January 1, 2020, and before December 31, 2020. The withdrawal will be subject to income tax, but the additional 10% tax on early withdrawals will not apply. The distribution will be included in the individual’s taxable income ratably over a three-year period, beginning with the year of the distribution, unless the employee elects to have it all included in income in the year of receipt. The distribution may be repaid to a qualified plan or an IRA as a deemed rollover during the three-year period beginning on the date the distribution was received.

Under § 2202(b), the Act also revises the plan qualification rules governing plan loans for an employee who is a Qualified Individual described above. Current retirement plan loan limits are doubled, to the lesser of $100,000 or 100% of the employee’s vested account balance in the plan, for a loan made to the Qualified Individual during the 180-day period beginning on the date of the enactment of the Act (i.e., by September 23, 2020). The due date for the repayment by a Qualified Individual of any plan loan payment that would otherwise be required to be made during the period beginning on March 27, 2020 (the date of enactment of the Act) and ending on December 31, 2020, is deferred for one year. 

            Under § 2202(c), Plan amendments implementing the favorable hardship distribution and plan loan rules will not need to be adopted until the last day of the first plan year beginning on or after January 1, 2022 (or such later date as may be allowed by the Treasury Department). Government plans have an additional two years to be amended.

Sec. 2203. Temporary Waiver of Required Minimum Distribution Rules for Certain Retirement Plans and Accounts.

The CARES Act temporarily waives the minimum distribution requirements for defined contribution plans (such as 401(k) plans), Section 457(b) deferred compensation plans maintained by a state or local government (but not a tax-exempt organization), and IRAs. This waiver applies for all required minimum distributions that otherwise would have been required to be made in 2020, including distributions to an individual who attained age 70½ in 2019, that would have needed to be made by April 1, 2020.

Sec. 2204. Allowance of Partial Above the Line Deduction for Charitable Contributions.

For tax years starting in 2020, an individual taxpayer who does not itemize is permitted to claim up to $300 in qualified charitable contributions. “Qualified charitable contributions” are (1) made in cash, (2) otherwise deductible under the Internal Revenue Code of 1986 (3) paid to an eligible charity, and (4) not made to establish a new, or maintain an existing, donor advised fund.

Sec. 2205. Modification of Limitations on Charitable Contributions During 2020.

For cash contributions made to certain charitable organizations (for example, churches, hospitals, and medical research organizations), individual taxpayers are generally permitted to claim a deduction up to their adjusted gross income for 2020. The taxpayer will be required to make an election for this treatment. To the extent an S-corporation or partnership entity makes the contribution, such an election will be made at the owner level (instead of the entity level).

Corporate taxpayers are generally permitted to claim a deduction up to 25% of their taxable income for taxable years starting after December 31, 2019.

In the case of donations of food inventory, C-corporation donors may claim a deduction up to 25% of their taxable income; and taxpayers other than C-corporations may claim deductions up to 25% of their aggregate net income.

Sec. 2206. Exclusion for Certain Employer Payments of Student Loans.

For certain payments made by a taxpayer’s employer before January 1, 2021, not exceeding $5,250, those payments may be excluded from the taxpayer’s income for 2020. This includes the payment of certain education loans. This exclusion is designed to prevent the taxpayer from claiming a “double benefit” for related amounts, such as an interest deduction for student loan interest under Code Section 221.

Subtitle C – Business Provisions

Sec. 2301. Employee Retention Credit for Employers Subject to Closure Due to Covid–19.

The CARES Act provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees. In order to be an “eligible employer,” the taxpayer must have had its operations fully or partially suspended by government action, or experienced a greater than 50% reduction in quarterly receipts (as measured on a year-over-year basis). The definition of “wages” depends on whether the employer had 100 or fewer full-time employees, with smaller employers receiving better treatment under this provision. This credit is not available with respect to any employee allowed a Work Opportunity Credit under Code Section 21.

Sec. 2302. Delay of Payment of Employer Payroll Taxes.

The CARES Act permits taxpayers to defer payment of the employer portion of certain payroll taxes through the end of 2020. Those payroll taxes include Social Security taxes. Taxpayers are permitted to defer 50% of the payment to December 31, 2021; and the remaining 50% to December 31, 2022. Deferral of payroll taxes involves high risk; if not done properly, the penalties are very harsh. Accordingly, seeking counsel is highly recommended before taking advantage of this provision.

Sec. 2303. Modifications for Net Operating Losses.

This section of the CARES Act removes the 80% limitation on deductions for net operating loss carryovers and carrybacks entirely for taxable years beginning before January 1, 2021. The 80% limitation (from the Tax Cuts and Jobs Act of 2017) remains in place for taxable years beginning after December 31, 2020.

This section also restores a limited carryback of net operating losses arising in taxable years ending after December 31, 2017. Those losses arising in taxable years beginning after December 31, 2017, and before January 1, 2021, may be carried back to each of the five preceding taxable years. The indefinite carryforward of these net operating losses remains unchanged. Further, the CARES Act provides a special exception to the standard filing deadline for carryback claims, permitting taxpayers to submit an application for tentative refund with respect to the carryback of a net operating loss arising in a taxable year beginning before January 1, 2018, and ending after December 31, 2017, within 120 days of the enactment of the CARES Act.

Sec. 2304. Modification of Limitation on Losses for Taxpayers Other Than Corporations.

The Act permits noncorporate taxpayers to deduct excess business losses arising in 2018, 2019, or 2020. An “excess business loss” is the excess of (1) the taxpayer’s aggregate deductions from a trade or business over (2) the sum of the taxpayer’s aggregate trade or business gross income/gain plus $250,000.

Sec. 2305. Modification of Credit for Prior Year Minimum Tax Liability of Corporations.

The Act accelerates the timing for companies to claim refundable credits with respect to the corporate alternative minimum tax (AMT), allowing eligible corporations to obtain additional cash flow during the pandemic. Further, eligible corporations may instead elect to claim their entire AMT credit for the taxable year beginning in 2018 and apply for a tentative refund due to such election, which will be treated as timely if filed prior to December 31, 2020.

Sec. 2306. Modifications of Limitation on Business Interest.

The CARES Act relaxes limitations on the deductibility of business interest expense that were enacted as part of the Tax Cuts and Jobs Act of 2017 (“TCJA”). This section increases the limitation to 50% of adjusted taxable income for taxable years beginning in 2019 or 2020 while preserving taxpayers’ ability to carry forward disallowed interest deductions.

Importantly, the CARES Act allows taxpayers to calculate the limitation for the taxable year beginning in 2020 based on ATI for the taxable year beginning in 2019. This provision should be helpful given the likelihood that many businesses will have less income in 2020 as compared to 2019.

Sec. 2307. Technical Amendments Regarding Qualified Improvement Property.

This Section provides a technical correction to existing tax law by providing that certain “qualified improvement property” is 15-year property for depreciation purposes and, therefore, eligible for bonus depreciation.

TITLE III – SUPPORTING AMERICA'S HEALTH CARE SYSTEM IN THE FIGHT AGAINST THE CORONAVIRUS

            Subtitle A – Health Provisions

Part II – Access to Health Care for Covid-19 Patients

Subpart B – Support for Healthcare Providers

Sec. 3211. Supplemental Awards for Health Centers.

Health Centers are entities that provide services to underserved populations and in medically underserved areas. This Section of the CARES Act modifies existing programs for grant funding available to Health Centers (entities that provide services to underserved populations and in medically underserved areas) by adding $1.32 billion in funding. The additional funds are to be used to develop programs for the detection of the novel coronavirus and the prevention, diagnosis, and treatment of COVID-19.

Although additional funding will be administered through the existing grant processes in place for Health Centers, providers will likely need to await guidance and, possibly, additional regulations specific to applying for and utilizing these funds.

Sec. 3212. Telehealth Network and Telehealth Resource Center Grant Programs.

This section expands the types of entities that may apply for grants to develop and implement telehealth technology, including grants available outside the context of COVID-19 needs. For instance, substance use disorder treatment centers are now included as entities eligible for telehealth grants.

The Act requires that at least 50 percent of funds awarded are for projects in rural areas, and increases the maximum grant funding period from 4 years to 5 years. Further, the Act establishes funding of $29 million for each fiscal year from 2021 through 2025.

Although additional funding will be administered through the existing grant processes in place for telehealth development, providers will likely need to await guidance and, possibly, additional regulations specific to applying for and utilizing these funds.

Sec. 3213. Rural Health Care Services Outreach, Rural Health Network Development, And Small Health Care Provider Quality Improvement Grant Programs.

This section expands the types of entities that may participate in developing, implementing, and maintaining health care services in rural areas. These programs are to be available outside the context of COVID-19 needs.

Participating entities are no longer required to be rural public or not-for-profit entities; now, entities may participate if they can show they are experienced in serving, or have the capacity to serve, rural populations.

The Act changes the maximum grant funding period from 3 years to 5 years and increases available funding from $45 million to $79.5 million for each fiscal year from 2021 through 2025.

Although additional funding will be administered through the existing grant processes in place for rural outreach and development, providers will likely need to await guidance and, possibly, additional regulations specific to applying for and utilizing these funds.

Sec. 3214. United States Public Health Service Modernization.

This section expands the permissible times for possible deployment of Public Health Service personnel to include “in time of a public health or national emergency.”

Sec. 3215. Limitation On Liability For Volunteer Health Care Professionals During Covid-19 Emergency Response.

This section limits potential state and federal liability for volunteer health care professionals (those providing health care services without compensation) for harm caused to patients relating to the diagnosis, prevention, or treatment of COVID-19. This provision expressly preempts more restrictive state or local law, and expires at the end of the COVID-19 public health emergency as declared by the Secretary of Health and Human Services.

Sec. 3216. Flexibility For Members Of National Health Service Corps During Emergency Period.

The Act places certain limitations on deployment of Public Health Service personnel during times of public health or national emergency. Public Health Service personnel must voluntarily agree to provide health care services during the emergency, and they must provide services at places the Secretary of Health and Human Services deems appropriate, and for the number of hours assigned, provided that: the places are a reasonable distance from the members’ original assignment; and the total hours required are the same as required of the member prior to the date of enactment of the applicable emergency.

Subpart C – Miscellaneous Provisions

Sec. 3221. Confidentiality and Disclosure of Records Relating to Substance Use Disorder.

This section allows substance use disorder patients to give a broad authorization to share their de-identified health information and records. Once that is granted, HIPAA will govern those records. However, patients can revoke their authorization, and the bill retains restrictions on law enforcement use on the records.

Providers treating substance use disorders should acquaint themselves with HIPAA’s de-identification requirements. Such providers must be prepared to provide de-identified COVID-19 testing information to local, state, and federal public health authorities.

Sec. 3222. Nutrition Services.

This section provides that certain nutrition requirements under the Older Americans Act of 1965 meal programs would be waived during the COVID-19 public health emergency to ensure seniors can receive meals. Persons in isolation who are unable to obtain nutrition, but would not otherwise qualify for meal delivery, will qualify for delivery services during the pendency of the national emergency.

Sec. 3225. Reauthorization Of Healthy Start Program.

Appropriates $125.5 million in funding for each fiscal year from 2021 through 2025 for the Healthy Start meal program and other programs devoted to improving neonatal, perinatal, and infant health.

Sec. 3226. Importance of the Blood Supply.

In this section, the Secretary of the Department of Health and Human Services (DHHS) is directed to carry out a national awareness campaign to the public and healthcare providers about the importance and safety of blood donations and our blood supply during the public health emergency. The Secretary will report to Congress in two years concerning the campaign’s success.

Subtitle C – Labor Provisions

Sec. 3601. Limitation on Paid Leave.

This section amends the Emergency Family and Medical Leave Expansion Act (effective April 1, 2020) to provide that no employer will be required to pay more than $200 per day and $10,000 in aggregate for any employee who takes paid leave under the FMLA.

Sec. 3602. Emergency Paid Sick Leave Act Limitation.

The CARES Act amends the Emergency Paid Sick Leave Act by providing that employers will not be required to pay more than $511 per day or $5,110 in aggregate for an employee taking leave (1) under a government quarantine or isolation order, (2) because the employee has been advised by a health care provider to self-quarantine, or (3) because the employee is experiencing symptoms of COVID-19 and seeking medical attention.

Further, employers will not be required to pay more than $200 per day or $2,000 in aggregate for an employee taking leave (4) to care for an individual with COVID-19 or experiencing symptoms of COVID-19, (5) to care for a child whose school or child care facilities are closed due to COVID-19, or (6) because the employee is experiencing other substantially similar conditions specified by the Secretary of Health and Human Services.

Sec. 3603. Unemployment Insurance.

This section directs state governments to ensure that applications for unemployment compensation and assistance with the process is accessible, to the extent possible, in at least two of the following manners: in person, by phone, or online.

Sec. 3605. Paid Leave for Rehired Employees.

This section of the CARES Act clarifies that employees do not need to wait another 30 days on rehire to be eligible for Emergency FMLA if they were laid off on March 1, 2020 or later and if they worked for their employer during 30 of the last 60 days prior to layoff.

Sec. 3608. Single-Employer Plan Funding Rules.

Under this section, employers sponsoring single-employer defined benefit pension plans may delay contributions otherwise due in 2020 until January 1, 2021, and may elect to use the plan’s funding status as of the plan year ending in 2019 to determine whether the plan is subject to funding-based restrictions on lump-sum benefits and amendments increasing benefits for plan years that include the 2020 calendar year.

Sec. 3610. Federal Contractor Authority.

The CARES Act provides that federal agencies are permitted to modify the contract terms of federal contractors who cannot perform work at a federal site due to COVID-19 related closures or restrictions and cannot telework. Such federal contractors may provide up to 40 hours per week of leave compensation so that the contractor can keep its employees or subcontractors in a ready state, including to protect the life and safety of government and contractor personnel, through September 30, 2020. These amounts may be reduced by tax credits available to the contractor.

Under these circumstances, the employee would likely be entitled to use the Emergency Paid Sick Leave for the first two weeks of leave, or they can use prior accrued, unused paid leave through their employer.

Subtitle D – Finance Committee

Sec. 3701. Exemption for Telehealth Services.

The CARES Act amends the Internal Revenue Code to permit deductibles and coverage of telehealth services by Health Savings Account (HSA) high-deductible plans.

Health insurers offering HSAs do not currently offer plans recognizing deductible amounts for telehealth. Given that open enrollment for 2021 has passed, insurers will need to consider whether existing HSA offerings might be adjusted mid-year and provision made for special enrollment periods.

Sec. 3702. Inclusion Of Certain Over-The-Counter Medical Products As Qualified Medical Expenses.

This section adds the costs of menstrual care products as qualified medical expenses for purposes of health savings accounts, flexible spending accounts, and other and other reimbursement arrangements for amounts paid after December 31, 2019. This change would apply for amounts paid or expenses incurred after Dec. 31, 2019.

Sec. 3704. Enhancing Medicare Telehealth Services For Federally Qualified Health Centers And Rural Health Clinics During Emergency Period.

During the duration of the public health emergency, Federally Qualified Health Centers (“FQHCs”) and Rural Health Clinics will be able to serve as distant sites to provide telehealth services to patients in their homes and other eligible locations. The Act allows FQHCs and Rural Health Clinics to be reimbursed at a rate that is similar to payment for comparable telehealth services under the physician fee schedule.

Sec. 3706. Use Of Telehealth To Conduct Face-To-Face Encounter Prior To Recertification Of Eligibility For Hospice Care During Emergency Period.

During the emergency period, face-to-face clinical assessment for the recertification of end stage renal care may be conducted via telehealth technology.

Sec. 3707. Encouraging Use Of Telecommunications Systems For Home Health Services Furnished During Emergency Period.

This section requires the Secretary of Health and Human Services to issue clarifying guidance to Medicare-enrolled home health agencies encouraging the use of telecommunications systems to furnish home health services consistent with the Medicare beneficiary care plan during the public health emergency. In the near future, Health and Human Services will expand the Medicare reimbursable home health services that home health agencies will be able to provide to patients via telehealth during the public health emergency. Expanded access to the use of telehealth will allow home health agencies to properly and adequately provide care to patients while also protecting and ensuring the safety of patients and in-home caregivers during the COVID-19 health crisis.

These changes are not limited to the duration of the emergency and therefore open the door to new staffing strategies and solutions.

Sec. 3709. Adjustment of Sequestration.

Beginning May 1, 2020, Medicare is exempt from sequestration. Spending reductions required by past budget legislation are also suspended for an additional year, until 2030.

Sec. 3710. Medicare Hospital Inpatient Prospective Payment System Add-On Payment For COVID-19 Patients During Emergency Period.

During the public health emergency, payments for inpatient Medicare hospital services under the Prospective Payment System will be increased for discharged COVID-19 patients. The weighting factor used for calculation of discharge Diagnostic Related Groups for such patients will be enhanced by 20%.

Sec. 3711. Increasing Access to Post-Acute Care During Emergency Period.

Access to post-acute care during the public health emergency period will be increased as follows: rehabilitation facilities will not be required to comply with the requirement for coverage that they provide at least fifteen hours of therapy per patient per week; and the Secretary of Health and Human Services will exercise discretion in enforcement of certain long-term care hospital discharge rate requirements. These modifications allow for additional resources and flexibility for facilities treating patients during this emergency period.

Sec. 3712. Revising Payment Rates For Durable Medical Equipment Under The Medicare Program Through Duration Of Emergency Period.

The transition period for the recently-enacted revised payment methodology for durable medical equipment under the Medicare program (See 42 CFR 414.210) will be extended, effective through the duration of the public health emergency period. The intent of this section is to ensure durable medical equipment reimbursement is not reimbursed at a potentially reduced level, as initially required by the regulation, until after the emergency period.

Sec. 3713. Coverage of the COVID-19 Vaccine Under Part B of the Medicare Program Without Any Cost-Sharing.

Effective upon approval of a COVID-19 vaccine under federal law, cost-sharing deductibles under Part B of the Medicare program (physician services) will not be imposed for a COVID-19 vaccine or its administration. Similarly, Medicare Advantage plans will not require cost-sharing for a COVID-19 vaccine or its administration. The COVID-19 vaccine will be treated the same as the influenza vaccine in these regards.

Sec. 3714. Requiring Medicare Prescription Drug Plans and MA-PD Plans to Allow During the COVID-19 Emergency Period for Fills And Refills of Covered Part D Drugs for up to a 3-Month Supply.

During the public health emergency period, Medicare Part D and Medicare Advantage drug plans must allow refills of covered drugs for up to 90 days, except for those prescriptions with a safety edit.

Sec. 3715. Providing Home and Community-Based Services in Acute Care Hospitals.

During the emergency period, acute care hospitals will not be prohibited from providing home and community-based services so long as such services are identified in a patient’s care plan, provided to meet the needs of the of the patient not already met by the receipt of hospital services, not offered as a substitute for hospital services, and designed to ensure a smooth transition between acute care and home and community based settings.

Sec. 3716. Clarification Regarding Uninsured Individuals.

Technical amendments implement the provisions of the Families First Coronavirus Response Act, passed on March 11, 2020, to permit Medicaid coverage, and to require coverage under the Children’s Health Insurance Program, for uninsured COVID-19 testing and related visits without cost-sharing during the public health emergency.

Sec. 3719. Expansion Of The Medicare Hospital Accelerated Payment Program During The COVID-19 Public Health Emergency.

During the public health emergency period, the Medicare hospital accelerated payment program is expanded to include hospitals whose inpatients are predominantly individuals under 18 years of age, cancer centers, clinical cancer research centers, and critical access hospitals. Reimbursement for such hospitals also may be increased by the Secretary upon request. The Secretary is required to grant an additional grace time of 120 days before recouping accelerated payments and not less than 12 months from the date of the first accelerated payment before recovery in full.

Subtitle E – Health And Human Services Extenders

            Part I – Medicare Provisions

Sec. 3801. Extension Of The Work Geographic Index Floor Under The Medicare Program.

Payments to physicians under the Medicare program are calculated using a complex formula that considers the physician’s expertise, efforts, time, location, and other factors. The current work geographic floor index was set to expire on May 23, 2020.  This section of the CARES Act extends this out to December 1, 2020.

Sec. 3802. Extension Of Funding For Quality Measure Endorsement, Input And Selection.

This section amends the Social Security Act to increase the amount allotted for development and implementation of quality measure related activities (which are part of value-based payment and other quality initiatives) for this fiscal year ending on October 1, 2020, from $4.83 million to $20 million, and for the period beginning on October 1, 2020, and ending on November 30, 2020, in an amount equal to the pro rata portion of $20 million.

Sec. 3803. Extension Of Funding Outreach And Assistance For Low-Income Programs.

This section provides additional funding for various area agencies on aging, aging and disability resource centers, and the National Center for Benefits and Outreach Enrollment and extends such funding through fiscal year 2020 and adds additional pro rata funding for the period beginning on October 1, 2020 through November 30, 2020.

                        Part II – Medicaid Provisions

Sec. 3811. Extension of The Money Follows the Person Rebalancing Demonstration Program.

The Money Follows the Person (MFP) program supports state efforts for rebalancing their long-term services and supports system so that individuals have a choice of where they live and receive services.

This section increases funding for the MFP project to $337.5 million for the period beginning on January 1, 2020, and ending on September 30, 2020. For the period beginning on October 1, 2020, and ending on November 30, 2020, the amount available will be equal to the pro rata portion of $337.5 million.

Sec. 3812. Extension Of Spousal Impoverishment Protections.

The cost of nursing home care — which ranges from $5,000 to $8,000 a month or more — can rapidly deplete the lifetime savings of elderly couples. In 1988, Congress enacted provisions to prevent what has come to be called "spousal impoverishment," leaving the spouse who is still living at home in the community with little or no income or resources. These provisions help ensure that this situation will not occur and that community spouses are able to live out their lives with independence and dignity.

Under the Medicaid spousal impoverishment provisions, a certain amount of a couple’s combined resources is protected for the spouse living in the community. Depending on how much of his or her own income the community spouse actually has, a certain amount of income belonging to the spouse in the institution can also be set aside for the community spouse’s use.

This section extends these provisions through November 30, 2020, and allows the state to disregard the income of a spouse and conduct an analysis solely on an individual’s eligibility for medical assistance based on reduction in the individual’s income.

Sec. 3813. Delay of DSH Reductions.

The U.S. government provides funding to hospitals that treat indigent patients through the Disproportionate Share Hospital (DSH) programs, under which facilities are able to receive at least partial compensation for treating individuals who cannot pay for their care. This section of the CARES Act removes the $4 billion DSH reductions for federal fiscal year 2020 and delays the cuts from taking effect until December 1, 2020.

Sec. 3814. Extension And Expansion Of Community Mental Health Services Demonstration Program.

Eight states are currently participating in two-year demonstration programs to improve community behavioral health. Throughout these states, certified community behavioral health clinics (CCBHCs) and their designated collaborating organizations (DCOs) are now offering whole-person care, with the integration of physical and behavioral care serving the “whole person” rather than simply one disconnected aspect of the individual, regardless of their place of residence or ability to pay.

This section of the CARES Act expands that program. The program, as provided under Section 223(d) of the Protecting Access to Medicare Act of 2014 (42 U.S.C. 1396a), originally set to expire on May 22, 2020, is extended out to November 30, 2020. Further, not later than six months after the date of enactment, the Secretary must select two states, in addition to the eight states already chosen, to participate in two-year demonstration programs that meet the requirements of this subsection.

Part IV – Public Health Provisions

Sec. 3831. Extension For Community Health Centers, The National Health Service Corps, And Teaching Health Centers That Operate GME Programs.

The CARES Act revises the enhanced funding as set forth under Section 330 of the Public Health Service Act to extend the program past the May 22, 2020 deadline and provide an additional $4,000,000,000 for fiscal year 2020 and $668,493,151 for the period beginning on October 1, 2020 and ending on November 30, 2020 for community health centers.

Further, this section revises the enhanced funding provisions for the National Health Services Corps, as well, providing $310,000,000 for 2020 and $51,808,291 for the period beginning on October 1, 2020 and ending on November 30, 2020.

This section also revises the funding for the Teaching Health Centers that Operate Graduate Medical Education Programs by extending the term of such funding through November 30, 2020, with an additional $21,141,086 for the period beginning on October 1, 2020 and ending on November 30, 2020.

Sec. 3832. Diabetes Programs.

This section increases funding for diabetes treatment programs as follows:

  • The amount allocated for Type I diabetes will extend through the fiscal year of 2020, and $25,068,493 will be allocated for the period beginning on October 1, 2020, and ending on November 30, 2020.
  • The amount allocated for Native American diabetes programs will extend through the 2020 fiscal year, and $25,068,493 will be allocated for the period beginning on October 1, 2020, and ending on November 30, 2020.

DIVISION B – EMERGENCY APPROPRIATIONS FOR CORONAVIRUS HEALTH RESPONSE AND AGENCY OPERATIONS

Division B of the CARES Act contains supplemental appropriations for various branches and agencies of the federal government that are responsible for programs likely to require assistance during the public health emergency. Key appropriations for the Department of Health and Human Services are found in Title VIII of Division B. DHHS appropriations under Title VIII include funding for the Centers for Disease Control and Prevention, the National Institutes of Health, the Substance Abuse and Mental Health Services Administration, the Centers for Medicare and Medicaid Services, the Administration for Children and Families, and the Administration for Community Living. Of particular interest to health care providers is the appropriation of funds to the DHHS Secretary for a Public Health and Social Services Emergency Fund (the “Fund”).

Congress has appropriated $27 billion for the Fund, to remain available until September 30, 2024, to prevent, prepare and respond to the COVID-19 emergency. Purposes of this appropriation include “the development of necessary countermeasures and vaccines, prioritizing platform-based technologies with U.S.-based manufacturing capabilities, the purchase of vaccines, therapeutics, diagnostics, necessary medical supplies, as well as medical surge capacity, addressing blood supply chain, workforce modernization, telehealth access and infrastructure, initial advanced manufacturing, novel dispensing, enhancements to the U.S. Commissioned Corps, and other preparedness and response activities.” Not less than $250,000,000 of this amount will be available for grants or cooperative agreements under the Hospital Preparedness Program, which among other things promotes regional collaboration on health care preparedness and response through the funding of Health Care Coalitions with health care organizations.

The Fund may also be used for grants for the construction, alteration, or renovation of non-federally owned facilities to improve preparedness and response capability at the state and local level; and for the construction, alteration, or renovation of non-federally owned facilities for the production of vaccines, therapeutics, and diagnostics.

Significantly, Title VIII of Division B appropriates an additional $100 billion for the Fund to prevent, prepare for, and respond to the public health emergency, domestically or internationally, for necessary expenses to reimburse, through grants or other mechanisms, eligible health care providers for health care related expenses or lost revenues that are attributable to the COVID-19 emergency.

This post was authored by Charles Lyman and Benjamin Lance.

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Charles A. Lyman

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Mr. Lyman has significant experience in complex litigation, debt restructuring, bankruptcy, creditor’s rights, securities disputes, real estate and commercial landlord-tenant matters. Each year since 2013, he has been named a “Super Lawyer” by Washington Law and Politics. Prior to that, he had repeatedly been named a “Rising Star.” Mr. Lyman also assists private individual and companies structure transactions to prot...