Staying Compliant with the Paycheck Protection Program

In this episode of the Advancing Surgical Care Podcast, ASCA CEO Bill Prentice is joined by John Goehle of Ambulatory Healthcare Strategies for a discussion about the responsibilities of ASCs enrolled in the Paycheck Protection Program (PPP). 

Transcript

Bill Prentice:   0:06
Welcome to the Advancing Surgical Care Podcast. I'm Bill Prentice, CEO of ASCA and host. We're recording this podcast on Monday, May 4, 2020, and as with all of ASCA's communications, please check to be sure you're listening to or reading our most up-to-date postings. In this episode of our podcast, I'm joined by John Goehle of Ambulatory Healthcare Strategies, which is based in Rochester, New York, for a discussion about compliance issues related to ASCs that have enrolled in the federal government's Paycheck Protection Program, or PPP. For many ASCs, the Paycheck Protection Program has been a valuable resource and source of funding during these challenging times. This loan program is operated by the Small Business Administration and was funded by the CARES Act that was enacted last month to help small businesses retain employees during the pandemic. The most significant thing to know about these loans, however, is that if you use the funds correctly, they turn from loans that need to be repaid into forgivable grants. As you can imagine, however, there are some complexities to this program and a number of conditions that must be met in order to have the loans be forgiven. Graciously, John has agreed to come on and share his professional insights with us on how ASCs could be fully compliant under the Paycheck Protection Program. Now for many of you, I'm sure that John Goehle needs no introduction. But just in case some of our listeners have not had the pleasure of knowing John or hearing him speak at any of the countless ASC industry events, I'll just note, John Goehle is a nationally recognized healthcare consultant, author and public speaker, and he has spoken in almost every ASC event that I can, I think I've ever been at. He's a certified public accountant and a CASC-certified ASC administrator. John is also the host of the weekly "ASC Podcast with John Goehle." And as if that did not keep him busy enough, John is also a lay pastor in the Presbyterian Church. John, welcome to the podcast.

John Goehle:   2:15
Thank you very much. It's great to be here. It's great to actually be interviewed instead of to interview somebody.

Bill Prentice:   2:20
I know, I have actually had the benefit of being on your podcast, which is a really great production, so I encourage our listeners to also check out your podcast. They can learn a lot by following you. As I mentioned in my introduction, a good many ASCs have already received funding under the PPP program or have applied and are waiting to get their loans. What many are now asking, though, is what do they need to do to assure maximum loan forgiveness under the program? John, can you share with our listeners the guidance you're giving your clients?

John Goehle:   2:52
Absolutely. So the first thing you need to do is as soon as you receive the funding, you have a limited amount of time to get your employees back to work. You have about an eight-week timeframe from when you receive the money to spend the money on the employees, as well as a certain other additional items that we'll talk about in a second. So as soon as you receive the funding, you're gonna want to put together a budget, you're gonna want to figure out exactly how much your payroll is gonna be over the eight-week period after you receive the loan. The whole purpose of the PPP program was to get people back to work and off the unemployment rolls. That's what we should be doing. What I have recommended all of our clients do is they put together a budget or some financial projections that follow the parameters of the loan forgiveness so that they know exactly how much they're spending every week, and then track that every week as they move into the eight-week period here. It's important that you maintain really good records of the payments that you're gonna make, and that you adjust accordingly if things change throughout that eight-week period.

Bill Prentice:   3:52
Understood, and I think we'll talk more about that record keeping in a bit. A number of ASC administrators have asked us what happens if they don't bring back all their employees right away because cases are down significantly, you know, particularly from their pre-pandemic numbers. Is there a contingency for when that happens and, if not, when do the loans have to be repaid?

John Goehle:   4:11
So if you're not able to use all of the proceeds from the loan, it'll turn into a loan. So, the calculation that forgiveness happens after the eight-week period and any money that has not been expended for the purposes that the PPP was established and the parameters for the forgiveness will roll into a loan that incurs interest at 1 percent. It has to be paid back over a two-year period, but you have a six-month timeframe where you don't have to make any payments. So even if you don't get the full forgiveness, it's still a pretty good deal. You're not going to get that type of loan from a commercial bank. So, certainly, if you find that you can't use the money, I wouldn't worry about it and you don't have to pay it back right away. That's been one of the questions that's been asked of me is "Do I have to pay the money back at the end of eight weeks if I don't use it?" That's not true, it just turns into a loan.

Bill Prentice:   5:01
So, following up, in some instances, I've been told that it may actually be beneficial to bring back employees right away, even if a center is not fully operational. Can you speak to that?

John Goehle:   5:12
Absolutely. And this is what we're recommending to people. First of all, I have a concern among our facilities that we might be in a situation where our employees aren't gonna come back. We've heard that, you know, this has been quite wearing on especially the older nurses out there who might just decide, "This is it, I'm going to retire after this is done." Or people that have had an opportunity to work at the hospital during this timeframe because they were laid off or furloughed from the surgery center. And I hope this doesn't happen because surgery centers are great places to work, but it's possible that some of those employees might not come back. So I think that we have to do everything in our power to try to encourage them to come back and one of the ways to do that, of course, is if they're unemployed right now, bring them back to the surgery center. Or if they're working somewhere else, get them back to the surgery center. So the faster you can bring them back, the better. Of course, then the question is, "What am I going to do with them, especially if I'm not doing any surgery right now or doing a very limited schedule." And what we've been saying is there's so much that we can do right now with them, even with social distancing, even if they're working from home. For example, what I'm recommending is let's do all of our mandatory education programs. We know within the next 12 months everybody's gonna have to go through their annual mandatory education. Well, if it's due in September, let's do it now. Let's get it out of the way, that way in September, when we're going to be surging, when we're gonna have a very high case volume, I hope, you're going to get all of this out of the way and you won't have to worry about it at that point. We also know that in our regular lives, we always seem to be behind in getting things done. You know, those quality improvement meetings are always running a little bit late. Our policy and procedure manual is something that we do at the last minute, just before the annual meeting where we reapprove it. We need to do some in-services, you know, to refresh everybody's memories on things. We have to do competencies. So let's do this time before your volume comes back up or before you even restart surgery to get your employees fully up to speed and get caught up on everything that you just haven't gotten done. And we know that eventually we're gonna have to do surveys again, unfortunately, and let's prepare for them. As a surveyor myself, one of the things I'm always surprised at is the number of centers that I go to and the employees have never read the accreditation manual or are not familiar with it. So, let's use this time to acquaint them with the accreditation manual. And, again, a lot of this stuff we can do, even if they're still at home taking care of their kids. That's another concern I have is that even if we invite them back, they might not be able to come back. But if we use, you know, some of those telecommuting capabilities, now video conferencing, we should be able to do a lot of this stuff from home, and, frankly, I think it would be quite efficient to do it that way.

Bill Prentice:   7:46
John, those are some great suggestions and thank you for sharing them. In speaking with you offline, you extol the importance of each ASC creating a budget for their PPP loans. Can you tell us more about that recommendation and the steps that they should take?

John Goehle:   8:02
Well, Bill, you've listened to me speak about budgeting and financial projections and finance in general and, you know, this is one of my pet peeves is that often we're so busy just doing surgery that we don't sit down and plan. You know, the name of our company is Ambulatory Healthcare Strategies and my master's degree is in strategic planning, so I believe very firmly in strategic planning. And, you know, let's take this time to put together a strategic plan not only to get through this crisis, but also just to have a plan in the future for what our financial situation is gonna look like. So I think if if we take the time, if you work with your accounts or if you have the kind of capabilities within your own organization and know how to use spreadsheets, this is the time to put together a nice, solid financial plan that you can use to figure out how you're going to spend the money, not only during the eight-week period here, but how are you going to get through the end of the year. I'm really concerned that, well, I know that a lot of the doctors think that they can go up to full capacity, you know, within the sick wait period, but we all know that that's not really realistic. So, we're going to have to come up with a plan for ramping up and how are we gonna get there financially after this eight weeks of PPP funding disappears and we have to live on the revenue that's coming in. So putting together a solid financial plan, working literally week by week, I think, at least until you get back to full capacity, is a good way to plan for the future and be able to make sure that you're gonna need some funding. I'm concerned that even the PPP funding might not be enough money to help some of our centers to get through to the point at which they're past breakeven again.

Bill Prentice:   9:37
A related question: you've done your budget, you've applied for your loan, you've gotten the money, how should you handle that cash?

John Goehle:   9:45
That's a really good question. Now, my company actually did receive the PPP funding also and, of course, because we're accountants, we were the first ones to fill out the application, we were one of the first ones to get the money. So, you know, we actually have some experience with it. We put together a budget within 24 hours, and we set up a bank account where we moved the money from our main operating account into that bank account. And now what we do is every two weeks, our payroll is every two weeks, we transfer the money from the special account, which has only the PPP funding in it, into our operating account to reimburse for the salaries expense. Now, the amount that we're transferring from that PPP bank account, shall we say, is only the amount of money that we expect to be forgiven from a biweekly payroll. So in this way, when we're done at the end of eight weeks, we're gonna look at what's left in that bank account. We can use approximately 25 percent of the salaries that we transferred over for rent, mortgage, interest, utilities. There are certain things that have been established that can be used in addition to the salaries expense. But if you do it this way, first of all, that money is separated, and also what's left over at the end will be quite obvious because it will be in the account. And frankly, if you don't need any money later on, you just keep it in that bank account and then pay off the loan sooner if you wish.

Bill Prentice:   11:02
John, that's great advice about having a separate bank account set up for the loan. I imagine, however, many of our listeners have already gotten their PPP loan and they have not thought to do that. Do you have any suggestions for them?

John Goehle:   11:17
Well, that's exactly what happened with us, it's not that we didn't think about it, it's just the money was automatically deposited by the bank in our operating account. So within a couple days, we established that bank account and then just moved the money over in total to that account. Assuming that you're not in a terribly desperate situation and you have no other source of cash, that shouldn't be a big problem and then just move things back. The important thing here is the record keeping, to be able to look at that bank account that you've established where you put the money and be able to account for every single transaction that you have during, again, this eight-week period.

Bill Prentice:   11:50
So even if they didn't have a separate bank account, as long as they're carefully tracking the use of those funds, they should be fine. And as a second point, I just want to highlight what you mentioned is that even though it's predominantly meant for payroll for, you know, to pay your employees, 25 percent of that loan that you receive can be used for non-payroll purposes. But even there, there's some limitations, correct?

John Goehle:   12:19
That's correct. It can be used for rent, and, again, it has to be rent that was for a lease that was incurred prior to the crisis in February, which kind of stands to reason. It is possible to use it for mortgage interest if you have a loan in the ambulatory surgery center's books. That's pretty rare; most surgery centers have a separate leasing arrangement even if the same owners own the surgery center physical plant as well as the surgery center itself. But if that is your situation, as I said, it's a very unusual situation, where you have a loan, a mortgage loan, only the interest can be paid out of these PPP funds. And then utilities are another item that can be paid out of it, including, by the way, cell phone usage, which is, I thought, kind of interesting.

Bill Prentice:   13:05
That is interesting. I guess we can presume that, at some point, there may be audits of the PPP program at some point. What type of documentation are you advising ASCs to create to help ensure that they're compliant?

John Goehle:   13:20
Well, being typical accountants, the answer to that is quite simply everything. Unfortunately, right now, we just don't know what the reporting is going to be. What we have been told is that it's gonna be the responsibility of the bank to do this, as you said, audit or whatever we want to call it, or to ask for the records of this. I'm assuming that this is going to mean that they're gonna have to fill out some type of a form that will document how they spent the money during this timeframe. But again, we don't, at least as of this morning when I last looked, we don't have any information as to what form it's gonna take. So, during this timeframe, what we need to do is maintain all of those payroll records, maintain that budget. That's where this budget really comes in is that if you use this budget that you put together, you'll be able to track all those expenses that you've incurred during that timeframe and tie those numbers back to your payroll records. Now one of the interesting things about this is that employees that are paid over $100,000, only the amount of their salary up to the $100,000 can be included in the amount that's forgiven. However, their benefits, and I guess I didn't mention this earlier, is that it's not only salaries but it's also the benefits associated with it, such as the payroll taxes, health insurance, those are the two that I remember off the top of my head. Those benefits, oh, and pension expenses, the amount that you put aside for pension benefits. So in the case of individuals that are paid over $100,000, you will be able to include the benefits, even if that goes over the $100,000 number. So again, keeping very good records of how much you're paying out for the salaries during that timeframe from your payroll records as well as the benefit expenses that you're incurring. Frankly, that benefit calculation's probably gonna be a more complicated part of this.

Bill Prentice:   15:00
That's all great information, John, and I want to thank you for sharing that with our listeners. This is gonna conclude today's episode of the Advancing Surgical Care Podcast. I'd like to again thank our guest, John Goehle, for sharing his time and valuable insights with us. We hope that our listeners found this discussion useful and informative and, as always, if anyone listening has thoughts or suggestions for future topics or how we might improve these presentations, please do not hesitate to send us your thoughts and recommendations. We want to hear from you so that we can serve you better. Thanks for listening and please stay safe and stay healthy.