We've heard the many challenges that hospitals are facing in the battle against the coronavirus, but what about physician practices, dentists and other providers who’ve seen their business come to a halt? Today, Waller’s Lance Williams talks with Eric Scalzo about the needs of these providers, along with a discussion of the future of M&A in that sector.
We've heard the many challenges that hospitals are facing in the battle against the coronavirus, but what about physician practices, dentists and other providers who’ve seen their business come to a halt? Today, Waller’s Lance Williams talks with Eric Scalzo about the needs of these providers, along with a discussion of the future of M&A in that sector.
spk_0: 0:06
welcome to point by point conversations, interviews and legal commentary for today's business professionals. Brought to you by Waller Today, Waller's Lance Williams talks with Eric's, also about major concerns he's hearing from business owners and executives around the country. Very thank you so much for joining us. Gets the first question right out the gate is what are some of the biggest questions you're hearing from clients and business. Others you're talking to right now.
spk_1: 0:42
Violence? Um, so it's Friday. Works 27. If you ask that question A week ago, I would have said, um, you know what happens when one of my providers, one of my employees, test positive for cocaine? 19. Or what happens if a patient who he saw a couple days ago calls us and says that they have tested positive? No, I think we've worked through with most of our clients and the operational issues. The second wave of issues were then no government orders rolling out through various states in terms of essential businesses. And am I an essential business? Do I have to remain open, or can I remain open? And now things are pivoting to the Cares Act, which was passed, and one of the benefits under the care is act. And how can I take advantage of of some of the relief legislation and relief package? Assume it's packages that are that are in there, um, particularly around you know, that the S p A. Loans and applicability for employers who employed 500 or fewer employees. Um, have you distinguish amongst particularly in healthcare space and in the N S o N D s o space, how do you distinguish between management company, non clinical personnel and the natural practices, clinical personnel? And what does that mean for the analysis in terms of doing half more than were fewer than 500 individuals in my And
spk_0: 2:14
it sounds like that's a That's a big distinguishing factor if you look at families first and some of the things that it provides for employees. But then you also that cares act. There's a difference there. There's a bit of a dividing line in terms of the number of employees and and which companies were covered by which act and which law Can you help us kind of walk through kind of what? How companies are looking at that and trying to figure out. Does this apply to me? Does this not help us? Can understand. You know who's covered where and what companies need to be looking looking at terms of which part of the line they fall
spk_1: 2:53
on. Yeah. Yes. I don't think, uh, it was much people joke about, you know, the intelligence in Washington. I don't think that that they mistakenly chose 500 as the number for both bills. Your whole goal of the the incentive packages lumping them together was is to keep, um, keeping Americans employed, receiving paychecks, hopefully off unemployment. Although, if they they are unemployed under the care Zach, there is increased benefit at this point. Um, but to allow them to continue to make their rent payments and their car payments and so that the whole economic engine of the United States doesn't grind to a halt. And so family first act, You know that the idea was, if you if you have fewer than 500 employees, you're mandated to provide a certain amount of paid leave, you turn around and under the Cares act. If you have fewer than 500 employees, you're allowed to access SP A loans that my opinion Fairly favorable terms, right? 4%. And you can get up to a multiple on your your average monthly expenses, Really, its payroll, rent, expenses and interest in debt expenses that you've incurred over the past year. And so it allows your kind of offset right, The other one. And they want you to keep folks employed and they've got a burden tied to that in the form of the first act. And then they turn around, allow you to get benefit of the cares act if you meet certain criteria to the small business loan. And so I think, um, the two inner play well together and hopefully we'll we'll achieve what Congress wanted them to. But the questions that we're getting now from folks are really around. You know, as I said earlier, that the the question of who is the employer and how many employees report to that employer for affiliation purposes under under the care is active and candidate qualifying for the S B. A alone setup just a
spk_0: 4:59
little bit about the the you know, when you're talking with with employers, what are some of the biggest challenges that they're thinking about maybe over the next 30 to 60 days. What what are some of the challenges that they're really kind of wrestling with right now?
spk_1: 5:18
Yeah, I think. I think you know, there's a difference between liquidity and solvency, right? And I think a number of a number of clients There's not a going concern issue for them in terms of solvency and whether or not they have the ability to do as a business remain in operation. They do have a potential liquidity problem here, though especially the smaller practices of the group practices, um, that really live off of, you know, 70 or 80% of their A R is collected within the 1st 30 days. Well, you know, we're running up pretty close to pretty quickly on a 30 day window, and after that, really no money is going to be coming in. And so it's it's how to out of the company's survive. Once their revenue dips down through no fault of really anybody right to the government order or through the natural progression of people not, um, going to see their their providers, or or certain going to certain companies to spend the money and so um I think the Cares Act is gonna provide hopefully, um, kind of the blowout valve for the folks that are running up against that liquidity crunch in terms of how they can keep paying rent, keep paying the landlord, keep paying their employees and their employee benefits expenses and really bridge over to what will hopefully be a quick turnaround and the V shaped recovery that everybody is looking for. Um, but that will hopefully bridge them across these these troubled times.
spk_0: 6:53
Gotcha. And you look at so many providers that that currently aren't seeing a regular patient load or having having folks come to the door. Are there concerns saying itto have So let's say that, you know, something has lifted in two weeks or three weeks. What are some concerns I need to think about in terms of getting back to normal or trying to get back to normal? What are some things that that they need to be thinking about in terms of ramping back up?
spk_1: 7:20
It's not just are they gonna be ableto really unlock the door and let patients come in, You know, in certain certain jurisdictions they're not allowed to now, will they be able to in two weeks or three weeks? I don't know. Um, but it's more about Will the patients come at that coin, right? If if you are largely elective procedures, baby, or in the cosmetic world for the vanity world, our patient's
spk_0: 7:48
going to come
spk_1: 7:49
to, ah, medical set setting on and risk being exposed, whatever the risk is in your particular jurisdiction and geography for that elective procedure, if something is borderline elective, are they? Were they were patients gonna draw the line and actually actually come out of their homes? Um, do you think that when the all clear sound, whatever that whatever that sounds like or looks like is given? I think people want to get out and want to spend money and go back, you know, restaurants and plays. But I I just think if if it's in the next couple of weeks, there's gonna be a lot of hesitancy to get back in large groups or get back in in public. Good business is where you may be sitting in a waiting room with other folks. And so I think, thinking through the things that you could do to assure the patients that you're waiting room. Your exam rooms are safe and sterile, and and you've taken on additional procedures to help, To continue to flatten the curve, right? It's not just gonna get shut off. We're gonna be dealing with this for some months in the future. And so So I think assuring patients that you're addressing inappropriately there's nothing that folks need to do. So
spk_0: 9:06
much has been happening in the last couple of weeks. Then there've been so many questions related to operational things. How do you think businesses air gonna be ableto make a shift from being reactive to thinking proactively about the future? What? What is that process look like and feel like, and And that What point do you think? Business. It'll be able to start shifting your thinking again.
spk_1: 9:32
So I think, um, yeah, I think if you had asked us for weeks ago, If if we're gonna be living in the scenario that we're living in now, in terms of, you know, most folks working from home and they're being government orders around the country that shut down non essential service is I think a lot of folks who have said that's an overreaction, but it's now a reality. And so I think the past week week plus, um, people have been backpedaling right and put on their heels a little bit. Terms of reacting to this, reacting to the patient that calls them up to say, Hey, I was in your office three days ago and I was I was just diagnosed with coded 19. Or the provider provider is calling you, you know, just as you're about to open the doors saying, Hey, I know I was in yesterday and I know interact with all those people I'm now showing symptoms and reacting to what that means for the operations and for your your obligations with aggressive your patients and your other employees. So everyone has been very much necessarily reacting to the scenario. I think we're gonna we're gonna see. And I have seen over the course of this week the business leaders pivoting from that reaction and putting out the fires that they can to How do we How do we address this? Um, in a proactive way. How do we kind of circle of troops and determine the best path forward? And I think the passage of the Cares Act in conjunction with the Family First Act is gonna allow some certainty for the business folks over this weekend to sit down and crunch the numbers and figure out what it means in terms of whether they are gonna lay people off next week, whether or not they're gonna furlough folks or whether or not they're going to try to patch it together for for the foreseeable future. Given, given the opportunities under the care is acting FDA loans and whatnot
spk_0: 11:24
shifting gears a little bit, Uh, let's talk a little about the M and a landscape. And, you know, obviously it's probably different now than than what we were hearing 30 days ago. But what do you What are you hearing right now? And what do you think that happens to the pipeline over the next next three months, six months
spk_1: 11:45
looking thio run towards the fire and are looking for opportunities in this in this kind of downturn in time of uncertainty? And I think there's gonna be a number of groups that may be use this opportunity to throw up their hands and say, you know, I do want to sell and get out, and so I think we're gonna see. Um, certainly not the activity that we had for the beginning of Q. One year in 2020 when I could see that continue over the next couple of weeks on months. But I do think that we're gonna see continued activity. We've we as a firm have have been closing deals throughout all of this, and the number has gone down, and certainly the good number of the active deals got pencils down. Um, but again, I think I think over the past two weeks we can have two weeks. People have been reacting in the immediate and I think smart reaction in the face of all this uncertainty is to say, Let's just let's just go pencils down right now and kind of get a feel for where things are. And I think as we get, get a sense for the duration and real impact of this, we're going to see a number of those deals pick back up. We're gonna see new new allies get inked, and I think it is gonna is gonna pick up. The fact of the matter is there is still a whole lot of cash sitting on the sidelines. Um, and some of it has probably been deployed over the past couple of weeks in ways that two or three weeks ago, nobody thought it would have been employed. But there's still a lot of cash out there in a lot of folks looking to make acquisitions. So I think as we get certainty and clarity, um, into into kind of the impact of this on the economy and duration, I think we're gonna see things pick up again.
spk_0: 13:29
And it sounds like you think that there may be some providers that this may give them up to take a second look and decide is now, you know, we want to stick with it, Or do we want to look at at potentially looking for suitors? Is that is that something you think we'll see more of two?
spk_1: 13:48
Yeah. You know, I do a lot of my work in the large number of D S O space. And, um, I think this this is a perfect example of, you know, the benefits of being of affiliating with a with a large de eso who has the resource is to work through, you know, family 1st 2nd cares at that they're not, um, you know, five page bills. They're massive bills with a lot of intricacies and interpreting them and applying them. And make sure you get the best benefits that that's not the job of, you know, the dentist with five or 10 or 15 offices who doesn't have the resources of some of these large roofs. Nor should it be so I think it just goes to prove about that, that, um, you know, as businesses become more involved in various health care, um, specialties and lk arenas that the providers will see that maybe that's a viable alternative to going it alone. And so, yeah, I think I think that's right, I think. But I also think it's an opportunity for for those, um, smaller groups to really entrenched themselves and, you know, show there show their teams that about there blaming culture and why you know why they can see how they can help there. Employee family. Yeah, And get through this tough time too. Thank
spk_0: 15:15
you. Last question. You know, you talk about the folks sitting down this weekend really commit crunching the numbers. Do you have any any thoughts on either a key question or a key thought that they need to keep in mind when they're going through that process is weaken any any kind of any advice that so it can't be a a leading thought is there? They're working through working through issues.
spk_1: 15:42
Yeah, We're, um couldn't go some materials on this now, but the, um particularly under the S b A loan, right? The concept of affiliation. Historically, um, certain groups have been excluded from S B. A loan is just because of their structure. But I think of you if you sink through, um, your structure and particularly around the M S O. D s o space, where you have these independent practices, think about whether or not whether or not the S b A loan is an opportunity for for you or your affiliated practices. And he's in the term affiliate there and in the in the traditional sense, not in the S p. A sense, since I think parsing that out a lot of folks you should think about that instead of taking the initial reaction of us. The area loans don't don't apply practically groups of practically platform. Um ah cos there may be some ways to work it in something being thoughtful about that is it's gonna be really important going into the next week and and crunching the numbers of sea to see what your past forward looks like.
spk_0: 16:53
Great. Thank you so much. We appreciate your taking the time and best of luck in the weeks ahead. Thanks. Thank you for listening to this episode of Point by Point Brought to You by Walter. Visit News inside section of our website toe. Listen to more episodes. Subscribe to the podcast, find show notes and more.