Washington Watch for January 12, 2021

Carter L. Alleman, J.D.

Lawmakers Debate Increased Stimulus Checks for Individuals
Just prior to the start of the new year, Congress passed, and the President signed the second largest economic rescue package in U.S. history as a part of year-end spending legislation. The $1.4 trillion spending bill will fund the federal government through the end of the fiscal year on September 30, 2021 and was attached to a $900 billion COVID-19 relief measure. In addition to the appropriations measures (which included additional funding for the Provider Relief Fund (more below), the bill also included provisions related to surprise medical billing and extension of the Paycheck Protection Program (PPP) (including allowing for second loans in certain circumstances). In response to President Trump and others seeking to increase the amount of stimulus payments to individuals from $600 to $2,000, the House of Representatives quickly convened to pass in bipartisan manner legislation that would increase the checks. Senate Majority Leader Mitch McConnell (R-Ky.), however, blocked an attempt by Minority leader Chuck Schumer (D-N.Y.) to adopt the House-passed CASH Act by unanimous consent in the Senate. Instead, McConnell plans for the chamber to consider increased stimulus checks alongside measures related to election integrity and repeal of social media liability protections issues that are supported by President Trump, but controversial.

Congress Provides More Funds for the Provider Relief Fund
On December 27, the President signed the Consolidated Appropriations Act, 2021, which among other things, included $3 billion for the Provider Relief Fund (PRF), along with additional language: (1) clarifying that a parent organization can transfer funds to a subsidiary (under certain circumstances, even for Targeted Distributions), (2) describing how a provider may calculate lost revenues (i.e., that the provider may use the calculation using the FAQ guidance from June 2020, including the difference between such provider’s budgeted and actual revenue budget if such budget had been established and approved prior to March 27, 2020), and (3) specifying that not less than 85 percent of the unobligated balances available as of December 27, and any funds recovered from health care providers after December 27, shall be for any successor to the Phase 3 General Distribution allocation to make payments to eligible health care providers based on applications that consider financial losses and changes in operating expenses occurring in the third or fourth quarter of calendar year 2020, or the first quarter of calendar year 2021.

As part of the updates to the FAQs on December 28, HHS noted that the calculation for determining the payment amount for Phase 3 was (1) 2 percent of annual revenue from patient care, if such funds had not already been received in Phase 1 or 2; and (2) up to 88 percent of their reported losses and net change in their operating expenses from patient care from the first half of 2020. Given the change to calculation of lost revenue, which primarily applies to the Reporting Requirements, the reporting portal, which was scheduled to be available by mid-January of 2021, may be further delayed.

Clyburn Issues Subpoenas Related to Political Interreference at CDC
Select Subcommittee on the Coronavirus Crisis Chair Jim Clyburn (D-S.C.) has issued subpoenas to U.S. Department of Health and Human Services (HHS) Secretary Alex Azar and Centers for Disease Control and Prevention (CDC) Director Robert Redfield over allegations of political interference by the administration in response to the coronavirus pandemic. “The subpoenas were necessary because the Select Subcommittee’s investigation has revealed that efforts to interfere with scientific work at CDC were far more extensive and dangerous than previously known,” Clyburn’s letter states. The letter details that over the period of four months, Trump administration appointees attempted to alter or block at least 13 scientific reports related to the virus.

Judge Blocks Part B Drug Pricing Model
Two federal judges have blocked the Trump administration’s Most Favored Nation Model, which was set to begin on January 1. First, Maryland District Judge Catherine Blake issued a temporary restraining order; a few days later, a federal judge in California granted a preliminary injunction, based on the government’s failure to complete the notice and comment procedures required by the Administrative Procedure Act. The injunction enjoins the government “from implementing the rule pending completion of those procedures.”

The comment period does not end until January 26, 2021, but it is unclear whether the incoming Administration will pursue the Model. Per the Model, Medicare reimbursement for a list of high-cost Part B drugs covered would be tied to the cheapest prices paid in certain other countries, and doctors would be paid a flat fee for administering the drugs instead of a percentage-based add-on. The policy was proposed through an interim final rule late last year. The U.S. Department of Health and Human Services (HHS) has argued that there was good cause to forego the advance notice and comment period because of the need for affordable Part B drugs in the midst of the COVID-19 pandemic. Thus far, the courts have not agreed.

Biden To Halt Pending Regulations Upon Inauguration
President-elect Joe Biden will issue a memo on Inauguration Day that will block any regulations that are still pending from the Trump administration. According to incoming White House press secretary Jen Psaki, the move is an attempt to curb ‘midnight actions’ from the previous administration. By freezing regulatory actions that have been announced but not yet published in the Federal Register, the incoming administration can revise or call off such regulations without the formal notice-and-comment process that would be required if a rule had already been published.

U.S. Purchases 100 Million More Doses of Pfizer Vaccine
The U.S. Department of Health and Human Services (HHS) and the Department of Defense (DOD) have purchased an additional 100 million doses of Pfizer’s COVID-19 vaccine. Under the agreement, the company will manufacture and deliver up to 100 million doses to government designated locations – with at least 70 million doses provided by June 30, 2021, and the balance delivered no later than July 31, 2021. The government had previously contracted with Pfizer for an initial 100 million doses. This latest agreement includes options for an additional 400 million doses of the vaccine. As a part of the deal, President Trump will invoke the Defense Production Act (DPA) to increase access to nine products that are necessary for the Pfizer vaccine. President-elect Joe Biden has also announced plans to invoke DPA to increase the production of coronavirus vaccines.

COVID Coordinator Birx Announces Plans to Retire
White House coronavirus response coordinator Dr. Deborah Birx announced plans to retire from government service as soon as her assistance with the Biden transition team’s preparations have concluded. Birx’s 40-year career in government began in the military, and she went on to serve at the National Institutions of Health (NIH) and later at the Centers for Disease Control and Prevention (CDC). She was later tapped by President Obama to be the global AIDS coordinator and head of the President’s Emergency Plan For AIDS Relief (PEPFAR).

VA Releases 2021 Fee Schedule
The U.S. Department of Veterans Affairs (VA) has published its community care fee schedule payment rate calculations for 2021. Instead of rates being calculated based on the location of the referring VA medical center, rates will now be calculated based on the location of where the care is provided starting on January 1, 2021. VA generally reimburses hospital care, medical services, and extended services at the applicable Medicare rate determined by the Centers for Medicare and Medicaid Services (CMS). The recently published rate changes only apply to services being reimbursed under the VA fee schedule, which is mainly used for geriatrics and extended care services, along with a small number of health care services not covered by the CMS schedule.

Provider Relief Fund Phase 3 General Distribution
On December 16, HHS announced the Phase 3 General allocation distribution of the Provider Relief Fund (PRF). While the original allocation was for $20 billion, HHS increased the total to $24.5 billion so that all health care providers could receive “up to 88 percent of their reported losses,” taking into account prior distributions. According to HHS, distribution of the additional funding to 70,000 providers began immediately and will continue through January.

As detailed within the application instructions, all providers receiving more than $10,000 are subject to key reporting requirements, with the first deadline for reporting February 15, 2021. For the updated reporting elements, visit here, along with a summary of those requirements here. In addition, as noted within the reporting requirements document, all providers that expend more than $750,000 in Federal funds (including PRF and the Paycheck Protection Program (PPP) funds) will be subject to additional audit requirements. For additional information, visit the Reporting Requirements and Auditing page and read the Auditing and Reporting Requirements FAQs. More information related to this program can be found on the PRF website.

HealthCare.gov Enrollment Increases by Over 6%
Enrollment in HealthCare.gov has increased 6.6 percent over last year according to recently released federal data. More than 8.2 million people signed up for health care coverage through the Affordable Care Act (ACA) exchange during the enrollment period that ended last week, growing 6.3 percent over 2019 and 2.2 percent over 2018. Eleven states plus Washington, D.C. have extended their own open enrollment periods, with some not closing until the end of January.

SBA/IRS Release Regulations and Guidance Related to the PPP
The Economic Aid Act enacted at the end of 2020 as part of the Consolidated Appropriations Act, 2021 established “Second Draw” Paycheck Protection Program (PPP) loans for certain eligible borrowers and made other changes to the underlying program. On Wednesday January 6, 2021, the Small Business Administration (SBA) and the Department of Treasury issued final rules and guidance implementing the new law (links below). Per a recent announcement, these loans will be made available starting this week.

Despite controversy over this issue last year, the new law and subsequent implementing documents establish that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. That particular provision is effective retroactively, as of the date of enactment of the CARES Act. The provision provides similar treatment for Second Draw PPP loans, effective for tax years ending after the date of enactment of the provision. The PPP program is extended through March 31, 2021, after which time loans will be unavailable. As with the first round, the loans will be made on a first come, first serve basis.

Note that the PPP is also open again to first-time eligible borrowers (including newly eligible borrowers) in addition to second draw applicants. The new law allows for certain 501(c)(6) organizations to receive PPP loans. Specifically, 501(c)(6) entities are eligible, provided that not more than 15% of receipts come from lobbying activities; lobbying activities are not more than 15% of total activities; the cost of lobbying did not exceed $1 million during most recent tax

year ending before February 15, 2020; and the entity had less than 300 employees. With some exceptions as outlined herein, the mechanics of first and second loans are identical.

To be eligible for a PPP second draw loan, an employer must have used, or will use, the full amount of the initial PPP loan, have no more than 300 employees (500 if more than one location), and demonstrate at least a 25% reduction in gross receipts as compared to the same quarter in 2019 (with caveats for new businesses). Any forgiveness amount of a First Draw PPP Loan that a borrower received in calendar year 2020 is excluded from a borrower’s gross receipts. A borrower can provide annual tax return forms to substantiate its revenue reduction. The maximum loan amount (except for certain entities in the hospitality industry) is the lesser of: $2 million or 2.5 times the average monthly payroll during 2019 or during one-year period before the loan date, whichever the borrower chooses.

For Second Draw PPP Loans, the number of employees per physical location is limited to 300 rather than 500 for most borrowers. With some exceptions, the same affiliation rules apply. Businesses that are part of a single corporate group shall in no event receive more than $4 million of Second Draw PPP Loans in the aggregate.

If your First Draw PPP loan is under review by SBA or information in SBA’s possession indicates that the borrower may have been ineligible for the First Draw PPP Loan, the lender will receive notification from SBA when the lender submits an application for a guaranty of a Second Draw PPP Loan and will not receive an SBA loan number until the issue related to your First Draw PPP Loan is resolved.

The applicant must submit to the lender SBA Form 2483-SD (Paycheck Protection Program Second Draw Borrower Application Form, which is forthcoming) or the lender’s equivalent form including the required certifications. Documentation requirements are described in the Interim Final Rules (IFRs).

Wednesday’s IFRs and guidance documents can be accessed via the following links: