Kyle Moribato, Esq., will be a panelist on the upcoming webinar Understanding Eligibility Regulations for the Employee Retention Credit in the Healthcare Industry: Misconceptions vs. Facts.
When the COVID-19 pandemic began, numerous businesses were forced to full or partial shutdown due to adherence to COVID-19 executive orders and supply chain disruptions that resulted from COVID-19 executive orders. Financial assistance was provided to employers impacted by the pandemic through the CARES Act, under which the Employee Retention Credit (ERC) was introduced in 2020. The ERC, sometimes called the employee retention tax credit, can benefit healthcare organizations—even if they didn't have to close their doors.
Healthcare organizations saw some of the greatest impacts during the pandemic, but many have yet to realize the full potential of the employee retention tax credit. While some took advantage of the PPP (paycheck protection program), others have continued to overlook or believe they do not qualify for the ERC.
The Impact of COVID-19 on the Healthcare Industry
Despite most being deemed essential and continuing to operate, many healthcare organizations were severely disrupted by partial shutdowns of in-person services and other COVID-19 restrictions. Hospitals and clinics were required to create new, or expand on existing safety protocols, pivot to offerings like telemedicine, and impose greater restrictions on staff to minimize the spread of COVID-19 among staff and patients. Other non-emergency medical facilities or services that were allowed to resume work during the pandemic were also heavily impacted by both capacity restrictions and sanitation requirements.
Healthcare institutions that qualify for employee retention tax credit include nonprofit and for-profit hospitals, instrumentalities including district or county-owned hospitals or medical centers, and independent medical practices.
Any healthcare facility that faced a greater than 10% restriction on business operations due to COVID-19 executive orders or a 20% or more decline in gross receipts is eligible for ERC funds. Some specific impacts that lead healthcare facilities to qualify for the ERC include:
- Increased time between patients
- Social distancing protocols
- Capacity restrictions
- Increased sanitization requirements
Misconceptions in the Healthcare Industry Regarding ERC
Due to the lack of regulatory guidance when the employee retention tax credit was first launched and enacted, there were many misconceptions about the ERC. These misconceptions resulted in many medical facilities not participating in the program.
Some of the most common misconceptions that keep healthcare organizations from applying for the ERC include:
"But I have too many employees"
"But I received the PPP"
"But I received grant funding"
"But I'm a nonprofit hospital or instrumentality of the government"
"But I didn't see a decline in revenue"
Other ERC Considerations for Healthcare Organizations
Regardless of the previously discussed misconceptions, there are other areas that healthcare facilities and organizations should consider when applying for the employee retention tax credit.
Productivity
If an employer faced any suspension that impacted more than a nominal portion of operations, they qualify for the ERC. Yet, for many healthcare organizations, increased staffing and increased patients make it seem like they were not impacted.
Many hospitals perceive an increase in staff and growth during the pandemic as evidence of productivity. When evaluating productivity, it is important to compare 2019 to 2020 productivity by individual employees. Suppose your facility had ten physicians in 2019 but 20 physicians in 2020 and 2021; that might appear to be an increase in productivity, but when comparing those ten physicians in 2019 to those same ten physicians in 2020-2021. In that case, individual productivity might look completely different.
Moratorium On Services During Pandemic
Moratoriums on elective procedures and other healthcare services contribute to a partial suspension of operations. A reduction in productivity of greater than 10% to a more than nominal portion of an organization is grounds for ERC qualification. However, if a business voluntarily suspends its operations during the pandemic without being subject to a government order, it would not be eligible for the ERC based on the suspension test.
Data to Support ERC Claims
The Internal Revenue Service considers quantitative data to determine the financial impact of the pandemic on healthcare organizations. This type of data includes the maximum capacity of any departments within the business prior to COVID-19 and during 2020 and 2021 (with respect to the guidelines of social distancing). The IRS also considers the time required to treat patients, the time needed for additional cleaning, and the comparison of patient encounters before and during the pandemic.
There are many complex factors that need to be considered in determining ERC eligibility. When determining eligibility, you must look at the business at a granular level instead of as a whole. If any more than nominal part of your business was impacted, you could qualify for ERC.
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