Elephant in the room

Finance SBA Loans
1

Here is a question that likely we do not have an answer for until next week. I understand, but want to pregame.

We have all seen office visits drop by 50%. Logically we do not need as many providers working each day, which means we do not need as many ancillary staff.

For the sake of this discussion, let’s say we have a lot of team players that all volunteered to drop hours by 50% to meet the needs of the practice. OK great, now we have a well staffed practice. Granted there is some other fixed overhead that has not decreased by 50%

Now we hear word of the PPP program. yeah sounds too good to be true. (Can’t wait to see our tax rate in a few years). Theoretically we will get funds to cover employees payroll for let’s say 8wks at no cost to us. Also it will cover provider payroll up to $100k (annually) ($15,385 for 8wks). Also covers rent, health insurance/benefits and retirement program. Awesome.

So my questions.

  1. To qualify for forgiveness employees income making <$100k cannot decrease by more than 25% measured against the most recent full quarter. (or is this just saying can’t forgive 100% of usual pay if they were only getting 50%) Or does it somehow disqualify you? Not clear, just have seen language about reducing the amount that is forgiven (but not actual formula).
  2. So Elephant in the room question. We care about our employees. We only need 50% staffing, simply not enough work to do and no reason to put them at risk coming into the office. However if they make <$100k annualized, why not keep them full time for the 8wk period, and have them write essays on how to improve the office while they are at home. I’m sure the essays will be great and well worth keeping them full time working at home.
  3. Next Elephant scenario. Let’s say I have provider making $160K per year. I have reduced their hours and pay by 50%. That seemed to work for the office last week and everyone understands. Now with PPP program the salary is maxed at $100k annualized for forgiveness. They are now making an $80K annualized rate. Seems like leaving money on the table. Do we bump them to 62.5% work hours and pay?
  4. Add in the partner making $300k annualized (last year, not this year:) They also dropped hours and pay by 50%. So their 50% salary is still above the $100k threshold at $150k. Do we drop them further to 33% work load and 33% pay and equilibrate with the provider in question number 3?

Goal is to maximize the forgivable aspect to the PPP loan.
Also what is the best way we can support our employees.
Bottom line for partners is you get last dollar in. Not 30% of every dollar. Life is great when business is good, and we shoulder responsibility/financial burden when things aren’t as great.

Flattening the curve is great for our society (may hurt our bottom line, this year), Hopefully we get ongoing parity for telehealth.

Bottom line is maximizing the benefits of the PPP for practices that are front line and staying open to take care of patients and keep them out of ED/UC and putting our lives on the line. If I can do anything to increase the pay and minimize the impact for our employees, I’m going to do it.

Open to ideas and looking forward to reading our employees essays while they work at home.
Bill

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Dr. de Buys,

That indeed is the elephant everyone is struggling with. The name of the program is correctly named “Paycheck Protection Program”- which reinforces the idea that the legislation is designed to protect the paycheck of employees. As for those making over $100k, it obviously doesn’t cover the entire salary in terms of forgiveness but nothing prevents the practice from paying the full salaries knowing that the amount above the pro-rated $100k amount would not be forgiven and can be financed with relatively generous terms.

I’ve seen many people upset with it not covering all payroll costs for physicians, but the alternative of covering all payroll costs would probably add a significant amount to the $2.2T price tag of the most recent stimulus package. All this to say that while the program may not be perfect, it does seem to reduce much of the burden placed on the practice. I can see a hundred problems with the program and agree with your concern. I think for many practices the alternative of not having a forgiveness provision would be much worse than at least having some forgiveness- which could be viewed as extremely generous. For several models I’ve seen, 60-100% of the amout “borrowed” would be forgiven. At the beginning of last week, I was working with many practices to determine what 10, 15 and 30 year notes would look like without the forgiveness. At least with this program, Congress is not only making cash available at a time the banks would not have been likely to extend credit, but Congress also took it a step further by significantly reducing the long term burden for businesses.

All this to say that I share your exact concerns, but compared to if they had not stepped in with such a program, many practices would not even have a viable option to keep their doors open…