Business Realities in the Age of COVID-19

by Jeff Shaw

Pandemic creates numerous legal issues for seniors housing operators.

(Editor’s note: This column was written by law specialists at Hanson Bridgett. Because of the wide variety of challenges, the law firm asked each subject matter expert to write about his or her area of expertise.)

The COVID-19 pandemic has struck our industry hard, requiring us to reexamine all our practices. There are myriad long-term implications that will change seniors housing.

Safety Protocols: Senior living offers a spectrum of services — independent living, assisted living, memory care, skilled nursing and CCRCs. Because all settings serve residents in their 80s and staff live and work in close proximity, responses to COVID-19 challenges are remarkably similar. CDC guidance for all property types recommends screening residents and staff for respiratory/fever symptoms; isolating symptomatic residents and staff; contact tracing; restricting visitors and group activities; frequently disinfecting surfaces; and using personal protective equipment (PPE). Our advice: Whatever services you offer, consider using all these strategies to mitigate spread of the disease.

COVID Testing: Senior care providers are committed to protecting their residents, who are at risk of severe illness or death from COVID-19. Safety protocols by themselves may be inadequate to minimize the risk of infection. Increasingly, providers are offering, or even requiring, COVID-19 testing of residents and staff in collaboration with laboratories. Test results can be used to isolate confirmed cases, even those that are not displaying symptoms. Testing can help reduce the risk of a serious outbreak, and it is swiftly becoming an industry practice.

Telehealth: COVID-19 has created opportunities for the use of telehealth in long-term care. Previously, restrictive Medicare reimbursement rules, HIPAA considerations and state physician licensing laws limited its use. The pandemic has supercharged the telehealth movement, given the need for distant interactions. Telehealth companies offer arrangements that allow remote consultations on an urgent and non-urgent basis. Medicare and HIPAA enforcement authorities are relaxing their requirements, and states are reassessing their licensing laws. Forecast: Look for increased use of telehealth to provide services in long-term care.

Evictions: The pandemic has created serious roadblocks to evicting residents. The CARES Act imposes a 120-day moratorium on evictions for non-payment of rent on certain properties with federally backed loans. Additionally, some state and local laws protect tenants from eviction for non-payment during the crisis. Whether these laws apply to licensed communities is not always clear. Closed courts, emergency court rules and constraints on law enforcement’s ability to enforce evictions all impede terminations of residencies. Exceptions may not be made for health and safety issues. Our judgment: If eviction is not possible and health and safety risks exist, explore alternatives, including behavior contracts, medical interventions and restraining orders.

Resident Class-Action Lawsuits: Plaintiffs’ attorneys are soliciting clients to bring class-action lawsuits against assisted living communities to compel them to pay partial refunds to compensate residents for cancelled activities. In fact, even with normal group activities suspended, activity personnel are busier than ever keeping residents engaged or delivering meals. Providers have also incurred substantial additional expenses due to COVID-19, including increased hourly wages, overtime, agency personnel, PPE expenses and extra cleaning. Communicate with residents and families so they understand these challenges.

Employee Mobility: Senior living employees working for a second employer, especially another senior living employer, pose potential health risks to residents and other employees. However, restricting second jobs is legally risky. Current guidelines allow employee temperature testing, symptom screening and COVID-19 testing under a direct threat analysis. Depending on the facts, an employer may be able to require employees to choose between employers, place them on unpaid status, or allow use of accrued time. Proceed with caution — engage in careful risk balancing before restricting second jobs.

Employee Leave Options and Benefits: Under the federal acts passed during this crisis, employers must coordinate and provide paid and unpaid time off to employees. Eligible staff can receive 12 weeks of expanded family leave for school closures, of which 10 weeks are paid. They may also be entitled to 80 hours of paid emergency sick leave for illness or school closures. Furloughed and laid-off employees likely also qualify for state and federal unemployment benefits. State disability, workers’ compensation and other benefits may also be available. As essential businesses, senior care providers must comply with these mandates as they strive to maintain staffing levels.

Paycheck Protection Program (PPP): The PPP has provided essential funds to small employers to retain staff through forgivable loans. Unfortunately, detailed PPP guidance lagged loan applications, causing some borrowers to question their qualification. The deadline to return the funds, no questions asked, has passed, and borrowers of more than $2 million are assured SBA review if they seek forgiveness. Applying the new guidance, applicants must confirm that the loan is necessary for ongoing operations, justify the amount of any forgiveness, and be prepared to support their position if audited. Keep detailed records of PPP loan eligibility and the basis for forgiveness. 

Tax Breaks: Most tax filing deadlines have been pushed to July 15, and further extensions are being considered. The IRS itself has been impacted by shelter-in-place orders. The CARES Act made broad changes to the tax code and introduced new stimulus programs. Taxpayers should decide how best to tap into these benefits, including enhanced deductibility of expenses, relaxed net-operating-loss limitations, new tax credits and more. Although administrative questions remain, the IRS continues to release new guidance. We predict the tax code will remain a significant tool in the government’s tool chest. 

Construction: Providers building or renovating facilities should expect contractors to request more time and/or compensation to complete projects as contractors implement new social distancing mandates and navigate supply-chain issues. However, do not assume that your contractor is automatically excused from meeting the original project budget or schedule due to COVID-19. Contract language is key, as is the contractor’s ability to document how the pandemic impacts its ability to meet the original project budget and schedule. Review your construction contract carefully. If asked for additional time or compensation to complete a project, request documentation supporting the request.

Doing Deals: Mergers, affiliations, sales and loans continue during the pandemic, but be prepared for delays and challenges. Due diligence will need to adjust, with greater reliance on virtual tours and data rooms. Regulatory approvals will take longer to process as agency staffs work reduced hours. Tax returns may be delayed. Financial projections will be more speculative as parties attempt to predict the pandemic’s financial impact. Public disclosure documents will need to include robust discussions of COVID-related risks. Negotiating balanced force majeure clauses will take on a new urgency. Bottom line: Be creative and allow more time.

A Post-COVID World: While the full financial impact of COVID on senior care is unclear, we can reasonably expect increased demand for home care and home health care; insistence on safety protocols to prevent disease transmission; a focus on needs-based move-ins for assisted living and memory care; reduced benevolence funds; potential declines in home values that reduce demand for CCRCs in the short term; more insolvencies; and an increase in affiliations and acquisitions. A crisis creates opportunity, but capitalizing on the opportunity requires agility.

All of this is just a snapshot of issues challenging our industry as a result of COVID-19. As agency guidance and business realities evolve, so will practical solutions. Prepare to evolve with them.

Contributors include Michelle Akerman, Nancy Dollar, Lori Ferguson, Paul Gordon, Joel Goldman, Allan Jergesen, Pamela Kaufmann, Ray Lynch, Diane O’Malley, Payam Saljoughian, Deidre Schonfeldt and Daren Shaver.

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