Healthcare Private Equity Responses to COVID-19: Nine Things to Consider as the Pandemic Worsens

March 19, 2020

As the 2019 novel coronavirus (COVID-19) continues to spread and disrupt American lives and businesses, the healthcare industry will experience significant practical, financial and legal challenges. As federal and local health officials move to address this crisis, private equity funds are also taking steps to support their healthcare platforms that are the front-line defenders against this pandemic.

It is critical that the healthcare industry brace itself for the full brunt of this crisis, and McGuireWoods is assisting clients as they take a number of critical steps and precautions:

  1. Review emergency preparedness plans and revise for infectious disease. Many licensed healthcare providers — including hospitals, surgery centers, hospices, dialysis facilities and home health agencies — are already required to have an emergency preparedness plan. Existing plans, however, may need to be revised to address the current pandemic. Such community-wide preparedness plans and past-required training could provide a useful starting point and may be supplemented to address the highly infectious nature of COVID-19. Necessary precautions should be considered, such as creating additional handwashing areas; encouraging sick employees to stay home; minimizing non-essential travel and face-to-face contact between employees and patients, where appropriate; and other Occupational Health and Safety Administration (OSHA) proposals. For more on OSHA recommendations and ideas on COVID-19 preparedness in the workplace, see the McGuireWoods client alert from March 12, 2020.

  2. Secure necessary financing. While the COVID-19 pandemic will increase demand for healthcare services, healthcare providers will still feel the profound impacts the pandemic is having on the U.S. stock market, credit markets and local economies. In the weeks and months to come, economic circumstances may strain healthcare businesses’ operating cash flows. Funds should consider if their platforms have necessary short-term capital available and, if not, should tap credit lines before depleting cash reserves. If any economic impact extends into the medium or longer term, private equity funds may need to review their loan covenants with lenders to avoid breaches of specific financial covenants.

  3. Secure necessary supplies. Many of McGuireWoods’ clients face inventory delays or shortages due to the current crisis. In the long term, such disruptions may encourage additional local manufacturers, but a short-term plan is warranted. Healthcare providers should stay in contact with key suppliers to understand if delays or shortages are likely. If necessary inventory is not available, platforms may need to slow inventory usage (if clinically appropriate), find alternative suppliers, or collaborate with other practices working with the provider’s fund or in the community to supplement shortages. No single solution is perfect, but early preparation for this issue is critical.

  4. Review contracts for material commitments. Numerous companies have closed or curtailed business for the near future and have canceled or postponed events. Many of these activities and plans are memorialized in written contracts, whereby the parties have agreed to certain future commitments. Generally, the failure to perform under a contract constitutes a breach, entitling the non-breaching party to damages. Nevertheless, when the truly extraordinary and unexpected happens, three legal concepts may offer relief: force majeure, impossibility and frustration of purpose. (See McGuireWoods’ March 18 alert.) While state courts vary in how they interpret these legal principles, there may be some ability to recoup or reduce contractual losses stemming from COVID-19-related issues. As an initial matter, platforms should review existing commitments and triage based on the magnitude of the commitment and key dates (payment, performance, etc.). From there, companies can assess how best to address such commitments and whether arguments exist for mitigating losses.

  5. Consider flexibility for employees. Funds should review where their platforms could provide flexibility for their employees, particularly in providing time off for any employee exposed to or exhibiting symptoms of a potential COVID-19 infection, on a case-by-case basis. Employers should consider modifying sick leave and other policies and practices to allow such employees to self-isolate before returning to work. Such efforts should comply with applicable federal law as discussed in a March 6 McGuireWoods client alert. In addition, employers should monitor the legislative efforts currently making their way through Congress that would change federal leave laws and potentially make tax credits available.

  6. Make a plan to protect and secure your workforce. As discussed above, emergency preparedness plans should include information on minimizing risk of infection in the workplace. The OSHA guidelines for employers are a useful resource, as is the Centers for Disease Control and Prevention’s Information for Healthcare Professionals page, which includes information on how providers can best protect themselves and care for infected patients. Moreover, platform employees may be self-isolating or have additional caretaking responsibilities for elderly parents or children whose schools or daycares have closed. As a result, healthcare platforms will face significant challenges to remain open during this period. Accordingly, funds may want to encourage their platforms to shift staff schedules, where possible, to allow employees to manage these additional risks and responsibilities. Where the nature and extent of employee work permits, platforms are considering allowing employees to work remotely. In some parts of the country, allowing telework options may become mandatory for some employers, at least temporarily.

  7. Review HIPAA requirements for PHI for remote staff. While the federal government announced on March 16 that certain penalties would be waived against covered hospitals, the privacy and security rules of the Health Insurance Portability and Accountability Act (HIPAA) still apply to protected health information (PHI). Platforms need to continue to secure PHI during this time. Any technology used for PHI should be part of the platform’s security rule risk assessment. Limited exceptions for unplanned remote working during the COVID-19 pandemic may be reasonable and likely present a low-enforcement risk. Nevertheless, platforms should counsel their staff to be careful to not extend such exceptions to unsecured email, texts or voice mail where PHI could be compromised. Employees should be encouraged to use cell phones and other remote technology devices only where privacy can be maintained. Finally, if remote access was not part of a platform’s operations prior to the pandemic, platforms may need to reconsider and review policies and conduct a security risk assessment when the pandemic ends.

  8. Allow in-office social distancing. As the public learns to provide six to 10 feet of social distance, platforms may want to consider ways to provide this space for staff and patients, where and when available. McGuireWoods lawyers are not epidemiologists and cannot verify that this would be successful in reducing the COVID-19 risk, but firm clients are implementing some or all of the following techniques to reassure patients that their offices take this threat seriously:
    1. Increasing use of telehealth.
    2. Expanding patient waiting areas into unused space to provide separation.
    3. Allowing patients to wait in their own cars for their appointments.
    4. Reducing patients’ access to areas such as the restroom by encouraging use at home prior to appointments. (Note, however, that the Americans with Disabilities Act and other legal restrictions still apply.)

  9. Monitor the reactions of policymakers. As lawmakers react to the pandemic, funds should monitor the rapidly evolving legal landscape. In addition to the HIPAA waivers discussed above, the Centers for Medicare & Medicaid Services (CMS) released waivers in response to the National Emergency Declaration, and joined other agencies providing further telehealth waivers and flexibility. Additionally, both the U.S. House of Representatives and Senate passed the Family First Coronavirus Response Act. State and local governments are closing schools, bars and restaurants and prohibiting public gatherings. In the days and weeks to come, expect further action and significant federal and state spending to respond to the COVID-19 pandemic. Private equity funds should monitor these changes as new requirements and opportunities are presented for platforms continuing to serve patients and communities during this difficult time.

Please contact the authors for additional guidance on how private equity platforms are responding to the COVID-19 pandemic. McGuireWoods has published additional thought leadership related to how companies across various industries can address crucial COVID-19-related business and legal issues, and the firm’s COVID-19 Response Team is prepared to assist during this time. We anticipate further developments in the days and weeks to come, and we stand ready to work with you on the challenges you face.