COVID-19: US Developments, Implementation and Oversight of CARES Act – May 28, 2020
With the country having passed a grim milestone Wednesday with the 100,000th death from coronavirus, the US House of Representatives will vote today on bipartisan legislation to provide additional flexibility under the March 27 CARES Act’s Paycheck Protection Program (PPP) for businesses reeling from the economic shutdown. For perhaps the first time since the pandemic was declared, though, the sphere of dominant legislative news in Washington has expanded to include matters not related to the COVID-19 pandemic, such as the struggles of Speaker Nancy Pelosi (D-CA) to pass legislation reauthorizing national surveillance laws, President Trump’s preparation of an executive order relating to social media, and the passing of a revered former legislator and American war hero, retired US Rep. Sam Johnson (R-TX).
The House is expected to pass the PPP measure today with bipartisan support and send the measure on to the Senate for consideration. House Republicans, however, have filed a court challenge against the proxy voting procedures by which the PPP bill and other legislation is being taken up by Pelosi and her team. House Minority Leader Kevin McCarthy (R-CA) and GOP colleagues contend the procedures, which were set in motion by a rules change pushed through the House on the party-line vote, violate the United States Constitution by allowing Members of Congress to cast votes on bills without being physically present in the US Capitol.
The Senate is officially adjourned this week, but senators continue to put forth targeted legislative proposals and plan for congressional hearings in the coming weeks on topics related to the pandemic and the reopening of the American economy. Democrats on the Senate Committee on Agriculture, led by Sen. Debbie Stabenow (D-MI), the panel’s ranking member, unveiled legislation Wednesday to strengthen protections for the nation’s food supply. Republicans on the Senate Committee on Health, Education, Labor and Pensions (HELP), chaired by Sen. Lamar Alexander (R-TN), revealed plans for hearings next week that will focus on procedures for the return of US schools, including elementary and secondary institutions as well as colleges and universities, in the fall.
When bipartisan negotiations commence sometime in June with an eye toward enactment of the next major federal COVID-19 response bill, one key topic of debate will be additional federal aid to states, territories, counties and municipalities. Congress has provided hundreds of billions in emergency money to states in recent months, and House Democrats have passed a bill that would provide hundreds of billions more. But as Bloomberg Government explores in a report this morning, states are restricted from using the hastily-approved money for purposes not directly related to the coronavirus outbreak, and some congressional Republicans continue to signal that the GOP will insist on restrictions that would prevent federal aid from being used to rescue states from questionable budgetary decisions that were made before the pandemic rocked state treasuries. Resolving differences on this issue and finding a consensus approach on the matter of liability protections for enterprises as the economy reopens will be among the major challenges for Democratic and Republican leaders this summer when bipartisan talks concerning the next phase in the federal response officially get underway.
Tax and Economic Development Updates
As predicted in yesterday’s report might be the case, Democrats have responded to labor unions’ concerns over a proposed modification of certain PPP requirements. Specifically, while H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020, as proposed, would have eliminated a requirement that PPP loan recipients spend at least 75% of their loan proceeds on payroll expenses, the modified version the House will consider today keeps the requirement but lowers the threshold to 60%. This change appears to be an attempt to provide some additional flexibility in using PPP funds for non-payroll costs (rent, mortgage interest, and utilities), while at the same time still incentivizing employers to retain or rehire workers. The House will also vote on H.R. 6782, the Small Business Transparency and Reporting for the Underbanked and Taxpayers at Home Act (TRUTH Act), which would require the Small Business Administration (SBA) to issue a report on PPP loan recipients of loans over US$2 million.
Senate Committee on Banking Ranking Member Sherrod Brown (D-OH), along with seven of his fellow Committee Democrats, yesterday sent a letter to Consumer Financial Protection Bureau (CFPB) Director Kathy Kraninger and Federal Housing Finance Agency (FHFA) Director Mark Calabria requesting additional information on the Borrower Protection Program the agencies announced in April. In their announcement, the CFPB and FHFA indicated that the two agencies would begin sharing data, but failed to indicate how that data would be used to protect borrowers. As such, the Senators are seeking to understand what information will be shared and how the agencies will leverage the program “to avoid unnecessary borrower defaults and foreclosures, as well as misinformation, unequal treatment of borrowers, or otherwise address servicers not complying with the law.”
Additionally, the Treasury Department and the Internal Revenue Service (IRS) yesterday announced an extension of a safe harbor for taxpayers developing renewable energy projects. In announcing this relief, “[t]he IRS recognizes that COVID-19 has caused industry-wide delays in the supply chain for components needed to complete renewable energy projects otherwise eligible for important tax credits.” As such, the IRS has issued Notice 2020-41, which modifies prior guidance addressing the beginning of construction requirement for both the production tax credit for renewable energy facilities under section 45 of the Internal Revenue Code (IRC) and the investment tax credit for energy property under IRC section 48. Specifically, pursuant to the notice, the Continuity Safe Harbor is further extended for projects that began construction in either calendar year 2016 or 2017, and a 3½ Month Safe Harbor is provided for services or property paid for by the taxpayer on or after September 16, 2019, and received by October 15, 2020.
Bloomberg reported yesterday that the National Institutes of Health (NIH) issued a Request for Information (RFI) on digital health solutions for COVID-19. NIH states it “require[s] services to develop digital health solutions to address the COVID-19 pandemic and enable new research into using digital health technologies to advance the public health response. The digital health solutions will facilitate approaches that leverage multiple data sources, privacy-preserving technologies, and computational tools for managing population health and individuals’ lives during the COVID-19 pandemic.” The National Institute of Biomedical Imaging and Bioengineering and the National Cancer Institute will host a virtual interchange meeting for interested industry parties to communicate with acquisition personnel and program staff on Friday, May 29 at 2:00 PM EDT. Responses to the RFI – which NIH clarifies is for market research and not a solicitation for proposals or quotations – are due on June 5. More information is available here.
During a CNN interview on Wednesday, National Institute of Allergy and Infectious Diseases Director Anthony Fauci stated hydroxychloroquine lacks “efficacy” as a treatment for the coronavirus – becoming the first administration official to come out publicly against the drug’s use as a treatment for COVID-19. Last week, The Lancetpublished a study that was “unable to confirm a benefit of hydroxychloroquine or chloroquine . . . on in-hospital outcomes for COVID-19.” The study also stated hydroxychloroquine drug regimens were “associated with decreased in-hospital survival and an increased frequency of ventricular arrhythmias when used for treatment of COVID-19.” Earlier this month, President Trump announced he had been taking hydroxychloroquine for “a couple of weeks,” as well as zinc and a dose of azithromycin, an antibiotic. Medical experts became concerned the President’s remarks would prompt others to take the drug. As we reported previously, the Food and Drug Administration (FDA) issued a Drug Safety Communication cautioning against the use of hydroxychloroquine or chloroquine as a treatment for the coronavirus outside of a hospital setting or clinical trial. President Trump repeatedly expressed enthusiasm for hydroxychloroquine during press briefings earlier this year, and FDA posted chloroquine phosphate and hydroxychloroquine sulfate tablets to its drug shortages website, attributing the action to a surge in demand.
POLITICO reported yesterday that the administration has renewed efforts to end surprise medical bills, perhaps using the next COVID-19 relief package as a vehicle for such reforms. Lawmakers had been contemplating how to address this issue – where a patient is treated unknowingly or unavoidably by one or more practitioners who fall outside his or her insurance plan network, thus producing larger bills than if the patient had received care from an in-network provider or providers – prior to the COVID-19 public health emergency. According to POLITICO, “Trump administration officials are floating a plan that would outlaw health care providers from putting patients on the hook for thousands of dollars in expenses – but without mandating how doctors and hospitals would recover their costs from insurers,” suggesting “[b]illing disputes would have to be worked out on a case-by-case basis.” While reforms in this area would certainly allow President Trump to claim an election year victory in the health policy space, it remains to be seen if there is enough motivation and momentum on Capitol Hill to lead to fruitful, bipartisan negotiations on the issue – particularly as lawmakers consider the cost of such reforms and industry stakeholders weigh in on the process. As we previously reported, providers accepting funds from the Provider Relief Fund are prohibited from balance billing COVID-19 patients.
US-China tensions continue to simmer in the wake of the COVID-19 pandemic. On Wednesday, Secretary of State Mike Pompeo confirmed that he had certified to Congress that Hong Kong “does not continue to warrant treatment under United States laws in the same manner as US laws were applied to Hong Kong before July 1997.” Secretary Pompeo made this certification pursuant to the Hong Kong Policy Act (as amended in November 2019), which requires the Secretary of State to make certain certifications relating to Hong Kong’s autonomy at least annually. However, “the Secretary may issue additional certifications at any time if the Secretary determines it is warranted by circumstances in Hong Kong.” The action follows plans by the People’s Republic of China to advance new national security legislation related to Hong Kong. The secretary’s certification does not on its own suspend Hong Kong’s special status, but may open the door to further responses by the Trump Administration.
On Wednesday, House Committee on Energy and Commerce Chairman Frank Pallone, Jr. (D-NJ) and Oversight and Investigations Subcommittee Chair Diana DeGette (D-CO) sent a letter to Food and Drug Administration (FDA) Commissioner Stephen Hahn, MD, regarding his agency’s efforts in support of food safety and addressing food supply disruptions. They express concern with FDA’s suspension of routine inspections in March, noting that the spread of foodborne pathogens remains a threat to Americans during the COVID-19 pandemic. The committee leaders request responses to a series of follow up questions on food safety in supply chains, including how FDA is monitoring supply chain disruptions and working with food producers to mitigate resulting food loss and waste.
European Policy Updates
On May 27, the European Commission unveiled its plans for a major Recovery Plan of the EU of a total €1.85 trillion (US$2.03 trillion), which includes a new €750 billion (US$824 billion) recovery instrument called the ‘Next Generation EU’ embedded within a €1.1 trillion (US$1.21 trillion) revamped EU budget. The package of proposals includes: (i) a Communication outlining the Commission’s Next Generation EU Recovery Instrument Plan, and (ii) a Communicationoutlining the revamped EU Budget for the Recovery Plan and its Annex.
As anticipated, the European Commission’s proposed Recovery Instruments are centered around its policy ambitions and priorities, namely: climate neutrality through the European Green Deal, strengthening and adapting the Single Market to the digital age, providing a fair and inclusive recovery and building the EU’s strategic autonomy and crisis preparedness.
The Next Generation EU Instrument plans to raise and invest money based on the Commission’s policy ambitions. The raising aspect of the instrument is detailed as follows:
- Temporarily lifting the own resources (an EU system that ensures a continuous flow of EU revenues which finance the EU budget, e.g., through custom duties) ceiling from 1.2% to 2% of EU Gross National Income. Currently the own resources proposals focus on Value-Added-Tax and the taxation of non-recyclable plastic. The Commission will come forward with targeted own resources proposals on the Emissions Trading Scheme, the Carbon Border Adjustment Mechanism and an own resource based “on the operation of large companies.” An additional own resource could be based on the taxation of the digital economy (depending on the outcome of the negotiations at the OECD level);
- The Commission is planning to borrow €750 billion (US$824 billion) from the financial markets to channel it through various EU programs. It will repay these loans throughout future EU budgets, from 2028 through to 2058; and
- Amending the current EU budget (2014-2020) to make an additional €11.5 billion (US$12.65 billion) in funding available in 2020.
The money raised for the Next Generation EU Instrument will be invested across three pillars:
- Supporting Member States with investments and reforms:
- A ‘Recovery and Resilience Facility’ of €560 billion (US$615 billion) aiming to support investments and reforms (including in green and digital transitions) and to strengthen the resilience of national economies. This will be a grant-based facility of up to €310 billion (US$340 billion) and of loans up to €250 billion (US$274 billion);
- A new initiative named ‘REACT-EU’ to provide additional €55 billion (US$60 billion) to the current cohesion policy programmes between now and 2022;
- Providing an additional €40 billion (US$44 billion) to the Just Transition Fund to assist the faster transition of Member States towards climate neutrality; and
- An additional €15 billion (US$ 16.4 billion) to reinforce the ‘European Agricultural Fund for Rural Development’ to support rural areas.
- Rebooting the EU economy by incentivizing private investments:
- A new ‘Solvency Support Instrument’ of a €31 billion (US$34 billion) budget aiming to mobilize private resources to support viable European companies will become operational in 2020. It also aims to unlock €300 billion (US$329 billion) in solvency support for companies;
- Upgrading the EU’s investment program, ‘InvestEU,’ with an additional €15.3 billion (US$16.8 billion) to mobilise private investment in projects across the EU; and
- The Next Generation EU Instrument will contribute €15 billion (US$16.4) to establish a Strategic Investment Facility built into InvestEU, aiming to generate investments of up to €150 billion (US$164.8 billion) to boost the resilience of strategic sectors and key value chains in the internal market.
- Addressing the lessons of the crisis and preparing for future crises by:
- Creating a new Health Programme entitled ‘EU4Health’ with a budget of €9.4 billion (US$10.3 billion), aiming to strengthen health security and capacity;
- Reinforcing the EU’s Civil Protection Mechanism, ‘rescEU,’ with an additional €2 billion (US$2.2 billion);
- Increasing the EU’s Research & Innovation program, ‘Horizon Europe,’ with a total budget of €4 billion (US$103.7 billion); and
- Committing an additional €16.5 billion (US$18.1 billion) for the EU’s external action, including humanitarian aid.
According to the Commission’s rough estimate based on the leverage effect of the EU budget and Next Generation EU Instrument, the total investment that could be generated via this package of measures amounts to €3.1 trillion (US$3.4 trillion).
The European Commission called on the EU27 Leaders and co-legislators to adopt the Next Generation EU Instrument and the revised 7-year EU budget by July 2020.
More information can be found here and in the Commission’s factsheets on how the EU budget powers the Recovery Plan for Europe, which are the key instruments supporting the Recovery Plan for Europe, and in an overview of the Financing of the Recovery Plan for Europe.
Meanwhile, the UK government has released its recovery strategy dealing with how the UK might move from lockdown to the “new normal” enabling some businesses to re-open. The ability to begin rejuvenating businesses that have been mothballed for the past couple of months is good news but corporates should proceed with caution as they take steps to revamp the workplace. This quick guide sets out the key considerations for all businesses thinking about restructure, rejuvenate or mothball options, including with regard to the workforce, supply and demand, cash flow and directors’ duties.
Given the critical shock of COVID-19 to the global economy, businesses will face contractual issues as they re-open operations. Great care will be needed to ensure that contracts provide all businesses with practical solutions, while properly protecting legitimate business interests. This guide produced by Squire Patton Boggs addresses some of the key issues that businesses (particularly those involved in the manufacture, distribution and sale of products) need to consider as they assess their critical needs, vulnerabilities, protections and ability to mitigate risks, both under existing contracts, and as they develop new contractual arrangements.
The White House Counsel’s Office has responded to the letter from Senator Charles Grassley (R-IA), calling on the President to provide an explanation for his recent firings of Inspectors General (State Department IG Steve Linick and Intelligence Community IG Michael Atkinson) and his designation of Howard Elliott to serve as the Department of Transportation’s new Acting IG. Counsel to the President Pat Cipollone wrote that the reason the President had previously provided for the removals—loss of confidence—was sufficient under the Constitution. (The law requires the President to give Congress 30 days advance notice of his intention to remove an IG and to state his reasons in writing for doing so. The provision has generally been interpreted to require, if not cause, then, at least, detailed reasons. “Lack of confidence” is sufficient for all other presidential appointees because they all serve “at the pleasure of the President.”) Cipollone also contended that the President’s IG dismissals are no different than those of past presidents. With regard to Elliott’s designation, Cipollone maintained that he is highly qualified for the role.
Senator Grassley, a longtime champion of Inspectors General throughout both Republican and Democratic administrations, was not convinced. In a statement posted on his website, the Senator responded by saying that, “If the president has a good reason to remove an inspector general, just tell Congress what it is.” As for Elliott’s designation, the Senator did not question his qualifications but found it “unacceptable” for an IG to be in a position to oversee his/her own agency. (Elliott is the administrator of the Pipeline and Hazardous Materials Safety Administration within the DOT and will continue to serve in that position while serving concurrently as Acting IG.) IGs must be “independent and objective watchdogs, not agency lapdogs,” the Senator wrote.
The United States Attorney’s Office for the District of Arizona unsealed three criminal complaints charging multiple individuals with health care fraud associated with the pandemic. One complaint charges the CEO of a healthcare company with one count of health care fraud and one count of money laundering. The complaint alleges the CEO used his company’s social media accounts to offer free COVID-19 testing if patients also completed the company’s “comprehensive whole-body assessment.” According to the complaint, the company then fraudulently submitted claims for reimbursement to Arizona’s health care benefit program, by billing for services that were medically unnecessary and for services provided in the names of physicians who had no role in the assessment. Two other complaints charge six individuals associated with five Phoenix-area businesses that purport to provide non-emergency medical transportation services on the Navajo Nation. The government alleges these individuals billed Arizona’s Health Care Cost Containment System (AHCCCS) for more than 10,500 transports in April 2020 when they never occurred, resulting in more than US$3 million in fraudulent payments from AHCCCS to the defendants’ businesses.
State Attorneys General across the nation have been in court in recent weeks advocating their views regarding election laws in the COVID-19 era. Just yesterday, several AGs were in court or received important court decisions about this hot topic while a national debate over mail-in-ballots, voter access and safe elections continues: Texas (judges opine about COVID-19 immunity as a qualification for mail-in-ballots), Nevada (court denies request to stop mail-in-ballots), Montana (AG challenges expansion of mail-in-ballots), and Colorado (court allowing e-signatures for citizen initiatives). Safe elections and remote voting will be the central topic today when Colorado Attorney General Weiser (D) and Idaho Attorney General Wasden (R) participate in a free public webinar at 2 p.m. ET sponsored by the Attorney General Alliance.
Maryland Governor Larry Hogan (R) announced this week that the Adventist HealthCare Fort Washington Medical Center became the first hospital in the nation to install STAAT Mod TM (Strategic, Temporary, Acuity-Adaptable Treatment) modular units that can be constructed quickly to provide additional ICU-bed capacity for COVID-19 and other critically ill patients. The critical care inpatient unit, which has a shelf-life of 10 years, includes Airborne Infection Isolation Rooms (AIIR) that provide increased safety for both patients and caregivers.
In Maine, Governor Janet Mills (D) announced this week that the state’s Department of Health and Human Services (DHHS) is significantly expanding contact tracing by increasing the number of skilled staff and volunteers, harnessing innovative technology, and securing social services to help people with COVID-19 maintain self-isolation.