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SEC Guidance on COVID-19 Disclosures for Healthcare Providers

On March 25, 2020, the Division of Corporate Finance of the Securities and Exchange Commission published guidance on disclosure obligations of companies with respect to COVID-19 and related disruptions. The SEC recognizes that the full impact of COVID-19 on any company or industry may be difficult to predict, but such effects may still be material to stockholders, and so it provided some detail on the obligations of companies to report such items.

In its guidance, the SEC alludes to the fact that such disclosures may be required in the following sections: (1) Management’s Discussion and Analysis; (2) Business; (3) Risk Factors; (4) Legal Proceedings; (5) Controls and Procedures; and (6) Financial Statements. Though filings referencing COVID-19 are still limited among reporting companies, we have seen issuers report in all of these sections, particularly the following:

  • Management’s Discussion and Analysis – broadly mentioned as a recent event, with potential or expected impacts to business
  • Financial Statements & Auditors Reports – reported in a subsequent events footnote to the financial statements
  • Risk Factors – both specifically its risk as a pandemic as well as part of a general risk regarding the potential of an economic downturn
  • Forward Looking Statements Disclosure – as an item which could cause results to differ from those anticipated

Of course, for any company, the risk and related disclosure will be unique facts and circumstances analysis. However, some examples serve as guidance. The SEC provides an exhaustive list of considerations that each company should consider in drafting its public disclosures, including the effect on capital, changes required due to remote work arrangements or changes in behavior, changes in customer demand, and effect on the supply chain.

Health services providers, specifically, are focusing on the following:

  • Effects of treating patients with COVID-19 on the ability to provide services to other patients
  • Expectations for elective procedures, and whether such procedures will be deferred or cancelled, and the effect on short and long-term patient volume
  • Disruptions in the production or procurement of devices, PPE, pharmaceuticals, and other supplies

Finally, we are seeing a number of reporting companies specifically addressing uncertainty as a risk. There is an understanding by the SEC and the market that many of the risks and effects of COVID-19 are not known and may not be known for some time. Proper disclosure can and should disclose the fact that there is uncertainty in future impacts.

We will continue to provide updates regarding the SEC’s guidance.

For more legal insights visit our Coronavirus (COVID-19) page.

This article is not an unequivocal statement of the law, but instead represents our best interpretation of where things currently stand. This article does not address the potential impacts of the numerous other local, state and federal orders that have been issued in response to the COVID-19 pandemic, but which are not referenced in this article.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 93

About this Author

Michael G. McKinnon, Sheppard Mullin, joint ventures lawyer, equity debt financings attorney

Michael McKinnon is a partner in the Corporate Practice Group in the firm's Orange County office.

Mr. McKinnon focuses his practice on corporate and securities law, with an emphasis on mergers and acquisitions, joint ventures, and equity and debt financings in the healthcare and life sciences industries. He has assisted clients in acquiring or investing in medical device companies, home infusion providers, diagnostic imaging providers, medical groups, physician practices, surgery centers, PPO networks, diabetic supply businesses, clinical trial...

Roy Fox Corporate Attorney Sheppard Mullin Orange County, CA

Roy Fox is an associate in the Corporate Practice Group in the firm's Orange County office and is a member of the Healthcare Team, specializing in mergers and acquisitions. Roy has worked with companies in various industries, including healthcare, pharmaceuticals, medical devices, technology, software, and financial services, as well as private equity funds.

Areas of Practice

Roy’s practice focuses on a variety of corporate matters and transactions, including mergers and acquisitions, public and private securities offerings, debt financings, and corporate...