How To Deal With The Coronavirus Business Slowdown
April 2020Practice Management General/Other
Originally published on March 18; Updated on March 27.
On March 16, the American Dental Association (ADA) acted to mitigate the spread of the coronavirus (COVID-19). In an unprecedented move, the ADA recommended that dentists nationwide postpone all elective procedures for the next three weeks ending April 6. The ADA further recommended providing emergency dental care to alleviate the burden that dental emergencies would otherwise place on hospital emergency departments, that may be overwhelmed due to the expected spike in the number of infected coronavirus patients. The ADA’s announcement followed similar actions taken by several state dental associations. On March 18th, the ADA released additional guidelines defining what constitutes a dental emergency.
While the ADA’s action was in the form of recommendation, some state dental associations strongly recommended the same action. Moreover, the Surgeon General and Centers for Medicare and Medicaid Services (CMS) later made the same recommendation. As such, we expect the majority of dental practices to comply.
Impact on Dental Practice Operations
While this action will undoubtedly help mitigate the spread of coronavirus, it will have a profound impact on your dental practice operations and related cash flow. Eliminating all routine (hygiene, progress checks, follow-up, etc.) visits and other elective procedures, and providing only emergency services, will likely reduce production by 90% or more for most practices, excluding oral surgery and endodontics. Depending on the level of your emergency visits, your practice may be operating with just one doctor, one assistant, and one front desk staffer present. Practices with lower levels of emergencies may simply close the doors, but have a doctor and an assistant “on call” to handle emergencies as they arise.
Staffing Issues During the Crisis
How should you handle your staff during this unprecedented crisis? While practice operations are severely curtailed, staff will essentially be furloughed for the duration, which is uncertain and could extend well beyond April 6. Meanwhile, their family financial obligations continue and must be met. What to do?
It doesn’t make sense to desert your staff in their time of need, especially since this situation is temporary. Moreover, they’re not working due to no fault of their own. Most practices are providing an upfront payment of 1-2 weeks pay to furloughed staff, which includes their remaining vacation days and any other paid time off (PTO).
While these policies will vary from practice to practice, Congress has stepped in. The coronavirus sick leave bill (H.R. 6201 The Families First Coronavirus Response Act) has been enacted. However, its provisions may provide little, if any sick leave benefits to your staff, as explained in more detail later in this issue.
Reducing Practice Overhead Expenses
The expected drop in practice production will have a huge impact on your practice and personal cash flow. The short-term impact may be buffered somewhat by collections of patient and insurance company receivables. However, your cash flow drain will increase in severity after a month or so, as these receivable collections begin to dwindle. As your practice income drops significantly, you must focus on controlling practice overhead expenses as follows:
- Staff Costs – After the upfront payout discussed above, salaries and wages for furloughed employees will stop and they should become eligible for state unemployment benefits. While state laws regarding unemployment eligibility vary, most are being amended to provide enhanced eligibility for employees that are laid off and unemployed due to the impact of the coronavirus. Furthermore, you’ll need to perform calculations to determine if you’re better off continuing to pay staff and claiming the employee retention tax credit available under the CARES Act. We will discuss this historic legislation very soon.
- Rent – If you don’t own your office, contact your landlord to request a rent abatement until normal practice operations resume. In exchange, agree to pay all rent foregone on a prorated basis over the remaining term of the lease.
- Debt Service – Contact your bank immediately and request that all practice loan repayments be converted to “interest only” until full operations resume. The Federal Reserve and other government regulators jointly approved banks providing such loan modifications, as long as you are current (less than 30 days past due) on your payments, so take action now. Home mortgages are governed by different rules, so making modification to those loans will be more difficult.
- Supply/Lab/Equipment Purchases – Reduce new orders to the absolute minimum amount required until normal operations resume.
- Retirement Plan Contributions – Reduce or stop these until your practice resumes full operations.
You may be able to recoup some, or all, of your lost revenue and profits from your insurance coverage. Coverage is NOT available under your practice business overhead policy, since it is designed to pay overhead expense only in the event of your sickness, injury, or other personal disability.
However, check your general liability insurance policy to see if your business interruption coverage extends to lost profits resulting from a pandemic, and if so, file a claim for reimbursement. Most policies don’t cover damages resulting from viruses or diseases, though coverage may be available if the practice is closed by order of the government or other civil authority. Unfortunately, even if your claim is successful it may take months of negotiation, or even litigation, to recover your losses.
Fortunately, Congress and the President are poised to provide some relief. The massive $2.2 trillion stimulus bill (CARES Act) contains provisions for reimbursement of rent, payroll, and certain other overhead expenses paid.
Access to Cash for Emergencies
While these steps will limit your practice overhead expenses during the time your office is closed, or operations are severely curtailed, you’ll likely still encounter negative cash flow if the crisis continues beyond a month or so. As such, you’ll need access to cash to handle this emergency. Below are the sources you should tap for access to necessary emergency cash, which should be used in the following order:
- Home equity line of credit
- Practice line of credit
- Sale of personal investments—sell bonds which have increased in value during the stock market rout (not stocks), to meet your major emergency cash needs
- Health savings account (HSAs)
- Roth IRAs
- Loan from personal cash
- Loan from your family limited partnership (FLP/ LLC)
- Loan from retirement plan(s) – use these as a last resort since the loan amount is limited to one-half of your vested balance, up to a maximum of $50,000. Repayment must be made in equal monthly payments of principal and interest over a 60-month period from the date of the loan. Unfortunately, if the loan goes into default, the entire loan balance will be treated as taxable income to you.
The McGill Advisory content is provided for informational purposes only and does not constitute legal, accounting, or other professional advice.
Copyright © 2020 John K. McGill & Company, Inc.