COVID-19 pushes Mayo Clinic’s operating income into free fall

Farrugia calls 2019 'a year of remarkable growth' as Mayo reports ...

Dive Brief:

  • Prior to the onset of the novel coronavirus, Mayo Clinic was cruising along with a healthy operating margin of 6.7% during the first two months of the quarter. But by the close of the period, the operating margin was squeezed to just 0.9% while net operating income fell off a cliff, free falling 88% to $29 million compared to the first quarter of 2019.
  • Due to contracting services and the near closure of its outpatient business in response to the pandemic, revenues for the quarter declined nearly 4% while expenses rose 3% compared to the prior-year period.
  • The fluctuation in the financial markets caused a downturn in Mayo’s investment portfolio, leading to an overall net loss of $623 million for the Rochester, Minnesota-based nonprofit health system.

Dive Insight:

Mayo Clinic is the latest hospital operator to report it first quarter results have been battered by the pandemic.

The system, which took in more than $1 billion in operating income in 2019, joins other major hospital operators that reported a dip in volumes amid the public health crisis, including HCA and CommonSpirit.

The second quarter is not likely to look better, according to Fitch Ratings. The second quarter looks bleak as the ratings agency issued an ominous report predicting it would be the “worst on record” for most nonprofit hospitals.

Yet, some of the for-profit hospital operators see May as the beginning of the recovery. Both Tenet and CHS executives seemed upbeat about the prospects for this month, noting it was the start of resuming elective procedures that had been put off.

Despite the hospital sector as a whole taking a major hit from the pandemic, big wealthy systems like Mayo have significant rainy day funds. Mayo reported cash and investments of more than $10.6 billion as of March 30 with 252 days cash on hand.

In April, Mayo issued a voluntary notice about how the virus was taking on its business, noting reduced salaries for executives and physicians, furloughs and a hiring freeze, among other efforts.​

In its first quarter report, Mayo detailed the ways in which it’s tackling the novel coronavirus on the medical front, including leading a program, approved by the FDA, that gives severely sick COVID-19 patients plasma from those who were previously sickened but have since recovered from the virus.

Mayo said it’s preparing the program’s first safety report on the first 5,000 patients to receive the infusion. As of May 12, more than 9,300 patients have been infused, Mayo said.

The system also runs COVID-19 testing, and said it is now able to administer 8,500 molecular tests and 20,000 serologic tests, which look for antibodies to the virus in those that may have been previously infected, daily.



CommonSpirit posts $1.4B loss, says full COVID-19 impact unknown

Locations | CommonSpirit Health

Dive Brief:

  • CommonSpirit Health, sprung from last year’s merger of California-based Dignity Health and Colorado-based Catholic Health Initiatives, reported a loss topping $1.4 billion in the fiscal third quarter ending March 31, although adjusted revenues were flat compared to the third quarter of 2019. The biggest proportion of losses were tied to investments, as its portfolio dropped in value by nearly $1.1 billion. Its total net assets are down nearly $2.5 billion from a year ago.
  • Like many other hospital systems, CommonSpirit reported a drop in patient volumes that began in mid-March as states began issuing lockdown orders. Acute admissions dropped more than 5% for the quarter compared to a year ago.
  • CommonSpirit did receive more than $700 million in Coronavirus Aid, Relief, and Economic Security Act funds, although since it was received on March 31 it will be booked into its fiscal fourth quarter financial statements. The system received another $2.6 billion in accelerated payments from CMS and anticipates receiving another $410 million in disaster relief funding and from the Paycheck Protection Program.​

Dive Insight:

The COVID-19 pandemic is continuing to ravage the bottom lines of providers, and the nation’s largest not-for-profit hospital system, CommonSpirit Health, is no exception.

Its first full year as a unified system is 2020, and the COVID-19 pandemic is challenging the 134-hospital organization in ways it likely never anticipated. Admissions are down for the foreseeable future, coupled with the need to spend tens of millions of dollars on personal protective equipment, respirators and to divert a significant amount of resources toward treating coronavirus patients.

Fitch Ratings said COVID-19 is to blame for the worst second quarter for most U.S. hospitals and systems.

For the third quarter of 2020, CommonSpirit reported an operating loss of $145 million, compared to a pro forma $124 million loss reported by Dignity and CHI for the first quarter of 2019.

CommonSpirit posted a net loss of $1.4 billion for the third quarter, compared to a pro forma net gain of $9.7 billion for the third quarter of 2019. However, $9.2 billion of that came from what CommonSpirit termed a “contribution from business combination,” the net assets received from both parties by merging with one another. For the first nine months of fiscal 2020, CommonSpirit lost $1.1 billion on revenue of $22.4 billion, compared to a net gain of $9.5 billion on revenue of $21.6 billion over the same period in fiscal 2019.

And despite receiving some $3.7 billion in federal assistance, CommonSpirit said in its quarterly financial disclosures that it remains too soon to tell what the impact of COVID-19 will be on the organization over the long-term.

Prior to the pandemic, CommonSpirit’s financial position was trending stronger compared to its pre-merger state. Seven of its 14 operating divisions reported a jump in revenue during the quarter compared to 2019.





Fitch Q2 outlook for nonprofit hospitals: ‘worst on record’

Nicklaus Children's Health System Receives A+ Rating from Fitch ...

From the Mayo Clinic to Kaiser Permanente, nonprofit hospitals are posting massive losses as the coronavirus pandemic upends their traditional way of doing business.

Fitch Ratings analysts predict a grimmer second quarter: “the worst on record for most,” Kevin Holloran, senior director for Fitch, said during a Tuesday webinar.​

Over the past month, Fitch has revised its nonprofit hospital sector outlook from stable to negative. It has yet to change its ratings outlook to negative, though the possibility wasn’t ruled out.

Some have already seen the effects. Mayo estimates up to $3 billion in revenue losses from the onset of the pandemic until late April — given the system is operating “well below” normal capacity. It also announced employee furloughs and pay cuts, as several other hospitals have done.

Data released Tuesday from health cost nonprofit FAIR Health show how steep declines have been for larger hospitals in particular. The report looked at process claims for private insurance plans submitted by more than 60 payers for both nonprofit and for-profit hospitals.

Facilities with more than 250 beds saw average per-facility revenues based on estimated in-network amounts decline from $4.5 million in the first quarter of 2019 to $4.2 million in the first quarter of 2020. The gap was less pronounced in hospitals with 101 to 250 beds and not evident at all in those with 100 beds or fewer.

Funding from federal relief packages has helped offset losses at those larger hospitals to some degree.

Analysts from the ratings agency said those grants could help fill in around 30% to 50% of lost revenues, but won’t solve the issue on their own.

They also warned another surge of COVID-19 cases could happen as hospitals attempt to recover from the steep losses they felt during the first half of the year.

Anthony Fauci, the nation’s top infectious disease expert, warned lawmakers this week that the U.S. doesn’t have the necessary testing and surveillance infrastructure in place to prep for a fall resurgence of the coronavirus, a second wave that’s “entirely conceivable and possible.”

“If some areas, cities, states or what have you, jump over these various checkpoints and prematurely open up … we will start to see little spikes that may turn into outbreaks,” he told a Senate panel.

That could again overwhelm the healthcare system and financially devastate some on the way to recovery.

“Another extended time period without elective procedures would be very difficult for the sector to absorb,” Holloran said, suggesting if another wave occurs, such procedures should be evaluated on a case-by-case basis, not a state-by-state basis.

Hospitals in certain states and markets are better positioned to return to somewhat normal volumes later this year, analysts said, such as those with high growth and other wealth or income indicators. College towns and state capitols will fare best, they said.

Early reports of patients rescheduling postponed elective procedures provide some hope for returning to normal volumes.

“Initial expectations in reopened states have been a bit more positive than expected due to pent up demand,” Holloran said. But he cautioned there’s still a “real, honest fear about returning to a hospital.”

Moody’s Investors Service said this week nonprofit hospitals should expect the see the financial effects of the pandemic into next year and assistance from the federal government is unlikely to fully compensate them.

How quickly facilities are able to ramp up elective procedures will depend on geography, access to rapid testing, supply chains and patient fears about returning to a hospital, among other factors, the ratings agency said.

“There is considerable uncertainty regarding the willingness of patients — especially older patients and those considered high risk — to return to the health system for elective services,” according to the report. “Testing could also play an important role in establishing trust that it is safe to seek medical care, especially for nonemergency and elective services, before a vaccine is widely available.”

Hospitals have avoided major cash flow difficulties thanks to financial aid from the federal government, but will begin to face those issues as they repay Medicare advances. And the overall U.S. economy will be a key factor for hospitals as well, as job losses weaken the payer mix and drive down patient volumes and increase bad debt, Moody’s said.

Like other businesses, hospitals will have to adapt new safety protocols that will further strain resources and slow productivity, according to the report.​

Another trend brought by the pandemic is a drop in ER volumes. Patients are still going to emergency rooms, FAIR Health data show, but most often for respiratory illnesses. Admissions for pelvic pain and head injuries, among others declined in March.

“Hospitals may also be losing revenue from a widespread decrease in the number of patients visiting emergency rooms for non-COVID-19 care,” according to the report. “Many patients who would have otherwise gone to the ER have stayed away, presumably out of fear of catching COVID-19.”




Quantifying the massive blow to hospital volumes

Even after hearing dozens of reports from health systems about how steep their COVID-related volume losses have been, we were still floored by this analysis from healthcare analytics firm Strata Decision Technology, documenting a 55 percent drop in patients seeking hospital care across the country.

The report, which analyzed data from 228 hospitals in 51 health systems across 40 states, found that no clinical service line was immune from steep volume losses. The graphic below shows volume loss by service line in March-April 2020 compared to the same period in 2019.

Unsurprisingly, ophthalmology, gynecology, ortho/spine and ENT—all specialties with a high portion of elective cases, and heavily dependent on procedures—saw volume declines of greater than 70 percent. But even obstetrics and neonatology (which we expected to be “pandemic proof”) and infectious disease (which we thought might be busier in the throes of COVID-19) saw losses of 20-30 percent.

Looking at specific procedures, complex elective surgeries like spinal fusion and hip and knee replacements were almost completely obliterated. Precipitous declines in encounters for chronic diseases like coronary heart disease and diabetes (down 75 and 67 percent, respectively) and cancer screenings (a 55 percent decline in breast health and a 37 percent decline in cancer care overall) point to the likelihood of worrisome disease exacerbations, and a future full of more complex patients.

The volume losses, plus a 114 percent rise in uninsured patients, led to average two-week losses of $26.5M per health system across the study’s cohort. Strata will continue to track and publish volume changes, but this early snapshot paints a bleak picture of staggering financial hits, and “lost” patient care that will carry lasting ramifications for the health of communities nationwide.





16 latest hospital credit rating downgrades

20 recent hospital, health system outlook and credit rating ...

The following 16 hospital and health system credit rating downgrades occurred since March 1. They are listed below in alphabetical order.

1. Boulder (Colo.) Community Health — from “A2” to “A3” (Moody’s Investors Service)

2. Butler (Pa.) Health System — from “Baa1” to “Baa2” (Moody’s Investors Service)

3. Catholic Health System (Buffalo, N.Y.) — from “Baa1” to “Baa2” (Moody’s Investors Service)

4. Catholic Medical Center (Manchester, N.H.) — from “Baa1” to “Baa2” (Moody’s Investors Service)

5. Hutchinson (Kan.) Regional Medical Center — from “Baa3” to “Ba1” (Moody’s Investors Service)

6. Magnolia Regional Health Center (Corinth, Miss.) — from “Ba3” to “B1” (Moody’s Investors Service)

7. Marshall Medical Center (Placerville, Calif.) — from “BBB-” to “BB+” (Fitch Ratings)

8. Prisma Health (Greenville, S.C.) — from “A2” to “A3” (Moody’s Investors Service)

9. Quorum Health (Brentood, Tenn.) — from “Caa2” to “Ca” (Moody’s Investors Service)

10. SoutheastHealth (Cape Girardeau, Mo.) — from “Baa3” to “Ba1” (Moody’s Investors Service)

11. Sutter Health (Sacramento, Calif.) — from “Aa3” to “A1” (Moody’s Investors Service); from “AA-” to “A+” (S&P Global Ratings)

12. University of Vermont Health Network (Burlington) — from “A2” to “A3” (Moody’s Investors Service)

13. UPMC (Pittsburgh) — from “A+” to “A” (Fitch Ratings); from “A1” to “A2” (Moody’s Investors Service)

14. Virginia Mason Medical Center (Seattle) — from “Baa2” to “Baa3” (Moody’s Investors Service)

15. Washington County (Calif.) Health Care District — from “Baa1” to “Baa2”  (Moody’s Investors Service)

16. Wood County Hospital (Bowling Green, Ky.) — from “Ba2” to “Ba3” (Moody’s Investors Service)





9 health systems with strong finances

Here are nine health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.

1. Advocate Aurora Health, which has dual headquarters in Milwaukee and Downers Grove, Ill., has an “Aa3” rating and positive outlook with Moody’s and an “AA” rating and stable outlook with S&P. Moody’s said it expects Advocate Aurora to maintain low leverage, a favorable liquidity position and healthy long-term margins, despite the near-term impact from COVID-19.

2. Phoenix-based Banner Health has an “AA-” rating and stable outlook with Fitch and an “AA-” rating and stable outlook with S&P. The health system has a strong financial profile and growing financial stability in its insurance division, Fitch said. Notwithstanding the impact from the COVID-19 pandemic, Fitch expects Banner’s improvement to operating margins will resume and continue to support spending levels and liquidity growth.

3. Clearwater, Fla.-based BayCare Health System has an “Aa2” rating and stable outlook with Moody’s. The health system has strong operating performance and favorable balance sheet metrics, Moody’s said. The credit rating agency expects the health system to maintain strong liquidity and to move quickly with capital expansion.

4. Cincinnati-based Bon Secours Mercy Health has an “AA-” rating and stable outlook with Fitch. The health system has a broad geographic footprint, a good payer mix and a strong financial profile, Fitch said. The credit rating agency anticipates that Bon Secours Mercy Health will increase capital spending over the next three years due to strategic investments in its expanded markets.

5. Omaha, Neb.-based Children’s Hospital and Medical Center has an “AA-” rating and stable outlook with Fitch. The hospital has a dominant market position as the only comprehensive pediatric provider in Nebraska, and its operating cash flow levels are robust enough to absorb any short-term pressure related to the COVID-19 pandemic, Fitch said.

6. Naples, Fla.-based NCH Healthcare System has an “AA-” rating and stable outlook with Fitch. The health system has a strong financial profile, robust operating performance and a leading market position in a favorable service area, Fitch said.

7. Stanford (Calif.) Health Care has an “Aa3” rating and stable outlook with Moody’s. The health system has unique clinical offerings and a strong reputation for patient care and research, Moody’s said. The credit rating agency expects Stanford Health Care to maintain strong patient demand and grow absolute cash flow over the next several years.

8. West Des Moines, Iowa-based UnityPoint Health has an “AA-” rating and stable outlook with Fitch. The health system has strong leverage metrics and regional diversification, Fitch said. The credit rating agency expects the system’s cash flow margins to return to levels of at least 7 percent beyond early 2021 after declining in 2020 due to the COVID-19 pandemic.

9. Arlington-based Virginia Hospital Center has an “AA-” rating and stable outlook with Fitch. The credit rating agency expects Virginia Hospital Center’s strong operating performance to continue after the market recovers from the COVID-19 pandemic.