Category Archives: Operating Revenue

2020 State of Healthcare Performance Improvement Report: The Impact of COVID-19

Posted on by • Posted in Coronavirus, Credit Quality, Credit Ratings, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Leadership, Management, Net Income, Nonoperating Income, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue, Operating Room, Pandemic, Telemedicine, Workforce Strategy • Leave a comment

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For the past three years, Kaufman Hall has surveyed hospitals and health systems on their performance improvement and cost transformation efforts. This year, these efforts met an historic challenge with the COVID-19 pandemic.

The pandemic’s impacts have been severe. Entire service lines were shut down as state governments required or strongly encouraged suspension of elective and non-emergency procedures, in part to conserve critical resources—including personal protective equipment—in the early days of the pandemic. Supply chains were disrupted, with organizations that had come to rely on “just in time” inventory practices scrambling to secure the resources needed to ensure the safety of patients and frontline clinical staff. The healthcare workforce came under incredible pressure, confronting a crisis that threatened to overwhelm the health system’s capacity to treat patients.

In a year unlike any other, our annual survey moved away from the questions of earlier years. We have focused on the impacts of COVID-19 on hospital and health system performance. Then, through interviews with survey respondents on the front line of the battle with COVID-19, we have sought to understand how health system leaders are seeking to find a path forward amid uncertainty that will likely stretch through 2021, if not beyond.

Key findings from this year’s report include the following:

  • Financial viability. Approximately three fourths of survey respondents are either extremely (22%) or moderately (52%) concerned about the financial viability of their organization in the absence of an effective vaccine or treatment.
  • Operating margins. One third of our respondents saw year-over-year operating margin declines in excess of 100% from Q2 2019 to Q2 2020.
  • Volumes. Volumes in most service areas are recovering slowly. In only one area—oncology—have a majority of our respondents seen volumes return to more than 90% of pre-pandemic levels.
  • Expenses. A majority of survey respondents have seen their greatest percentage expense increase in the costs of supplying personal protective equipment. Nursing staff labor is in second place, cited by 34% of respondents as their most significant area of expense increase.
  • Healthcare workforce. Three fourths of survey respondents have increased monitoring and resources to address staff burnout and mental health concerns.
  • Telehealth. More than half of our respondents have seen the number of telehealth visits at their organization increase by more than 100% since the pandemic began. Payment disparities between telehealth and in-person visits are seen as the greatest obstacle to more widespread adoption of telehealth.
  • Competition. Approximately one third of survey respondents believe the pandemic has affected competitive dynamics in their market by making consumers more likely to seek care at retail-based clinics.
9 hospitals with strong finances

9 hospitals with strong finances

Posted on by • Posted in Balance Sheet, Cash, Cash Management, Cash Reserves, Credit Quality, Credit Ratings, Financial Ratios, Health System, Hospital, Hospital Industry, Liquidity, Net Income, Nonoperating Income, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Operating Room • Leave a comment

https://www.beckershospitalreview.com/finance/9-hospitals-with-strong-finances-102020.html?utm_medium=email

Here are nine hospitals and 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. St. Louis-based Ascension has an “AA+” rating and stable outlook with Fitch. The system has a strong financial profile and a significant presence in several key markets, Fitch said. The credit rating agency expects Ascension will continue to produce healthy operating margins. 

2. Phoenix-based Banner Health has an “AA-” rating and stable outlook with Fitch and S&P. Banner’s financial profile is strong, even taking into consideration the market volatility that occurred in the first quarter of this year, Fitch said. The credit rating agency expects the system to continue to improve operating margins and to generate cash flow sufficient to sustain strong key financial metrics. 

3. Cincinnati-based Bon Secours Mercy Health has an “AA-” rating and stable outlook with Fitch. The health system has a good payer mix, a leading position in several of its markets and adequate margins to support its growth, Fitch said. The credit rating agency expects the system to maintain strong operating profitability.  

4. Children’s Hospital of Philadelphia has an “Aa2” rating and stable outlook with Moody’s and an “AA” rating and stable outlook with S&P. The hospital has a strong market position and healthy liquidity, Moody’s said. The credit rating agency expects CHOP’s market position and brand equity will support its recovery from disruption caused by COVID-19. 

5. Milwaukee-based Children’s Wisconsin has an “Aa3” rating and stable outlook with Moody’s and an “AA” rating and stable outlook with S&P. The health system has strong cash flow margins, Moody’s said. The credit rating agency expects the health system’s financial performance to remain solid, given its commanding market presence and demand for services. 

6. Philadelphia-based Main Line Health has an “AA” rating and stable outlook with Fitch. The credit rating agency expects the system’s operations to recover after the COVID-19 pandemic and for it to resume its track record of strong operating cash flow margins. 

7. Midland-based MidMichigan Health has an “AA-” rating and stable outlook with Fitch. The system has generated healthy operational levels through fiscal year 2020, and Fitch expects it to continue generating strong cash flow. 

8. Columbus, Ohio-based Nationwide Children’s Hospital has an “Aa2” rating and stable outlook with Moody’s. The system has a strong market position in pediatric services in Columbus and the broad central Ohio region, and its advanced research capabilities will support volume recovery from disruption caused by COVID-19, Moody’s said. The credit rating agency expects Nationwide Children’s margins to remain strong and for cost management initiatives and volume recovery to drive improvements. 

9. Chicago-based Northwestern Memorial HealthCare has an “Aa2” rating and stable outlook with Moody’s. The health system had strong pre-COVID margins and liquidity, Moody’s said. The credit rating agency expects the system to maintain strong operating cash flow margins. 

How to gauge your hospital’s financial health

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https://www.beckershospitalreview.com/how-to-gauge-your-hospital-s-financial-health.html

How to gauge your hospital's financial health

Some rural hospitals that were already struggling are now in serious financial trouble due to the coronavirus.

The suspension of elective surgery and non-urgent care in most states led to an abrupt drop in patient volumes and hospital revenue. That loss, combined with the cost of preparing for COVID-19 protections for patients and employees, has forced rural hospitals into deeper distress. It’s especially important in these challenging circumstances to keep a close eye on key metrics that gauge a hospital’s financial health. By monitoring indicators, creating transparency and responding swiftly to warning signals of financial distress, hospitals can stave off bankruptcy or closure and establish a new path toward long-term sustainability. 

A Shared Responsibility

Signs that a hospital is headed for, or already in, financial distress include obvious indicators such as declining revenues or a dip in patient volume. Although some distress signals seem loud and clear, problems persist at many hospitals due to lack of communication and financial assessment across the enterprise. Too often, it’s left to the CFO to monitor overall financial health by measuring against budgets and recent trends. However, a regular review of key metrics should be a shared responsibility for the entire healthcare leadership team.

Five Data Points to Review

Hospitals may need to adjust key targets to bring them in line with what’s realistically achievable while the pandemic persists, particularly when it comes to productivity, PPE costs and net revenue metrics. Think wisely and as a team about how to reassess targets. The following data points should be monitored regularly. 

  1. Aggregate volume and provider utilization trends. This data can offer a big-picture perspective to leaders and managers across departments.
  2. Operating ratios, including expenses as a percentage of net operating revenue. Make sure costs such as labor, supplies and purchased services remain in check. 
  3. Labor costs relative to patient volume. Measure productivity in each department against department specific staffing targets as well as the overall FTE per adjusted occupied bed target for the hospital as a whole.
  4. Patient revenue indicators. These include bad debt percentage and net to gross percentage by payer class. Are there shifts in payer mix that need to be addressed?
  5. Liquidity ratios. These include net days in patient accounts receivable and cash collections as a percentage of net revenue. What steps can be taken to improve cash flow?

Information Gathering

Hospital leadership should conduct a monthly review of the key measures listed above. In addition, procedures should be put in place by the hospital’s finance department, with input from department managers, to produce accurate monthly stats and financial performance metrics to facilitate these periodic reviews. Annually, take a closer look at these financial indicators, as these will form the basis of strategic planning. 

Federal Funding

The COVID-19 crisis reinforces the need for financial diligence and discipline. Rural hospitals received federal funding to help them during the crisis, and this created another layer of data to monitor. Whether in the form of a CARES Act grant, a PPP loan or some other type of funding, these outlays must be closely controlled, properly managed and restricted in use so the hospital does not run out of cash. In certain cases, the federal government will require hospitals to document the use of funds. For example, for CARES Act stimulus payments, hospitals must provide attestation (quarterly beginning in July) that funds are used for COVID-related costs and COVID-related loss of revenue. In any case, CHC recommends that hospitals set up a tracking system to account for these funds. Download a financial dashboard to help.

Connect the Dots

Regular reviews of financial indicators can identify operational best practices, support strategic planning efforts, create accountability, and, if necessary, redirect financial sustainability efforts. The COVID-19 crisis accelerates the timeline during which financial improvements must be made. 

The most critical element of this entire process is answering, “Why?” This means finding the root causes for financial difficulties. Another critical element is clear communication of expectations and goals across hospital leadership in order to accomplish desired changes. The team, armed with data and clear objectives, can then get to the root of any problems. 

Jefferson Health to cut 500 jobs, reduce executive pay

Posted on by • Posted in Coronavirus, Cost Management, Cost Reduction, Economic Crisis, Economic Recovery, Employee Furlough, Employee Hiring Freeze, Employee Layoffs, Employee Pay Cuts, Executive Compensation, Financially Distressed, Health System, Hospital, Hospital Industry, Job, Job Loss, Job Search, Job Security, Labor Spend Management, Net Income, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Pandemic • Leave a comment

https://www.beckershospitalreview.com/finance/jefferson-health-to-cut-500-jobs-reduce-executive-pay.html?utm_medium=email

Jefferson Aims to Acquire Aria Health

Philadelphia-based Jefferson Health is taking steps to reduce costs to help offset losses tied to the COVID-19 pandemic. 

The 14-hospital system plans to eliminate between 500 and 600 positions through attrition and will cut pay for its “most senior executives,” according to the Philadelphia Business Journal. 

Jefferson Health is making cuts after reporting a net loss of $298.7 million in the fiscal year ended June 30. The system posted a loss after receiving $320 million in grants made available under the Coronavirus Aid, Relief and Economic Security Act to help cover lost revenue and expenses linked to the pandemic, according to The Philadelphia Inquirer.

“As one of the health systems in the United States with the largest amount of Covid patients during the surge, and one of the lowest employee infectivity rates, we took a ‘no expense is too much to protect our employees’ approach with PPE and other measures that drove up short-term expenses,” Stephen Klasko, MD, president of Thomas Jefferson University and CEO of Jefferson Health, told the Philadelphia Business Journal. 

Dr. Klasko said patient volumes are beginning to rebound, and the health system is ahead of budget for fiscal year 2021. 

“We made a conscious decision, as the region’s second-largest employer, to do no furloughs and only very few pre-planned layoffs during the pandemic surge,” Dr. Klasko told the Philadelphia Business Journal. “Due to our financial stewardship and growth over the past five years, our balance sheet was very stable and remains very stable despite the pandemic tsunami.”

In addition to cutting unfilled positions and reducing executive pay, the health system is taking a few other steps to achieve savings, including a pay freeze and a one-year suspension of employer contributions to employee retirements plans beginning Jan. 1. 

Trinity Health’s annual revenue dips to $18.8B

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Major merger

Trinity Health saw revenue decline in fiscal year 2020, and the Livonia, Mich.-based health system ended the period with a loss, according to recently released financial documents. 

Trinity Health saw revenue decline 2.4 percent year over year to $18.8 billion in the 12 months ended June 30. The health system attributed the drop in revenue to the COVID-19 pandemic and the divestiture of Camden, N.J.-based Lourdes Health System in June 2019. 

The 92-hospital system’s expenses were down 1.4 percent year over year in fiscal 2020. Trinity Health took several steps to reduce operating and capital spending in response to the pandemic, including implementing furloughs and reducing salaries for executives. 

Trinity Health reported an operating loss of $344.7 million for fiscal 2020, compared to operating income of $106.8 million a year earlier. 

After factoring in investments and other nonoperating items, Trinity Health posted a net loss of $75.5 million in fiscal 2020, down from net income of $786 million in fiscal 2019. Lower nonoperating gains in the most recent fiscal year were primarily driven by the pandemic’s effect on global investment market conditions, the health system said. 

Approaching a “new normal” for healthcare volumes?

Posted on by • Posted in Consumer Confidence, Coronavirus, Crisis, Crisis Management, Demand, Elective Procedures, Elective Surgery, Health System, Hospital, Hospital Industry, Infection Control, Infection Control Plan, Infectious Virus, Mortality, New Normal, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Outpatient Care, Pandemic • Leave a comment

https://mailchi.mp/45f15de483b9/the-weekly-gist-october-9-2020?e=d1e747d2d8

Eight months into COVID-19, national healthcare volumes are still lagging pre-pandemic levels. The graphic above shows highlights from Strata Decision Technology’s recent analysis of volume data from 275 hospitals nationwide between March and August, and reveals that inpatient, and especially emergency department, volumes are still well below 2019 levels. 

This isn’t surprising. Consumer confidence in healthcare facilities hasn’t changed much since April, with many still reporting feeling unsafe in emergency care and hospital settings. Even some outpatient providers are still seeing lags compared to last year.

While outpatient volume as a whole has rebounded, critical outpatient diagnostics, including mammographies and colonoscopies, are still down significantly, leading to reduced downstream oncology and surgical volume as well, at least in the short-term.
 
COVID-19 is also accelerating the outmigration of high-margin surgical procedures like total knee replacements. Comparing a two-week period in August to the same period last year reveals that inpatient knee procedures are down by nearly 40 percent, while similar outpatient procedures are up over 80 percent.

As Strata Executive Director Steve Lefar said in a recent conversation with Gist Healthcare Daily’s Alex Olgin, these data expose “an elasticity of demand the healthcare industry never even knew existed” and that “the demand curve for healthcare services may be permanently adjusted because people are just changing their behaviors.” 

While we expect volumes will ebb and flow over coming months in step with the local severity of COVID-19, health systems should plan for a longer-term “new normal” with volume below pre-pandemic levels.

New Jersey hospitals are a microcosm of potential COVID-19 financial impact

Posted on by • Posted in 2020 Election Issues, Coronavirus, Credit Quality, Credit Ratings, Financial Viability, Financially Distressed, Health Policy, Health System, Hospital, Hospital Industry, Net Income, Nonoperating Income, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Pandemic, Payor Mix • Leave a comment

https://www.healthcarefinancenews.com/news/new-jersey-hospitals-microcosm-potential-covid-19-financial-impact

What CFOs think about the economic impact of COVID-19

The last time margins sank so deeply into the red was after the Balanced Budget Act of 1997, though today’s margins are faring worse.

COVID-19 continues to have deep and lingering financial impacts on hospitals in New Jersey. A midyear analysis of financial data shows nearly 60% of the state’s hospitals in the red and an average statewide operating margin of negative 4%.

The effects have been profound, and serve as a potential microcosm of the continuing impact of the coronavirus on hospital operating margins nationwide.

The decline in the state is the result of a dual blow of declining revenues and rising expenses, according to the report from the Center for Health Analytics, Research and Transformation at the New Jersey Hospital Association. Officials said the state’s hospitals haven’t experienced this level of fiscal distress in more than 20 years.

In fact, the last time margins sunk so deeply into the red was in the late 1990s. At that time, the Balanced Budget Act of 1997 resulted in significant payment cuts to the state’s hospitals, with margins falling to -1.7% and -2.3% in 1998 and 1999, respectively. And those numbers are not as distressing as the ones being experienced during the public health crisis.

WHAT’S THE IMPACT?

The report, “At Mid-Year, COVID-19’s Financial Wounds Continue for N.J. Hospitals,” shows the impact of continued loss of revenue from the suspension of elective procedures at COVID-19’s peak in the spring, and the slow rebound of patients returning to the hospital.

CHART’s data, comparing June 30, 2019, with June 30, 2020, shows that total patient revenues declined 6.6%. Emergency department cases plummeted 23%, while hospital admissions fell by 8% and outpatient visits dropped by 22%.

An additional aggravating factor is a 12% increase in total operating expenses, because COVID-19 required hospitals to redirect resources to increase staffing; boost supplies of personal protective equipment, pharmaceuticals and ventilators; and modify operations and facilities to expand capacity.

CHART’s analysis takes a closer look at the disruption of elective procedures in New Jersey hospitals and its lingering impact. Governor Phil Murphy’s Executive Order 109, in effect March 27 through May 26, required hospitals to suspend elective procedures during the state’s COVID-19 surge. CHART used claims data for some of the highest-volume elective procedures performed in New Jersey hospitals – bariatric surgery, pacemaker insertion, spinal fusion, knee replacement and hernia repair – to gauge the impact.

In April and May 2019, the state’s hospitals performed these procedures 4,336 times. That number plummeted to just 400 statewide in April and May 2020. The state’s executive order suspending procedures during this time allowed exemptions for cases in which a delay would result in “undue risk to the current or future health of the patient.” 

The year-over-year decline persisted even when the suspension was lifted. In June and July of 2019, 4,194 procedures from the list of high-volume procedures were performed, compared with 3,191 in June and July of 2020.

But the greatest decline in volume by percentage was seen in hospital emergency departments, where cases nosedived 23.4% between June 30, 2019, and June 30, 2020. That has healthcare leaders concerned.

NJHA officials said a hospital turnaround is critical for the statewide recovery from the coronavirus.

“The state’s hospitals pump $25 billion annually into the New Jersey economy and employ 154,000 people,” said NJHA’s Roger Sarao, vice president of economic and financial information and lead author of the CHART report. “They are an essential part of the road to recovery from this public health and economic crisis.”

THE LARGER TREND

The effects of the pandemic on the nation’s hospitals will be long-lasting, especially among nonprofits. A recent Fitch Ratings analysis showed that the full effects have yet to be felt.

The agency predicted that capital spending will be greatly reduced in the initial years post-pandemic, though some of it will ultimately accelerate due to anticipated merger and acquisition activity.

Fitch expects hospitals to take on added expenses to perform the same level of service, and predicts revenue declines from a shift in payer mix.

CommonSpirit Health posts $550M operating revenue loss in fiscal year due to COVID-19

Posted on by • Posted in Coronavirus, Crisis, Crisis Management, Dept of Health and Human Services (HHS), Economic Crisis, Economic Stimulus, Elective Procedures, Elective Surgery, Health Policy, Health System, Medicare Advance Payments, Net Income, Nonoperating Income, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, The CARES Act • Leave a comment
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A financial chart

Hospital system CommonSpirit Health reported operating revenue losses of $550 million during its fiscal year that ended in June, as the COVID-19 pandemic continues to roil patient volumes.

The 137-hospital system reported its financial earnings Friday for the 2020 fiscal year that ended June 30. CommonSpirit’s expenses also surged during the pandemic as more resources were needed to screen visitors and staff.

“Although it varies significantly by division, beginning the middle of March, the COVID-19 pandemic caused up to a 40% slowdown in volumes,” CommonSpirit’s financial report said. “As communities heeded guidelines to avoid hospitals for non-emergent issues, appointment volume, especially for specialty practices, fell and emergency department volume declined.”

CommonSpirit’s patient volumes did rebound after shelter-in-place orders started to be lifted in April and May, but the volumes are still below pre-pandemic levels.

At the end of the system’s fiscal year on June 30, the volumes on adjusted admissions were down 6.2% compared with the 2019 fiscal year.

Adjusted patient days for the fiscal year were also lower than the same period in 2019 by 5.7%.

At the same time, net patient and premium revenues declined by $239 million, or 0.9% over the same period in 2019.

“The decrease is primarily due to the impact of the COVID-19 pandemic and increased charity care, partially offset by a stable payor mix,” the earnings said.

Overall, CommonSpirit recorded an operating loss of $550 million for the 2020 fiscal year, which was an improvement on the $617 million in losses from 2019.

But those 2020 losses ballooned up to $1.4 billion when not taking into account money the system received from a $175 billion provider relief fund Congress set up as part of the CARES Act to help prop up hospitals and other providers.

The system also reported a $1.3 billion decline in earnings before interest, tax, depreciation and amortization and nonoperating income from March through June.

About 62% of the lost EBITDA has been recouped through the CARES Act funding, and another $500 million remains to be regained, CommonSpirit said.

Overall, CommonSpirit has recorded $826 million in money from the provider relief fund. It also got another $2.6 billion from the Medicare Accelerated and Advance Payment Program, which the system will have to repay.

The system anticipates it will defer $410 million in employer payroll taxes to December 2022, a flexibility also afforded under the CARES Act.

“While the aid received from the programs above provides much needed assistance during this crisis, CommonSpirit is unable to assess the extent to which the amounts and benefits received, or to be received, will offset the long-term changes in volumes, payor mix or service mix,” the report said.

The Department of Health and Human Services has more than $50 billion to still give out to hospitals, but some hospital groups say that more money is needed to combat the financial crisis caused by the pandemic. Talks on a new coronavirus relief deal have stalled in Congress.

While some larger for-profit systems such as HCA and Tenet have posted profits thanks to the provider relief funding, other not-for-profit systems such as Trinity Health and some smaller systems have reported struggles with overcoming the new financial crisis.

Lee Health to freeze pay for 13,500 employees

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Tuesday's Headlines: Junior Bankers Watch Out—Pay Freeze May Be Imminent | eFinancialCareers

Fort Myers, Fla.-based Lee Health is freezing salaries for its 13,500 employees next year to help offset financial losses tied to the COVID-19 pandemic, according to the Fort Myers News-Press. 

The pay freeze in 2021 will mark the first time in nine years that the publicly operated health system has not given employee raises. Salaries and benefits make up about half of the system’s nearly $2 billion in spending each year, according to the report.

Lee Health is facing a budget deficit for the first time in two decades due to financial strain linked to the pandemic. The salary freeze is one of several steps the system is taking to offset losses and avoid layoffs. 

The system has halted most capital projects, and its top executives took pay cuts earlier this year. Lee Health will also reduce the match for employee retirement plans from 5 percent to 4 percent next year, and health plan premiums and copays will also increase, according to the report.

Read the full Fort Myers News-Press article here. 

 

 

 

 

Moody’s: Hospital financial outlook worse as COVID-19 relief funds start to dwindle

Posted on by • Posted in ACA, Center for Medicare and Medicaid Services (CMS), Competition, Cost Management, Cost Reduction, Credit Quality, Credit Ratings, Economic Stimulus, Employee Furlough, Employee Hiring Freeze, Employee Layoffs, Employee Pay Cuts, For-Profit, Health System, Hospital, Hospital Industry, Labor Spend Management, Market Outlook, Market Trends, Market Uncertainty, Medicaid, Medicaid Expansion, Net Income, Nonoperating Income, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Outpatient Care, Outpatient Surgery, Payor Mix, Personal Protective Equipment (PPE), Supply Chain, Surgery, Surgery Center, The CARES Act • Leave a comment

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For-profit hospitals are expected to see a financial decline over the next 12 to 18 months as federal relief funds that shored up revenue losses due to COVID-19 start to wane, a recent analysis from Moody’s said.

The analysis, released Monday, finds that cost management is going to be challenging for hospital systems as more surgical procedures are expected to migrate away from the hospital and people lose higher-paying commercial plans and go to lower-paying government programs such as Medicaid.

“The number of surgical procedures done outside of the hospital setting will continue to increase, which will weaken hospital earnings, particularly for companies that lack sizeable outpatient service lines (including ambulatory surgery centers),” the analysis said.

A $175 billion provider relief fund passed by Congress as part of the CARES Act helped keep hospital systems afloat in March and April as volumes plummeted due to the cancellation of elective procedures and reticence among patients to go to the hospitals.

Some for-profit systems such as HCA and Tenet pointed to relief funding to help generate profits in the second quarter of the year. The benefits are likely to dwindle as Congress has stalled over talks on replenishing the fund.

“Hospitals will continue to recognize grant aid as earnings in Q3 2020, but this tailwind will significantly moderate after that,” Moody’s said.

Cost cutting challenges

Compounding problems for hospitals is how to handle major costs.

Some hospital systems cut some costs such as staff thanks to furloughs and other measures.

“Some hospitals have said that for every lost dollar of revenue, they were able to cut about 50 cents in costs,” the analysis said. “However, we believe that these levels of cost cuts are not sustainable.”

Hospitals can’t cut costs indefinitely, but the costs for handling the pandemic (more money for personal protective equipment and safety measures) are going to continue for some time, Moody’s added.

“As a result, hospitals will operate less efficiently in the wake of the pandemic, although their early experiences in treating COVID-19 patients will enable them to provide care more efficiently than in the early days of the pandemic,” the analysis found. “This will help hospitals free up bed capacity more rapidly and avoid the need for widespread shutdowns of elective surgeries.”

But will that capacity be put to use?

The number of surgical procedures done outside of the hospital is likely to increase and will further weaken earnings, Moody’s said.

“Outpatient procedures typically result in lower costs for both consumers and payers and will likely be preferred by more patients who are reluctant to check-in to a hospital due to COVID-19,” the analysis said.

The payer mix will also shift, and not in hospitals’ favor. Mounting job losses due to the pandemic will force more patients with commercial plans toward programs such as Medicaid.

“This will hinder hospitals’ earnings growth over the next 12-18 months,” Moody’s said. “Employer-provided health insurance pays significantly higher reimbursement rates than government-based programs.”

Bright spots

There are some bright spots for hospitals, including that not all of the $175 billion has been dispersed yet. The CARES Act continues to provide hospitals with a 20% add-on payment for treating Medicare patients that have COVID-19, and it suspends a 2% payment cut for Medicare payments that was installed as part of sequestration.

The Centers for Medicare & Medicaid Services also proposed increasing outpatient payment rates for the 2021 fiscal year by 2.6% and in-patient rates by 2.9%. The fiscal year is set to start next month.

Patient volumes could also return to normal in 2021. Moody’s expects that patient volumes will return to about 90% of pre-pandemic levels on average in the fourth quarter of the year.

“The remaining 10% is likely to come back more slowly in 2021, but faster if a vaccine becomes widely available,” the analysis found.