- Despite rebounding patient volumes at some health systems, an overall slow and bumpy recovery period is most likely to last into next year, according to analysts with S&P Global Ratings. Operating margins will remain below historic levels for the rest of 2020 and into early 2021.
- The ratings agency took negative action against companies in health sub-sectors facing more sudden and dramatic declines in business and now face less certain paths to recovery than others, such as dental companies, along with physical therapy and ambulatory surgery centers.
- Medical staffing and physician groups were also downgraded or had their outlooks revised, due to major declines in emergency room and doctors office visits coupled with declining demand for anesthesia and radiology services related to delayed surgeries.
Federal relief grants are helping offset major financial losses for some health systems in the short-term, but factors like a second surge causing another total lockdown, rising unemployment and hesitancy from patients as they return to medical settings make long-term prospects unpredictable.
S&P Global Ratings said in a report this week that it took 36 negative actions in health services companies during the pandemic. The most affected sub-sector was dental companies. It also changed outlooks on ambulatory surgery centers given significant volume declines.
Hospitals and home healthcare were rated at moderate to high financial risk, though analysts expect those businesses to recover faster due to the more essential nature of their services, according to the report. And in the short-term, government relief funds will help bolster hospitals’ liquidity as they attempt to return to normal operations and recover from steep losses.
Delayed elective care that’s just restarting in some states led most hospitals to the financial fallout. But even hospitals treating a large number of COVID-19 patients will be hurt, as these patients are expensive to treat due to higher supply and labor costs, the report said.
It also found that nonprofit and for-profit operators could fare differently in their financial recoveries. Non-profit hospitals generally have larger cash reserves than for profit systems, which rely instead almost exclusively on cash flow and borrowings for liquidity.
Providers are relying specifically on the Coronavirus Aid, Relief and Economic Security Act which allocated $100 billion for providers that they don’t have to pay back, though there has been some criticism about how the money was distributed and whether it advantages some providers over others.
A Kaiser Family Foundation report found that CARES funding tends to favor for profit, higher margin hospitals with a higher mix of private payer revenue compared to those that rely on government payers such as Medicare and Medicaid.
Other legislation to help financially struggling health systems include advanced Medicare payments in the form of loans that must be paid back roughly four months after they are received.
The Paycheck Protection and Healthcare Enhancement Act passed in late April gave providers an additional $75 billion, though calculation and distribution methods have yet to be determined.
The U.S. House of Representatives also passed a $3 trillion bill dubbed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act that allocates $100 billion for provider reimbursement and creates special enrollment periods for Medicare and Affordable Care Act plans, though the Trump administration said it’s too soon for additional relief funding.
Lab companies were put in the moderate risk category, and seeing a “40% decline in lab tests net of COVID testing,” S&P said.
Still, it said despite the drop in overall testing for LabCorp and Quest Diagnostics, S&P predicted “their services to become even more important, and for their services to recover reasonably well as testing related to the pandemic continues to grow and as medical procedures and physician visits ramp-up through the rest of the year and into 2021.”