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S&P: For-profit hospitals may weather procedure cancellations amid COVID-19


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S&P: For-profit hospitals may weather procedure cancellations amid COVID-19

Most for-profit hospitals should have enough liquidity to overcome the next three to six months of volume declines as the coronavirus pandemic continues to stress health systems and take a toll on the U.S. economy, according to S&P Global Ratings analysts.

David Peknay, director of corporate healthcare ratings for Ratings, said during a March 26 webcast that for-profit hospitals could face as much as a 20% drop in admissions primarily from the canceling of elective procedures due to the accelerating U.S. outbreak.

"We will see unprecedented volume decline in a very short time frame," Peknay said. "It's already happening."

However, most hospital companies should be able to recover from the setback in the short-term, according to Peknay.

"As of now, we think that most of the hospital companies that we rate do have the liquidity to overcome the temporary dislocation that they now face in three-month and six-month periods," Peknay said, adding that the situation is subject to unknown factors.

HCA Healthcare Inc., Universal Health Services Inc. and Tenet Healthcare Corp. are among the largest for-profit hospital chains in the U.S.

He said that the analysts' models are for the short term only, and he did not look beyond a six-month window. Peknay also said that rating outlooks could be revised if tactics like social distancing can calm the surge in patients with COVID-19, the respiratory illness caused by the virus.

At least 79,785 COVID-19 cases and 1,124 deaths have been confirmed in the U.S. as of March 26, according to a tracker from Johns Hopkins University's Center for Systems Science and Engineering.

White House officials and federal agencies have asked hospitals to cancel elective procedures, and companies have begun implementing this strategy.

The Centers for Medicare and Medicaid Services said that canceling elective procedures can help reduce patient volumes, focus resources on treating COVID-19 patients and help limit the use of personal protective equipment, some of which is in short supply in the U.S.

RBC Capital Markets analysts Frank Morgan and Anton Hie said in a March 19 report that elective procedures are typically more lucrative than other treatments. The analysts believe that the loss from the procedures will be temporary and expect procedures to be rescheduled.

Moody's Investors Service downgraded the for-profit hospital sector from stable to negative March 19, citing the loss of the more profitable elective procedures as a top reason.

The not-for-profit sector has also experienced a recent rating change. Moody's downgraded the not-for-profit healthcare and public sector from stable to negative March 18, and S&P Global Ratings did the same for the not-for-profit acute care sector March 25.

Hospital stocks make slight rebound

Much like the rest of the stock market, hospital companies' share prices have taken a hit as the outbreak increased in the U.S.

HCA Healthcare, Tenet Healthcare and Universal Health all suffered stock price drops beginning in late February.

Each of these companies has seen a small rebound, most recently on March 25 as Congress finalized a roughly $2 trillion emergency economic stimulus package.

Tenet Healthcare's stock price was up by 2.67% at market close March 26. Universal Health's and HCA Healthcare's stock prices were up by 4.42% and 1.99%, respectively, at market close March 26.

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The Senate passed the stimulus package on March 25, and the U.S. House of Representatives could vote on the bill as early as March 27. If passed, hospitals could see about $100 billion in emergency funding.

Among other benefits, the stimulus package would increase Medicare payments for COVID-19 treatments by 20% and delay certain Medicaid spending cuts.

Rick Pollack, president and CEO of the American Hospital Association, one of the country's largest hospital industry groups, praised in the bill in a March 25 emailed statement but said that more will still need to be done to protect hospitals financially.

Risk to subsectors

Jeff Loo, associate director with S&P Global Ratings, said March 26 that subindustries like ambulatory surgical centers, dental service organizations and physical therapy providers are vulnerable even in the short term.

Loo said these businesses share three characteristics that place them at greater risk: the bulk of their revenue is one line of business; they provide services that are typically deemed elective; they are already low-rated companies.

Liquidity and cash flow will be the most important factors for these companies as the outbreak continues, according to Loo.

"Do these companies have enough cash to survive?" he said. "That's the bottom line."

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.