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US hospitals' losses likely to bleed into Q2 after COVID-19 hit volume in Q1

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US hospitals' losses likely to bleed into Q2 after COVID-19 hit volume in Q1

Executives for top U.S. hospital companies warned that first-quarter declines in the volume of procedures and admissions following the coronavirus pandemic will continue into the second quarter, with business not likely returning to pre-pandemic levels for months.

HCA Healthcare Inc., Universal Health Services Inc. and Tenet Healthcare Corp. all reported a similar trend during their first-quarter earnings calls: Patient and surgery volumes substantially declined in the last two weeks of March as the pandemic intensified in the U.S and elective care dropped off.

Executives from each company said losses continued and, in some cases, worsened in April. Due to the uncertainty from the crisis, all three companies pulled 2020 financial guidance.

Tenet Chairman and CEO Ronald Rittenmeyer said during a May 5 earnings call that the company withdrew its forecast because it is "simply impossible to put any reasonable framework together."

Each company attributed losses primarily to the deferral of nonemergent or elective care, a strategy implemented across the industry to conserve resources like hospital beds and supplies.

However, some hospitals get as much as 50% of their revenue from elective procedures, and some smaller providers are even more reliant on elective services, said Rick Gundling, senior vice president of healthcare financial practices for the Healthcare Financial Management Association, in an interview.

That has had repercussions for employment in the hospital industry, which lost nearly 135,000 jobs in April, one of the worst losses of any subindustry in the healthcare sector.

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The number of patients accessing hospital care in the U.S. declined by 54.5% between March 22 and April 4, according to a May 11 study from Strata Decision Technology, which provides data and analytics to the healthcare industry.

Ophthalmology and spine service lines dropped by 81% and 76% over the period studied compared to a similar period in 2019, respectively, according to estimates in the report. Other significantly affected service lines include gynecology, with a 75% decline in services compared to the prior year, and orthopedics, with a 74% drop.

Inpatient surgeries, which account for the majority of hospitals' revenue, saw steep declines as well, according to the report. Knee replacement surgeries dropped by 99% compared to the prior year, lumbar/thoracic spinal fusion dropped by 81% and hip replacement surgeries dropped by 79%.

The 228 hospitals studied over the two-week period lost an estimated $1.3 billion in revenue compared to the prior year, according to the report. Projecting for hospitals nationwide, the report stated this was equivalent to the industry losing $60.1 billion per month.

Overall, the hospital industry could lose as much as $161.4 billion by June from the decline in elective care and other services, according to a recent projection from the American Hospital Association, an industry trade group.

Along with losses in revenue from surgeries, hospitals' costs have increased for supplies and in preparation for possible patient surges, according to Gundling.

Rittenmeyer said prices for personal protective equipment have increased by five to seven times what is normally contracted.

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Relief funds; restarting services

Congress has approved $175 billion in economic relief funds for hospitals and healthcare providers, including $100 billion in the Coronavirus Aid, Relief and Economic Security Act, or CARES Act.

Hospitals can also get accelerated or advanced Medicare payments to help offset losses, which has provided even greater liquidity for companies.

For example, HCA reported receiving $700 million in CARES Act funds and $4 billion in accelerated Medicare payments. Similarly, Tenet said it received $345 million in CARES Act money and about $1.5 billion in advanced payments.

Unlike the relief funds, however, the Medicare payments must be repaid.

As the pandemic continues, and if elective care is slow to come back, the government may need to delay or even cancel some repayment plans, said Jonathan Kanarek, vice president and senior credit officer for Moody's Investors Service, in an interview.

The accelerated payment plan for Medicare part B suppliers, which includes hospitals, is being re-evaluated given the second round of relief funds from Congress, the U.S. Centers for Medicare and Medicaid Services said April 26.

Both Kanarek and Gundling believe that the total $175 billion will not sufficiently offset losses and more relief funds will be needed.

Executives from HCA, Universal Health and Tenet each laid out a plan for restarting elective care, with Tenet reporting that services restarted in 18 of its 20 hospital markets.

Rittenemeyer said that in regions with enough facilities, Tenet will dedicate specific hospitals to treat patients with COVID-19, the illness caused by the coronavirus. He added that in regions with a limited number of hospitals, the company will dedicate specific wings or floors of hospitals to treat COVID-19 patients.

HCA CEO Samuel Hazen said on an April 21 earnings call that services would pick up in the back half of the second quarter across the U.S. but cautioned that the speed of recovery would vary by market.