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Analysis

Moody's: Texas Suspending Elective Surgeries is Credit Negative for Hospitals

By Jack O'Brien  
   July 01, 2020

Moody's stated that the decision to suspend elective procedures will "dampen earnings from facilities in those counties and slow companies' overall recovery."

The expanded suspension of elective surgeries in Texas due to a recent spike in coronavirus disease 2019 (COVID-19) cases is credit negative for for-profit hospitals across the Lone Star State, according to a Moody's sector comment published Monday afternoon.

Gov. Greg Abbott issued an executive order Monday to expand the suspension of elective surgeries to four more counties: Cameron, Hidalgo, Nueces, and Webb.

Last week, Abbott suspended elective surgeries in Bexar, Dallas, Harris, and Travis counties as a way to expand hospital capacity and handle a recent surge in COVID-19 hospitalizations.

Related: DFW Hospital Council CEO: 'We Have the ICU Capacity Needed' to Treat COVID-19 Patients

Moody's stated that the decision to suspend elective procedures, typically a main revenue generator for hospitals and health systems, will "dampen earnings from facilities in those counties and slow companies' overall recovery."

"Today's expansion of Texas' executive order to suspend non-essential elective surgeries at hospitals in several counties is credit negative for rated for-profit hospital companies that operate in these locations," Jonathan Kanarek, a Moody’s vice president-senior credit officer, said in a statement. "Since elective surgeries are a primary source of profit for acute care hospitals, a sustained pause on elective surgeries in those counties or an expansion to others in Texas would weaken revenue and profit for a number of for-profit hospitals."

According to Moody's, the provider organizations facing the greatest exposure due to the executive order are HCA Healthcare, AHP Health Partners, Universal Health Services, Tenet Healthcare, and Community Health Systems

Related: $75B Relief Bill Provides 'Much-Needed Lifeline' to For-Profit Hospitals

Moody's noted that the executive order allows physicians flexibility to decide which procedures are "medically necessary" and does not apply to ambulatory surgery centers, providing health systems an opportunity to conduct some procedures in an outpatient setting.

However, the ratings agency expects the action will disrupt what had been "the beginning of a healthy recovery" of hospital volumes after the drop-off from earlier this spring.

Related: Memorial Hermann CEO Confident Houston-area Hospital System Has Capacity to Respond to Coronavirus Surge

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.

Photo credit: Houston TX/USA - April 17, 2020: Texas Children's, the world's largest children's hospital, is non-profit and located in the Houston Medical Center / Editorial credit: Patrish Jackson / Shutterstock.com


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