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Analysis

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

By Jack O'Brien  
   April 24, 2020

Many for-profit health systems had 'good or very good' liquidity ahead of the pandemic, according to Moody's Investors Service.

For-profit hospital companies will benefit from a boost of financial liquidity thanks to an additional $75 billion in relief funding from the federal government, according to a Moody's Investors Service report released Friday morning.

This week, both the Senate and House passed a $484 billion package aimed at providing relief to small businesses and hospitals. The additional relief bill came less than a month after President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2.2 trillion stimulus package which included over $100 billion for hospitals.

The Moody's report stated that the additional $75 billion will serve as a "much needed lifeline for hospitals and other healthcare providers," as organizations brace for the financial crunch posed by the coronavirus disease 2019 (COVID-19) pandemic to continue through Q2.

The report was released one day after a Health Affairs study estimated that the cost of providing care to patients infected with COVID-19 could eclipse $654 billion.

"For-profit hospitals' ability to manage their liquidity will be especially crucial over the next few quarters, as the effects of the coronavirus remain largely unknown," the report stated. "Hospitals' ability to return to normal business conditions will depend in part on the U.S. adding significantly more testing capacity and increasing the availability of personal protective equipment (PPE). It will also depend on patients' financial ability and psychological willingness to reschedule elective procedures when they are permitted to do so."

Related: Despite Federal COVID-19 Stimulus, Many Hospitals Could Face Layoffs Within Two Month

While the passage of the CARES Act was welcomed by provider organizations, leaders have said the initial payments were insufficient to cover the lost revenues from temporarily canceling elective surgeries.

According to an American Medical Group Association (AMGA) survey released this week, two-thirds of integrated health system leaders said the payments distributed by the CARES Act will only account for less than a week of revenues.

Starting today, the federal government will dispense the remaining $20 million from the $50 billion CARES Act Provider Relief Fund.

AMGA estimates that health systems will require as much as $318 billion in additional funding to replace half of the projected revenue losses in the next four months.

Related: Hospital EBITDA Margins Fell 13 Percentage Points Year-Over-Year in March

Compared to nonprofit providers, many for-profit health systems had 'good or very good' liquidity ahead of the pandemic, according to Moody's.

Other than Quorum Health Corp., which filed for Chapter 11 bankruptcy earlier this month, Moody's noted that 11 for-profit hospital companies had an aggregate of $11.5 billion in cash and revolver availability at the end of 2019, while exiting last month with "similarly strong liquidity."

The Moody's report also highlighted the steps for-profit providers have already taken to enhance their strong liquidity, including Tenet Healthcare Corp.'s issuance of $700 million in new senior secured debt and HCA Healthcare's execution of a $2 billion 364-day term loan facility.

Looking ahead, the ratings agency stated that while for-profit hospitals will have to face high fixed costs in order to continue to staff departments within their facilities, patients volumes are slated to return "relatively quickly" due to a "pent-up demand for healthcare services and medical procedures."

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


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