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Analysis

Fitch says CARES Act Paybacks Won't Be a Problem for Nonprofit Hospitals

By John Commins  
   September 15, 2020

The bond rater said the repayments would only be problematic for hospitals "if there is a significant rise in infections that results in another round of elective procedure curtailment."

The looming repayment of billions of dollars in federal pandemic emergency loans is not expected to "materially affect" the finances of not-for-profit healthcare providers, Fitch Ratings says.

The money, essentially six months of advanced payments under the Medicare Accelerated and Advance Payment Programs, is part of the massive $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, a stopgap for hospitals that saw nonemergency procedures and services grind to a halt this spring because of the pandemic.

"Providers' ratings are supported by ample liquidity and Fitch's expectations are for a long-term volume recovery due to the essential nature of services," the bond rating agency said in a brief Tuesday.

"Liquidity will gradually decline as advances are repaid but full and timely repayment is part of our rating assumptions for all issuers and we anticipate most providers will ultimately maintain liquidity profiles consistent with current rating levels based on our expectations for continued volume recovery in the hospital sector," Fitch said.

The Medicare payment advances under the AAP account for about 10% of unrestricted liquidity for some hospitals, Fitch said, "although this increases to almost 30% for some issuers with lower levels of liquidity.

"In terms of total revenues, funds under the AAP range from a low of around 5% of total revenues to around 15%, depending on a hospital’s commensurate amount of Medicare revenue," Fitch said.

The pandemic shut down nonessential care delivery in most parts of the United States, robbing hospitals of revenue from money-making elective procedures and shredding patient volumes to ration personal protective equipment and prepare for a surge of COVID-19 patients.

The American Hospital Association estimates that hospitals will lose about $323 billion in 2020 because of the pandemic.

Fitch said the repayments, which would come in the form of reduced Medicare reimbursements, would only be problematic for hospitals "if there is a significant rise in infections that results in another round of elective procedure curtailment."

That does not seem to be a problem right now. Fitch notes that not-for-profit hospitals are already seeing a strong recovery in elective patient volumes that are about 80% to 90% of pre-pandemic levels.

"While there is still some patient hesitancy to seek non-coronavirus medical care, particularly visits to the emergency department, we believe that a return to near pre-coronavirus levels are possible by year’s end," Fitch said, adding that "downside risks remain given the volatile nature of the coronavirus itself."

The repayment timeline for the Medicare advances was extended by Congress and may be extended again. Some lawmakers have suggested forgiving the loans and converting them into grants under a new federal coronavirus aid package.

However, Congress is at loggerheads over a new pandemic relief package, and loan repayments are expected to begin soon, Fitch said.  

“Providers' ratings are supported by ample liquidity and Fitch's expectations are for a long-term volume recovery due to the essential nature of services.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

The loans are essentially six months of advanced payments under the Medicare Accelerated and Advance Payment Programs.

They are part of the $2.2 trillion CARES Act, a stopgap for hospitals that saw nonemergency procedures and services grind to a halt this spring because of the pandemic.

The repayment timeline for the Medicare advances was extended by Congress and may be extended again.

Some in Congress have suggested forgiving the loans and converting them into grants under a new federal coronavirus aid package.


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