Skip to main content

Analysis

Moody's: Despite Revenue Declines, Hospitals Avoided 'Worst Case Scenario' in Q2

By Jack O'Brien  
   September 09, 2020

Provider organizations benefited from higher acuity patients returning for treatment, resulting in sector net revenue declines of 10%, the ratings agency stated.

Hospitals suffered through revenue declines in Q2 but avoided the "worst case scenario" related to the coronavirus disease 2019 (COVID-19), according to a Moody's Investors Service sector comment released Tuesday.

The ratings agency originally projected that hospitals would experience revenue declines between 20% to 50% as admissions fell due to the temporary cancellation of elective procedures this spring.

However, provider organizations benefited from higher acuity patients returning for treatment, resulting in sector net revenue declines of 10%, the ratings agency stated. Moody's added that healthcare utilization rates have recovered to between 80% to 90% of normal levels.

While hospitals and health systems have dealt with unprecedented operational and clinical challenges spurred by the pandemic, Moody's findings indicate that the financial damage to providers may have been contained. 

"With cost-containment efforts and ongoing financial relief from the CARES Act, most rated for-profit providers can sustain profitability at these levels," the report stated. "Drivers include pent-up demand and the high profitability of the procedures that hospitals, ambulatory surgery centers and physicians are performing."

The ratings agency also moved specialty hospitals from its "moderate impact bucket" to its "low impact bucket" due to "the more muted COVID impact that these sectors have experienced so far."

Related: Hospital Revenue Loss is Most Important Healthcare Trend Going Forward 

Despite avoiding the "worst case scenario," Moody's warned that the liquidity issues faced by hospitals "could get more challenging" as the federal grant aid received in Q2 is only temporary.

"For example, rated for-profit hospitals' aggregate EBITDA increased 17.9% in the second quarter, but when stripping out the benefit of grant aid, the group’s EBITDA declined by 37.5%," the report stated. "Further, as revenues dropped, companies collected receivables from prior quarters at the same time that they stretched their payables, deferred rent and wages, and paused on building inventory."

Related: Fitch: Nonprofit Hospital 2020 Medians Represent 'Peak Performance,' Recovery Unlikely Until COVID Vaccine 

Moody's also noted that while another national economic shutdown is unlikely, the pace of recovery is expected to be "uneven" and some healthcare companies will face "renewed earnings pressure" in the face of regional hotspots or a potential second wave of COVID-19 cases.

In early July, Moody's issued a sector comment that stated the expanded suspension of elective surgeries in Texas was credit negative for for-profit hospitals across the state.

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

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

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


KEY TAKEAWAYS

Moody's added that healthcare utilization rates have recovered to between 80% to 90% of normal levels.

The ratings agency also moved specialty hospitals from its "moderate impact bucket" to its "low impact bucket."

Moody's noted that while another national economic shutdown is unlikely, the pace of recovery is expected to be "uneven."


Get the latest on healthcare leadership in your inbox.