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Moody's: For-Profit Hospital Outlook Now Stable for 2021

Analysis  |  By Jack O'Brien  
   December 01, 2020

The ratings agency attributed the outlook change to "improving business conditions" over the next 12 to 18 months.

The outlook for for-profit hospitals has changed from negative to stable, according to a Moody's Investors Service report released Tuesday morning.

The ratings agency attributed the outlook change to "improving business conditions" over the next 12 to 18 months.

In the short-term, there are still risks associated with surges of coronavirus cases during the winter which could hamper hospital admissions, while emergency room visits are expected to have a slow recovery "due to lingering patient concerns about visiting hospitals." However, Moody's stated that the availability of COVID-19 vaccines could mitigate these risks.

For-profit providers will continue to benefit from the patient volume rebound and pandemic-related government aid, according to Moody's, as patient volumes are expected to fully recover by late 2021 or early 2022.

"The stable outlook for the US for-profit hospital industry reflects EBITDA growth in the low single digits over the next year or so, as patient numbers gradually return to pre-COVID levels," Jonathan Kanarek, vice president-senior credit officer at Moody's, said in a statement. "At the same time, government benefits via the CARES Act will continue to buoy earnings, as well as aid liquidity by, among other things, extending the repayment of the accelerated Medicare payments and deferring the employer portion of social security payroll taxes."

Related: Biden Presidency, Divided Congress 'Credit-Neutral' for Healthcare Sector

Despite the improving outlook, Moody's warned that managing costs will not be an easy task, specifically stating that cost cuts made during the crisis are "likely not sustainable."

Other outstanding risks to hospitals and health systems will be the moderation of high levels of acuity and a prolonged high unemployment rate that could negatively impact the payer mix.

The Moody's report came out less than a week after Fitch Ratings stated that the outlook for 2021 is stable for both healthcare and pharmaceutical companies.

Related: Fitch: Healthcare Has Stable Outlook for 2021

In early September, Moody's released a report that found hospitals suffered through revenue declines in Q2 but avoided the "worst case scenario" related to the COVID-19 pandemic.

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

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.

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