Ratings Agencies Change Healthcare Outlook to Negative Due to Coronavirus

Moody's and Fitch both changed their ratings for healthcare sectors from stable to negative.

Moody's Investors Service changed the nonprofit and public healthcare sector's outlook from stable to negative Wednesday as a result of the continued spread of coronavirus disease 2019 (COVID-19).

Moody's expects the sector to see lower cash flow in 2020 compared to 2019 and revenue declines associated with the cancellation of elective surgeries. 

The ratings agency expects "some containment" of the virus during the second half of 2020 but cited concerns with nonprofit healthcare companies facing rising expenses and widespread uncertainty.

"Ripple and lingering effects to the economy will also drive lower cash flow even after the outbreak is contained," the report stated. "These include a reduction in the value of hospitals' investment portfolios and potential rising unemployment or widespread layoffs that result in the loss of health benefits."

Another element of uncertainty facing nonprofit hospitals is the issue of reimbursement for treating patients infected with COVID-19.

The report stated that is "unclear whether hospital reimbursement will fully cover treatment costs," even though the federal government passed funding packages and commercial insurers have vowed to pay for the cost of testing for coronavirus.

The report was released the same day as an eHealth survey that found nearly two-thirds of healthcare consumers would struggle to pay their insurance deductible if they contracted COVID-19.

Moody's added that hospitals with prior experience handling pathogen outbreaks like SARS or Ebola are better positioned to handle the effects of the coronavirus.

Financial metrics that could affect the outlook would be operating cash flow growth of 0% to 4%, which would lead to a stable outlook, while growth above 4% would lead to a positive outlook. 

Still, there is expected to be a sharp financial impact on debt risks facing hospitals during the crisis and even in a post-pandemic era, providers will face significant revenue and expense challenges, according to Moody's.

Additionally, Fitch Ratings revised its outlook for the health insurance segment from stable to negative Thursday, citing "expectations for an adverse effect on industry fundamentals related to COVID-19."

The ratings agency projects increased claims costs associated with the spread of the virus, which will diminish profitability and debt service metrics.

On the highest end of Fitch's ratings forecast, the COVID-19 outbreak might eliminate earnings for the payer industry for 2020.

"In addition to the direct affect from heightened claims costs, Fitch expects reported earnings for health insurers to also be pressured by lower premium income due to the adverse employment conditions driven by a significant economic downturn, as well as investment earnings reflecting recent declines in interest rates," the report stated.

Editor's note: This story has been updated to include commentary from Fitch Ratings.