The overall outlook for 2020 healthcare revenues improves following second quarter results
Moody's warns of challenges ahead, due in part to the repayment of Medicare advances, which could lead to less favorable liquidity.
Healthcare revenues for 2020 may be better than originally predicted, according to Moody's.
Moody's estimates were based on second-quarter financial results and the low probability of another nationwide shutdown of elective surgeries.
For the sectors that were highly impacted by COVID-19, including ambulatory surgery centers and dental and optometry offices, Moody's now estimates that 2020 revenues will decrease by 10% or more. The previous prediction from April expected declines of 15% or more.
Moderately impacted sectors like general acute care hospitals, physical therapy and outpatient rehabilitation centers and laboratories can expect revenue declines between 5% and 10%, according to Moody's. In the last report, these sector declines were between 5% and 15%.
For sectors least affected by the pandemic, such as drug distributors, behavioral health organizations and home health companies, Moody's continues to predict revenues to decrease by less than 5%. Some of these sectors may even see slight growth in 2020 due to revenue generated from COVID-19 diagnostics and related products.
WHAT'S THE IMPACT?
Many companies have received regulatory approval for their COVID-19-related products, which could lift the overall revenue, despite losses in non-COVID-19 products, according to Moody's.
Companies that could benefit from releasing their own COVID-19 diagnostics include LabCorp, Abbott and Quest Diagnostics. In fact, Quest expects its 2020 revenue to increase by up to 11.3% as a result of its COVID-19 antibody tests.
Additionally, the worst-case scenario predictions for the second quarter often did not come true, according to Moody's. The revenue drops from April rebounded in May and June as pent-up demand for services was released due to regional lockdowns being lifted.
For most predictions that Moody's made in April, results point to lower revenue declines than originally thought. For example, high-risk sectors were expected to have between a 50% and 80% decline in revenue for the second quarter, and most sectors actually had about a 50% decline.
Some of the positive outcomes in this quarter can be attributed to funding from the Coronavirus Aid, Relief, and Economic Security Act and other governmental aid, according to Moody's. In fact, rated for-profit hospitals' aggregate EBITDA increased 17.9% in the second quarter, but when taking out governmental funding, the group's EBITDA declined by 37.5%.
As a result of those funds being temporary, Moody's warns of challenges ahead for the healthcare industry. It also noted that companies will soon need to start repaying Medicare payment advances, which could lead to less favorable liquidity. Finally, while Moody's does not expect another shutdown, it does predict that recovery will be uneven across the country as the year progresses.
THE LARGER TREND
Despite these improved predictions for 2020 healthcare revenues, hospitals are still suffering from tremendous revenue and volume losses. Across the board, hospital and health system executives said they needed more relief funding from Congress, according to case studies released by the American Hospital Association.
Aside from the benefits of creating a COVID-19-related product, many systems are benefiting financially from the increased use of telehealth. It is largely providing revenue continuity, and the ripple effects are being felt in the supply chain as well, with doctors continuing to prescribe medications.
For healthcare organizations that aren't able to recover financially from the pandemic, stakeholders predict that there will be an increase in M&A activity in the coming months as smaller independent systems look for partnerships.
ON THE RECORD
"The figures are important because they point to the resiliency of the US healthcare sector in the face of the pandemic," Jessica Gladstone, a Moody's associate managing director, told Healthcare Finance News. "Though still below pre-pandemic levels, patient volumes have returned for most healthcare subsectors relatively quickly following the shut-downs in March/April. Although the pace of recovery will vary by subsector and region, we expect patient volumes to make their way back towards pre-pandemic levels over the next several quarters. This fundamental recovery and adequate liquidity for most rated companies across the sector will support credit quality going forward. Additionally, a number of companies will get incremental benefit from COVID related testing, which will ramp up considerably in the second half of 2020."
Twitter: @HackettMallory
Email the writer: mhackett@himss.org
