Ratings agencies issue foreboding reports on hospital finances as AHA seeks $100B to respond to COVID-19

By | March 21, 2020

Dive Brief:

  • Most U.S. hospitals typically operate on thin margins, but the COVID-19 outbreak may be pushing them closer to a financial precipice, according to a new report from Moody’s Investors Service.
  • Fitch Ratings said in a separate report that smaller facilities with relatively low liquidity are most threatened. “While the healthcare sector has responded extremely well to past crises, the scale of the coronavirus pandemic is unprecedented,” Fitch noted.
  • Hospitals are highly cognizant of the coming crunch, as the American Hospital Association asked Congress on Thursday for $ 100 billion to respond to the pandemic in a joint letter with the American Medical Association and the American Nurses Association.

Dive Insight:

As the footprint of COVID-19 grows in the United States, the fiscal fortunes of the nation’s hospitals are apparently shrinking. And the major rating agencies are beginning to take notice.

Moody’s report, released Wednesday, concluded the novel coronavirus is putting hospitals in a unique squeeze, both now and in the future.

Moody’s forecasts lower cash flow this year, reversing prior projections of 2% to 3% growth. Revenue is likely to decline with the cancellations of elective procedures, while expenses will rise as the hospitals scramble to procure masks, eye guards and respirators as well as staff up work shifts to deal with the onslaught of patients, analysts said.

Meanwhile, the wave of people expected to be put out of work due to business shutdowns is likely to lead to fewer insured patients. And given the brutal drop in the U.S. stock markets since Feb. 19, hospital portfolios are also almost certainly dinged.

The Fitch report focused on non-profit hospitals, but the authors believe the entire sector will be impacted. “Lower-rated, typically smaller, single site facilities, and those credits with comparatively lower liquidity levels, particularly in areas with a high concentration of people who are 65 and older, are more vulnerable to near-term pressures,” the ratings agency concluded.

Fitch also issued a warned for the health insurance sector this week, saying the expected high infection rate as well as job losses that cause people to drop coverage will lead to instability. “The higher end of forecast infection rates could eliminate 2020 earnings for the industry as a whole. Fitch views such material uncertainty as inconsistent with a Stable Rating Outlook,” according to the report, which downgrades the sector’s outlook to negative.

Another uncertainty is how much hospitals will be paid to treat patients. “Although commercial insurers have indicated they will pay for coronavirus testing and waive co-payments, it is unclear whether hospital reimbursement will fully cover treatment costs,” Moody’s observed. “Currently, there is no Medicare inpatient diagnosis-related group for the coronavirus and many admitted patients will require resource-intensive ICU treatment. That said, the federal government has set aside relief funding for the coronavirus crisis, although it is unclear how much hospitals will receive.”

Hospitals made clear in the letter to Congress how much they think they will need, citing current losses of $ 1 million a day to treat COVID-19 patients — a number AHA believes could grow. The trade association wants a stabilization fund to address emergency expenses, money for surge capacity, and infrastructure for childcare for hospital employees. Although CMS just made some adjustments to federal matching rate to Medicaid payments, the hospital group said that won’t be enough.

Fitch also concluded that rapid deployment of testing will be crucial. “The sector’s ability to begin quickly testing for the virus in order to more rapidly identify and quarantine an infected patient or rule out infections among staff will be critical for containment and will help hospitals managing their care resources,” it concluded.

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