Hospitals Hurting for Revenue

Elective Surgery Suspensions Cause Strain

Across the country, hospitals have suspended elective surgeries to make room for COVID-19 patients. This means that their revenue has plummeted. Hospitals that were already struggling financially, especially small, rural facilities, could be forced to declare bankruptcy—or even shut down. According to a study by the American Hospital Association, the country’s hospitals could lose $202.6 billion by the end of June.

During previous recessions, the healthcare industry remained strong in comparison to other sectors. Economists and healthcare analysts used to emphasize that jobs in the industry were almost recession-proof, but coronavirus is challenging that view.

Although healthcare has been one of the best performing sectors this year, the gains aren’t broad-based. On one hand, biotech firms have performed well as they are at the forefront of innovative coronavirus treatments. For example, yesterday Quidel (QDEL) and Abbott (ABT) shares jumped after both companies received emergency use authorization from the FDA for their coronavirus-antibody tests. On the other hand, individual hospitals are facing unprecedented financial challenges.

The Impact on Wall Street

Quorum Health (QHCCQ), which operates a chain of over 20 hospitals, filed for bankruptcy in April. HCA Healthcare (HCA) paused quarterly dividends and share repurchases.

Junk-rated hospital bonds have seen returns sink by 11%. Hospitals are flocking to Wall Street banks to draw down existing lines of credit and request more funding. As hospitals have been forced to become more leveraged, some industry analysts have speculated that private equity companies will become more involved in the healthcare sector.

The Federal Government pumped $175 billion into the healthcare industry to help cushion the blow from lost revenue. This is roughly the amount that Americans pay to hospitals, clinics, nursing homes, and other medical facilities during a typical three and a half week period. Hospitals are now waiting to see if more help will arrive from Washington, or if they will be permitted to resume elective surgeries. Without these two lifelines, a wave of hospital bankruptcy filings could be imminent.

Job Losses and the Rise of Telehealth

Though healthcare workers have been on the front lines fighting coronavirus across the country, paradoxically, the industry as a whole has lost 1.4 million jobs since the pandemic began.

Independent medical practices have seen a sharp decline in business. Many patients are seeking care virtually to avoid visiting doctors’ offices where infections could spread, or are not seeking care at all. A recent study using data from nine major US hospitals showed that shockingly, even visits to the hospital for serious heart attacks have dropped by 40% since the start of the pandemic, leading some healthcare experts to worry that the message to stay home has been a bit too strong.

Despite the pain of job losses, some analysts say that this period could help lower sky-high healthcare costs in the United States in the long run through the expansion of remote healthcare. Many healthcare systems and patients have rapidly adapted to giving and receiving care virtually. Bob Kocher, a physician who serves on California’s coronavirus testing task force described this shift, saying “One silver lining is that virtual care will become a much integral part of healthcare for all us, and this will lead to better care and more accessible care.”

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