All signs point to a rough flu season for the United States. That means higher volumes for hospitals, but the ultimate results differ based on the sector and the specifics of how the virus manifests.
Large, publicly traded health systems can see a slight boost to margins despite the additional staffing needed to combat flu, but smaller and nonprofit organizations are more strained and have less ability to capitalize on increased visits.
Meanwhile for telehealth companies, it's an opportunity to showcase their services and, they hope, nab new regular customers.
The ultimate impact for hospitals depends heavily on how widespread and how severe the flu is, analysts say.
This year, Australia saw its deadliest flu season in two decades, an ominous sign as trends from the Southern Hemisphere are typically reflected in the U.S. in the following months.
The 2018-19 season was relatively moderate, but that doesn't seem to be the case going into the 2019-20 season. Piper Jaffray estimates the number of influenza-like illnesses will increase 21% this year over last, Bill Quirk, research analyst at the firm, told Healthcare Dive.
Flu seasons often vary dramatically year to year. One doesn't have to go back far to see a previous severe patch for flu in the United States. The Centers for Disease Control and Prevention classified the 2017-18 season as high severity and one of the longest in recent years. Influenza-like illnesses (ILI) reports peaked at 7.5%, the highest since 2009.
Flu activity is low so far this year, but the CDC expects it to pick up in the coming weeks. Reports of ILI typically peak between December and February, according to the agency.
Severe flu boosts health system volumes
Flu season creates increased revenue for hospitals and health systems, typically starting to show up in fourth quarter earnings but more so in first quarter results. But that's just the top line.
The overall number of illnesses from flu is a key factor, but how badly the disease hits people is also important. Whether a patient who shows up at an ER needs an inpatient admission is a vital element in the financial impact on providers.
During last year's more mild flu season, HCA saw significant same-store volume growth from ED and urgent care visits and UHS had similar flu-related contributions in those two quarters, according to a research brief from RBC Capital Markets.
So a flu that is especially troublesome for older people, for example, can mean more volume growth is to be expected. Depending on that and other factors, RBC Capital Markets estimates as much as 10% of ER visits from people with ILI could ultimately result in an inpatient admission, with average length of stay at two to four days.
Analysts note, however, that revenue and margin on flu cases are lower.
And that's part of the flip side for hospitals with already slim margins, such as nonprofits. They must ramp up staffing and overtime while postponing elective procedures — and that creates a strain because reimbursement for flu-related admissions often falls short of costs incurred, according to Moody's Investment Service.
For patients covered by Medicare, a single payment covers all flu-related costs. The exact amount depends on region and specific details of a case, but it is still reliably lower than many treatments, like surgery.
Moody's expanded on this idea in a January 2018 research note anticipating the 2017 season's severity. "Because one payment must cover all the costs of care while the patient is hospitalized, the cost of care typically exceeds reimbursement after the patient has been hospitalized for more than a few days," analysts wrote. "The exact point at which cost of care exceeds reimbursement varies by hospital and what other diagnoses are billed for, but hospitalizations greater than three days will generally result in costs exceeding reimbursement."
Flu cases still drive revenue and profits for many health systems, though, RBC analysts Frank Morgan told Healthcare Dive. "Net-net, I would say it's still a positive for hospitals," he said.
December admissions numbers will start to tell the story for how this year plays out, he said. "A lot of it depends on if it actually converts into an inpatient admission," he said. "Obviously, the dollars are much bigger once somebody converts to an inpatient status."
Low-hanging fruit for virtual care companies
While traditional companies have varied and complex responses to flu season, it represents significant potential for telehealth vendors.
Sufferers who don't want to risk contaminating others and parents staying home with sick children have jumped at the chance to use their computers and phones instead of making the trek to a doctor’s office or urgent care center.
While use of telehealth services broadly has lagged behind expectations, vendors do say they see a ramp up during the flu season.
During its busiest days of the most recent flu season, Teladoc had more than 8,000 visits a day and that number has "grown year over year for the last several years," the company said. Telehealth startup HealthTap said the number of ILI-related visits rises to about a quarter of all consults during heavy flu times. The baseline for the full year is about 10%.
"The role of virtual care is actually pretty powerful in the setting of a flu epidemic," Geoffrey Rutedge, chief medical officer at HealthTap, told Healthcare Dive.
Virtual visits for flu diagnosis and treatment have been low-hanging fruit, Stephany Verstraete, chief marketing officer at Teladoc, told Healthcare Dive.
"It's probably not surprising that flu was one of the conditions that really led the way from an early adoption standpoint," she said.
Teladoc works with payers to remind members of the services available, advertising the options along with the reminder to get a flu shot, for example. Also key is reaching consumers in their moment of need, Verstraete said. "It's not an ingrained behavior yet, so what's really important is reaching out," she said.
Rutledge said people are far more likely to use virtual visits once they’ve experienced them. "Once you experience it, you realize 'Oh my goodness, if it's possible for me to get care this way . . . why on Earth would I want to go to the hassle of seeing the doctor in person?'" he said.
Flu is a great use case for telehealth, but lots of people still don't realize they have that option, he said. Teladoc and HealthTap push employers who offer virtual visits to remind their employees of what is available.
Morgan said payers generally see little impact from flu season. "You're talking about very small degrees" that wouldn't cause a company to hit or to miss its earnings numbers, he said.
Nursing homes and senior housing facilities, however, can take a hit during a severe season. Higher flu volume means "higher moveouts (discharged to hospitals or death) and slower move-in activity," according to the RBC note.
Genesis Healthcare saw flu headwinds in the first quarter of 2018 that affected earnings and Brookdale Senior Living saw its rising occupancy rate fall in the fourth quarter of 2017, sending it down year over year because of early flu cases, analysts said.