Moody’s Investors Service has issued a negative outlook for nonprofit and government-operated hospitals for 2021, citing the COVID-19 pandemic as the primary reason for its forecast.
Moody’s estimates operating cash flows for the segment will drop 10% to 15% next year, versus its previous annualized estimate, which was based on third quarter performance. During that quarter, cash flow dropped nearly 20%.
Moody’s also noted that hospitals could be hit even further by more people losing commercial health insurance and the potential overturning of the Affordable Care Act by the U.S. Supreme Court, but it did not provide specific financial projections connected to those scenarios.
The U.S. hospital sector has been hard hit by the COVID-19 pandemic, though federal aid has sheltered health systems from the worst of it. But despite a newly approved vaccine, the pain is likely to continue into next year, experts say.
Moody’s predicts that nonprofit and government hospitals will continue to be impacted by a combination of patients putting off care for fear of contracting the virus, compounded by a rise in labor costs.
"Until the pandemic is under control and a vaccine is widely administered, many patients will remain concerned about accessing healthcare, especially in traditional hospital settings," the report said, later adding that "less acutely ill patients will seek care at more appropriate settings such as urgent care centers, although even if hospital-owned, these would likely be less profitable."
Meanwhile, hospitals will have to contend with rising expenses exceeding the growth seen in 2020. Moody's chalked that up to a number of factors, including hospitals in areas with COVID-19 outbreaks needing to hire more agency or traveling clinicians; higher-than-normal staff turnover due to burnout giving rise to more contract labor; and the need to offer higher salaries or other employment incentives.
This will all be exacerbated in regions experiencing ongoing nursing and physician shortages, the agency said.
The Moody’s assessment is more bearish than one it provided for for-profit hospitals earlier this month, which had upgraded its negative outlook to stable. It assumes that that sector will be able to overcome drops in patients volumes more quickly than its not-for-profit counterparts.
Fitch’s recent report on the nonprofit sector, which included a stable outlook for 2021, was more optimistic than Moody’s. That’s primarily because Fitch has already baked in the 2020 negatives into forecasts.
The current situation is expected to last for many months into 2021. "The negative outlook for the not-for-profit and public healthcare sector assumes that COVID-19 vaccines won't be widely available before the middle of next year," Moody’s Vice President Diana Lee said in a statement.
Since Moody’s does not expect a reprise of the financial aid from the Coronavirus Aid, Relief and Economic Security Act passed in March, it believes larger hospitals and healthcare systems will be better positioned in 2021.
"The sustainability of patient volume and service mix recovery will vary by region and depend largely on containment efforts and when a vaccine will be available and administered on a widespread basis," the report said. "That said, large, diverse systems and those with strong cash positions will be better positioned to resume strategic initiatives."