Dive Brief:
- Moody's Investor Services changed its for-profit hospital outlook from negative to stable Tuesday, expecting earnings to grow slowly over the next 12 to 18 months while volumes increase and profits continue to benefit from government aid that shored up earnings earlier this year.
- Pre-COVID-19 volumes won't return until late 2021 or early 2022, and they're expected to increase more gradually and unevenly than in recent months, according to the Moody's report. It expects volumes at this year's end to hover around 85% to 90% of normal.
- The sector still faces obstacles like unusually high levels of acuity, though that's starting to moderate, rising cost pressures and high unemployment spurring an unfavorable shift in payer mix, Moody's noted.
Dive Insight:
A much-awaited financial recovery might be on the way for for-profit hospitals that have so far weathered the COVID-19 pandemic.
The ratings agency's move comes on the heels of recent positive vaccine news, but also amid a record number of COVID-19 cases and hospitalizations increasing nationwide.
Without another widespread halt in elective procedures, Moody's expects for-profit systems will be able to slowly make up for lingering volume losses throughout 2021, or more quickly if a vaccine becomes widely available.
Multiple drugmakers have said their candidates show at least 90% effectiveness, and Moderna on Monday applied for an emergency use authorization for its vaccine with new data showing the shot to be 94% effective.
But an effective vaccine is unlikely to be widely available before the middle of 2021, given the numbers needed to ramp up production to cover the broader population.
Even so, the ratings agency expects federal relief funds will continue to buoy hospital earnings through the first fiscal quarter of 2021, with approximately $50 billion of the $175 billion total yet to be distributed.
Hospitals are set to benefit from HHS' methodology changes that allow them to keep more of the grant money they received this year. They feared they would have to return a portion but HHS reversed those proposed methodology changes. Moody's estimated that without HHS walking back the methodology change, hospitals would have had to return an aggregate of $914 million in grant money.
Also, COVID-19 relief legislation will keep providing hospitals with a 20% add-on payment when treating Medicare patients with COVID-19, and also provide other benefits that support hospitals’ liquidity like accelerated Medicare payments.
The accelerated Medicare payment terms were recently relaxed, with repayment beginning in April 2021 and extending through September 2022.
The suspension of Medicare sequestration — which enabled hospitals to earn 2% more on their Medicare business — is an element of relief packages that expires at the end of 2020 and is unlikely to be extended, however, according to Moody’s.
Increasing Medicare rates though should give hospitals a boost next year — CMS proposed outpatient rates for fiscal 2021 that, if finalized, would result in a 2.6% rate increase relative to this year.
Proposed inpatient rates for next year would result in a 2.9% rate increase for acute care hospitals that participate in CMS' hospitals quality reporting program and are meaningful EHR users.
Moody's predicts, however, that the number of surgical procedures done outside the hospital setting will continue to rise throughout next year, posing a threat for companies that lack outpatient service lines like ambulatory surgery centers.
