Here’s how nonprofit hospitals weathered the first half of 2020

By | September 3, 2020

The second quarter was an important marker for the healthcare industry as it captured the full weight of the COVID-19 pandemic’s drag on hospital operations.

Many of the nation’s largest nonprofit health systems have now disclosed either their second-quarter or six-month results via filings to bondholders.

The results are mixed, but many experienced a drop in revenue as volumes were clipped due to the pandemic. At the same time, expenses rose for nearly all of the nine systems Healthcare Dive tracked.

Still, federal aid that was released to help prop up the sector buoyed many nonprofit health systems through the first half of this turbulent year. The infusion of cash was vital, according to analysts.

“In the absence of stimulus relief and rebounding elective procedural volumes, the sector would have taken a considerable shock to all key financial metrics,” according to Fitch Rating’s latest report.

The federal government has so far earmarked $ 175 billion for providers. As COVID-19 infections keep climbing, and with flu season around the corner, strain for hospital operators is ongoing, and there could be additional need for relief. It’s unlikely will arrive anytime soon with lawmakers gridlocked on additional funding.

Boosts to investment income were also key during the period as the market has stabilized somewhat from coronavirus-related economic fallout.

Despite systems bruised from the pandemic, there has not been an avalanche of hospital and health system downgrades. Fitch recorded 14 nonprofit hospital and health system downgrades through July and just two upgrades, both of which occurred before COVID-19 hit.

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“Given the most recent rating actions, with downgrades outpacing upgrades based on the initial impact of the coronavirus, it remains to be seen whether we have weathered the worst of the impact, or if there will be further, future stresses related to the coronavirus,” Fitch said.

Some of the larger, regional players seemed to struggle.

For example, Sutter Health posted a net loss of $ 857 million for the first half of the year, a $ 1.4 billion drop in income compared to the first half of 2019, which the Northern California system largely blamed on investment and operational losses. The virus drove revenue down 8% while expenses ticked up 2%, leading to an operating loss of $ 557 million.

Sutter was also one of the health system downgrades during the first half of the year. Moody’s Investors Service attributed the downgrade to a weaker profitability profile over time that will only be further compressed due to the fallout from COVID-19.

There was one standout considering the significant operational challenges.

Kaiser Permanente, the integrated health system with an insurance arm, seemed head and shoulders above its peers in weathering the pandemic, as its net income for the second quarter more than doubled to $ 4.5 billion compared to the prior-year period. Operating revenue increased more than 3% to $ 22.1 billion while expenses fell 1.5%.

Larger systems with diverse revenue streams are better poised to withstand the hit to the sector.

As fears linger about the winter and a surge of cases alongside flu season, there were encouraging signs that operators could shoulder large caseloads of COVID-19 positive patients along with providing non-emergent care without having to shut down electives entirely.

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Banner Health in Arizona showed it was able to manage large numbers COVID-19 hospitalizations while still providing routine care, spurring CFO Dennis Laraway to say: “[The] punch line here is that healthcare systems and management can manage through the crisis between COVID and non-COVID populations better than state agencies and government orders can do for our healthcare system.”

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