par John R. Fischer
, Senior Reporter | April 13, 2020
The $100 billion set to be distributed among nonprofit hospitals as they continue to suffer financially amidst the ongoing demands of the coronavirus pandemic will not be enough to restore lost revenue.
That’s the consensus of Moody’s Investors Service on the funds promised in the $2 trillion federal coronavirus aid package known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law last month. Though it acknowledges several provisions included in the legislation to make up for lost revenue, the firm predicts cash flow to likely be materially lower over several months.
"The $100 billion aid package provides some relief to hospitals by supporting their operations and providing access to critical supplies," Dan Steingart, vice president at Moody's, said in a statement. "However, it is unlikely to fully compensate the sector for the two main financial challenges facing providers as a result of the coronavirus outbreak.
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In attempts to preserve resources and prevent the spread of the disease, many healthcare systems have postponed elective surgeries, procedures and other services. The postponement of services alone is likely to plunge hospital revenue by 25 to 40% a month on average, even for hospitals that are not treating large COVID-19 patient caseloads, according to the report.
The second challenge is the fact that reductions in expenses for postponing or canceling services are offset by those for surge preparation, such as the cost of personal protective equipment. Costs for higher temporary labor expenses, brought on by healthcare workers falling ill from the virus, also factor into the equation, with all costs in total difficult to reduce.
Hospitals, however, can expect some support from a number of provisions in the stimulus package, especially from advances on future Medicare reimbursements. Much of this will likely provide liquidity relief over the next several weeks, though the timing of payments will vary based on when hospitals submit applications.
“The Centers for Medicare and Medicaid Services has stated it will review requests within seven days of receipt, which we expect will expedite the disbursement of funds,” said Moody in its report. “Moreover, this measure builds on an existing program, which will likely facilitate implementation.”
Larger healthcare systems with regional diversity and relative liquidity are expected to come out from the pandemic better than others, due to either having access to capital in the form of bank lines or revolvers, or from quickly establishing new bank lines of credit.
The CARES ACT is primarily dedicated to support hospitals. Few rated healthcare companies will be direct recipients of aid, due to not being paid by government payors. Such enterprises may face challenges in obtaining liquidity, owing to their regular sources of funding (consumers, hospitals, pharmacies, laboratories, etc.) likely to delay payments to preserve liquidity.
Moody’s report, titled “Coronavirus stimulus will lessen economic pain, but credit climate will remain difficult,” covers the impact of the coronavirus pandemic not just on hospitals but on households, businesses, and state and local governments.