S&P says risk of hospital operator defaults plummet from last year’s highs

By | March 14, 2021

Dive Brief:

  • The risk of healthcare facilities defaulting on their debt has dropped significantly from nearly a year ago, according to a new report from S&P Global Market Intelligence.
  • The median probability of default for healthcare facilities within the next year was just 0.9% this week. In late April 2020, at the height of uncertainty from the COVID-19 pandemic, it was 8.1%.
  • Despite returning to more stable footing, the S&P report noted that “most U.S. hospitals operate on thin profit margins in an environment beset with uncertainty by high-stakes policy debates.”

Dive Insight:

The early weeks of the COVID-19 pandemic a little less than a year ago was a time of great financial uncertainty. Before the passage of the Coronavirus Aid, Relief, and Economic Security Act in March and other supplemental legislation that gave assistance to providers, hospitals and other healthcare facilities were particularly vulnerable due to having to all but eliminate elective procedures for weeks at a time.

That danger appears to have mostly passed. Whereas nearly one in 12 healthcare facilities were in danger of defaulting last year, the number is now down to fewer than one in 100.

The CARES Act and other legislation brought $ 175 billion to healthcare providers in the form of direct supplemental payments and advanced Medicare payments, among other initiatives. S&P officials credit this for getting the providers through the most difficult tumult of COVID-19 and keeping them financially stable, even though patient volumes are still depressed from their pre-pandemic highs.

Although health system Quorum Health filed for bankruptcy and defaulted on its debt last year, it was unrelated to COVID-19, according to S&P executives. Altogether, 13 operators of healthcare facilities filed for bankruptcy last year.

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S&P executives credit CARES for steering providers out of dangerous territory by making funds available. “That’s why there haven’t been those defaults,” S&P Global Ratings Senior Director Suzie Desai wrote in the report. “You still have some reserves.”

Some questions remain for hospitals and other healthcare facilities over the longer term. Desai said that “one of the things we’re watching is what do the expenses look like for labor, is it going to cost more to recruit?”

The S&P report noted that for-profit hospital systems such as HCA Healthcare and Universal Health Services have reported increase expenses for overtime pay and retaining nurses, and more expenditures on traveling nurses and other temporary staff.

Nevertheless, the larger systems are in relatively strong positions. S&P calculated HCA’s risk of default in the next year at 0%. It was 5.2% in the first part of 2020.

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