While the Covid-19 pandemic has put a spotlight on the high value of the hospitals sector, the industry has faced reduced revenue and skyrocketing operational costs. With the detection of the SARS-CoV-2 Omicron (B.1.1.529) variant, which risks increased hospitalisation rates in the next few months, it could be another blow to an already vulnerable sector. So far, Omicron has rocked the financial markets, with executives at vaccine maker Moderna warning that available vaccines may have reduced effectiveness against this new variant of concern (VOC).
Indeed, it has been a tough 20 months for the hospitals sector. It had to deal with the dramatic influx of Covid-19 patients despite limited resources, even with basics such as personal protective equipment (PPE). With the loss of financially lucrative elective procedures, many hospitals had to establish a wage freeze among overextended staff, or worse: layoff or furlough workers in non-Covid-19 departments. Many hospitals had to depend on government grants and loans to stay afloat.
GlobalData looks at four of the top US healthcare providers: HCA Healthcare, CommonSpirit Health, Trinity Health and Tenet Healthcare. These four have the highest reported revenues amongst US healthcare providers.
What their publicly available documents reveal is that the worse financial impact of Covid-19 seem to have occurred in 2020, with 2021 showing signs of improvement. The return of non-Covid-19 patients has been one of the drivers of the recovery. While this year saw an increase of cases due to the Delta variant (B.1.617.2), which had dampened the recovery somewhat, there is a trend of increase in revenue and operating income among providers, according to their most recent financial reports.
Yet the sector is still in a very fragile state. A few months ago, the winter season was already feared as it may increase Covid-19 hospitalisations and thus dampening once again lucrative elective procedures. With the arrival of Omicron, this potential concern is increasingly becoming a reality.
Grants and loans critical in hospitals sector
During the Covid-19 surge in 2020 and following into 2021, analysis show that some of the top healthcare providers were dependent on government support. Federal government support, including grants under the CARES (Coronavirus Aid, Relief, and Economic Security Act) Act Provider Relief Fund (PRF), and Medicare Accelerated and Advance payment program, helped the bottom line of many providers.
While grants do not need to be paid back provided that certain terms and conditions are met, government loans will need to be repaid. Under the Medicare accelerated payment program, healthcare providers can keep the money for one year before recoupment starts. Because grants and loans are temporary, providers may not always have such buffer against the lingering and fluctuation impacts of Covid-19, such as new VOCs.
HCA Healthcare returned over $6bn of CARES funding (grants and loans) to the federal government. What allowed the provider to do so was that it finished 2020 with positive financial results. HCA Healthcare had a 6% increase in net income compared to 2019, with positive results due to to highly acute inpatient volumes and cost management.
Grants expose providers to public backlash
Meanwhile, Tenet reported a 29% increase in its 2020 annual operating income compared to 2019. However, government grants were key for Tenet as without them, there would be an income drop of 28%. Both CommonSpirit and Trinity also benefitted from government support, where their reported financials looked healthier than actual numbers.
Even if grants do not need to be paid back, there could be a public backlash on how they are used. Tenet came under fire from federal lawmakers in June 2021 for its use of its CARES funding. Lawmakers, including Senator Elizabeth Warren, pointed that Tenet has received over $2bn in government loans and grants while its hospital workers are on strike, calling for better pay and working conditions, such as better staffing levels.
Even without the pandemic, labour shortages, management costs and high turnover dogged the sector. All four providers are reporting more competition for labour, the need to use more expensive temporary workers, and pay premiums above standard compensation for essential workers. And the latter is especially true for critical-care nurses. With a threat of Omicron being a more transmissible VOC, this could put further pressure on the hospitals sector.
The hospitals sector in numbers
- Fiscal year end: December
- 2021 Revenue: Q3 $15.276bn
- An increase of 14.8% versus 2020
- 2021 Operating income: Q3 $2.473bn
- An increase of 15.5% versus 2020
- Fiscal year end: December
- 2021 Revenue: Q3 $4.894bn
- An increase of 7.4% versus 2020
- 2021 Operating income: Q3 $1.014bn
- An increase of 274.2% versus 2020
- Fiscal year end: June
- 2022 Revenue: Q1 $8.549bn
- An increase of 10.7% versus 2021
- 2022 Operating income: Q1 $34m
- A decrease of 79.6% versus 2021
- Fiscal year end: June
- 2021 Revenue: Annual $20.164bn
- An increase of 7.1% versus 2020
- 2021 Operating income: Annual $658m
- An increase of 290.7% versus 2020
Azadeh Laffafian is a GlobalData healthcare analyst.
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