Moody's: Not-for-profit hospitals face major cash constraints, negative outlook for 2021

Hospitals are expected to face major cash flow constraints in 2021 due to lower patient volumes, rising expenses and a worsening payer mix, a new analysis from Moody’s finds.

The analysis, released Friday, predicts a negative outlook for the not-for-profit hospital industry that has been wrecked by the pandemic.

“Our outlook assumes it is unlikely that an effective vaccine will be widely available before the middle of 2021,” the report said.

The report predicts that operating cash flow is going to decline thanks to declines in patient volumes. Moody’s said median absolute levels of operating cash flow could drop by about 10% to 15% next year compared to the third quarter of 2020.

“Demand for certain services will remain soft as fears about seeking treatment linger,” the report said. “Telehealth visits will remain a key access mode while shifts to lower-cost settings will accelerate.”

Hospitals faced massive revenue shortfalls in March and April as states forced them to cancel or postpone elective procedures to preserve capacity to fight COVID-19. While patient volumes recovered as shelter-in-place orders lifted in May, they still remain below pre-pandemic levels for most systems.

RELATED: For-profit systems fare better than nonprofits in weathering COVID-19 cash crisis, MedPAC says

Some systems such as Ballad Health and parts of Mayo Clinic have postponed surgeries again as COVID-19 surges across the country.

In addition, shifts to treating patients at lower-cost and low-revenue settings such as outpatient clinics and non-hospital-based sites will likely continue to accelerate.

While volumes have declined, systems have faced higher expenses for supplies and staff due to unprecedented demand caused by COVID-19.

“Revenue growth will be outpaced by expense growth, which will also weigh on [operating cash flow],” the report said. “This would be particularly true if hospitals continue to see high levels of COVID-19 hospitalizations in 2021.”

Moody’s also does not expect any federal funding similar to a $175 billion relief fund passed by Congress in the CARES Act. Talks on a new broader COVID-19 relief package remain stalled in Congress.

The CARES Act funding has been critical to plug holes in revenue caused by the volume drops in March and April.

RELATED: AHA: Hospitals could lose $20B a month for the rest of 2020 due to COVID-19 impact

Another potential hurdle for the not-for-profit hospital industry is a change to payer mix.

“Elevated unemployment will lead to a rise in Medicaid and uninsured patients as individuals lose employer-sponsored commercial insurance, typically more profitable than government payers,” Moody’s said.

But Moody’s believes some systems will fare better than others. Larger and more diverse systems will be better positioned to weather the financial crisis.

“Large, multi-state systems and/or those with strong cash cushions will be better positioned to resume growth and capital spending,” Moody’s said. “Smaller standalone hospitals will like consider partnerships, accelerating [mergers and acquisitions].”