COVID-19 Hospitalizations to Negatively Impact Hospital Margins

August 30, 2021 - Hospital margins are likely to fall in areas experiencing rising COVID-19 hospitalizations, according to the latest predictions from Fitch Ratings.

The squeeze on hospital margins will impact non-profit hospitals and health systems in the near and medium term, the credit rating agency recently announced.

“The influx of coronavirus patient volumes requires additional staffing and supplies,” the announcement stated. “Self-induced postponement of non-emergent (surgical) cases is occurring because of the greater number of [COVID-19] positive patients in hospitals, resulting in lower revenues. Additionally, hospitals and skilled nursing facilities are competing for a limited supply of nurses, including more expensive contract nursing staff.”

COVID-19 hospitalizations are at the highest level in eight months, data from the Centers for Disease Control and Prevention (CDC) shows. The latest numbers show that the number of COVID-19 patients being treated in US hospitals exceeded 100,000 this past week as the nation works to combat the highly contagious Delta variant.

The rate of COVID-19 hospitalizations could get worse with the resurgence of coronavirus because of the Delta variant.

A new study published in The Lancet on Friday found that the Delta variant carried a higher risk of hospital admission compared to the alpha variant. The study out of England indicated that outbreaks of the Delta variant in unvaccinated populations could result in a greater burden on the healthcare system.

This burden is likely to create operational pressures for non-profit hospitals and health systems in the US. Nearly all the top ten states with the highest hospitalizations per 100,000 people have less than half of their population fully vaccinated, Fitch Ratings reported in the announcement. Those states include Alabama, Louisiana, Mississippi, Georgia, Arkansas, Texas, Nevada, Kentucky, and Missouri.

The rising rate of COVID-19 hospitalizations may prompt healthcare providers “to maintain some level of pandemic capacity going forward if coronavirus variants are difficult to contain,” the agency stated. Additionally, providers should prepare for continued staffing shortages into 2022, if not longer.

Elective volumes are also likely to take a hit in light of the COVID-19 resurgence, the announcement said.

Elective volumes took a significant nosedive at the start of the pandemic in 2020 as communities shut down to prevent the spread of the alpha variant. Volumes levels were expected to return to normal, along with their impact on hospital margins, but Fitch Ratings is predicting more uncertainty ahead, especially without the availability of the federal aid that was available last year.

Smaller hospitals are more likely to feel the operational pressures brought on by the Delta variant, which also includes rising expenses. Higher expenses will be harder to manage for these facilities as their ICU beds fill up. The hospitals are already rated lower and may be less able to offset declining reimbursement rates because of their rating and the added expenses associated with treating COVID-19 patients, Fitch Ratings explained.  

On the other hand, highly rated hospitals will likely have enough funds to “cushion to absorb an increase in operating costs and a shift in volume type without meaningfully affecting credit.”

Data from consulting firm Kaufman Hall has already shown that financial recovery from the start of COVID-19 is already stalling with the rise of the Delta variant in the US. The data revealed declining hospital margins in July 2021, with the median hospital operating margin index at 3.2 percent for all US hospitals.

The resurgence of COVID-19 is also impacting physician practices, Kaufman Hall found. Practices experienced an increase in expenses during the second quarter of 2021, as well as high levels of physician investment.