Heat wave cranks up the pressure on hospitals, Moody’s says

Bonds

Hospitals, already facing multiple challenges, are being stressed by a heat wave that has hit a large swath of the United States, according to a Moody’s Investors Service analyst.

A heat dome that initially impacted California and Texas has spread across most of the southwest and is also affecting some Northwest states like Idaho.

An estimated 156.2 million people have been affected nationally, according to the National Weather Service.

Firefighters in Phoenix administer fluids to a resident having trouble breathing July 20 during a heat wave.

Bloomberg News

“Hospitals are normally well equipped to handle seasonal surges, but this heat wave is an additional disruption after one and a half years of volume volatility and expense surges,” said Daniel Steingart, vice president of Moody’s Investors Service.

Moody’s assigned the not-for-profit healthcare sector a negative outlook in December citing ongoing difficult operating conditions. It also cited elevated expenses, driven by labor shortages.

“While operating cash flow will grow in 2023, the high expense environment, coupled with modest revenue gains, will limit the profit margin for the not-for-profit healthcare sector,” Brad Spielman, vice president and senior credit officer for Moody’s, said in the December report.

Spielman added that this level of operating cash flow production will likely prove insufficient over the long term to enable adequate reinvestment in facilities, maintain investment in programs, or support organizational growth — key considerations that drive the negative outlook.

High inflation was also expected to drive up costs across the board, causing particular difficulty because of hospitals limited ability to respond quickly with price increases.

According to a recent monthly report from KaufmanHall, that projection has been realized.

Though hospitals’ operating margins moved back into positive territory in May, operating margins continue to stand well below historical norms, according to KaufmanHall’s National Hospital Flash Report for June.

Discharges, emergency department visits and operating room minutes all climbed modestly in June, indicating that people have become more comfortable with inpatient care, according to the report.

Despite the slow headway hospitals have seen post-pandemic, there is a sizable and growing gap between primary hospital revenue sources, according to KaufmanHall. “Revenue from outpatient care is increasing at a much greater rate than revenue from inpatient care.”

“Hospitals are normally well equipped to handle seasonal surges, but this heat wave is an additional disruption,” said Daniel Steingart, vice president of Moody’s Investors Service.

Moody’s Investors Service

Labor expenses, which have been an issue, are beginning to decline. While labor costs remain significant, expenses in May were well below comparable levels from May 2022.

Extreme heat “brings marginal utility cost increases, expenses associated with setting up cooling stations, need for IV fluids, and clogged emergency rooms,” Steingart said.

“Schedule and operation disruptions may mount if some patients choose not to travel for procedures,” he said.

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