Financial Impact of COVID-19 in the Healthcare Sector
The financial impact of COVID-19 has affected everything, everywhere in America and across the planet, including businesses and investments in healthcare and health maintenance. The healthcare system in America has rapidly evolved to deal with the viral outbreak and the influx of COVID-19 patients and public health concerns, therefore producing unique opportunities for investing in healthcare-based companies. Some market sectors, like long-term care communities, hold great promise for longer-term returns while others are less than stellar, at least for the short term. This article discusses which sectors are worth investigating and that may hold the best profit potential as well as those areas that are struggling financially.
Financial Impact of COVID-19: The Stats
As of October 2020, nearly 8 million individuals in the US have tested positive for the coronavirus, and the number of subsequent deaths is still rising. In August, a report came out from the Peterson Center on Healthcare—KFF partnership on HealthSystemTracker.org which casts a negative light on hospital operations, profitability, and recoverability from the pandemic. To reverse this outlook, the healthcare industry has been subsidized with $175 billion by Congress and stands to receive more support, public and private, in the near future. This cash infusion should help deal with the current issues hospitals, clinics, and healthcare professionals encounter, along with implementing other strategies to help hospitals remain open when patients need them the most.
Along with a policy that suggests staying at home and social distancing to help eliminate the virus’s spread, the Federal government has instituted many programs that will help support companies and organizations with direct cash payments and loans. These measures are in addition to government-funded research and development of vaccines and treatments. Additional funds have also been added to the economic stimulus package to manufacture additional PPE and COVID-19 treatment equipment for many US-based medical products manufacturers. All-in-all, the healthcare sector is receiving a lot of capital and a lot of attention in response to the issues we are currently facing amidst the financial impact of COVID-19.
Telemedicine: An Emerging Industry
In addition to this new cash infusion available to hospitals, telemedicine has seen a spike in popularity. Whether through a video chat or phone call, the option of having a socially distant doctor visit has piqued the interest of patients everywhere, coupled with the fact that the non-insured typically enjoy cheaper rates through most telemedicine services. This is an emerging and fast-growing industry, particularly for private medicine. It would be wise to keep an eye on telehealth companies in the months to come!
A study conducted by the group Red Quill Consulting examined the costs of a virtual doctor visit and an in-person doctor visit. The study concluded the average cost of a virtual patient visit was about $40, while the average cost of an in-person patient visit was at least $176 or more. The introduction of remote analysis, monitoring, and at-home triage have further reduced costs while increasing revenue.
How Hospitals Are Increasing Revenues During COVID-19
According to Tom Daschle, former US Senator and founder of the Bipartisan Policy Center, over 600 rural hospitals across America are facing closure as a result of the coronavirus pandemic. Rural hospitals were already experiencing challenges prior to the pandemic due to the difficulty of attracting and retaining providers in more remote areas of the country. This fact coupled with the revenue pressures associated with hospitals that have a high volume of state-funded healthcare and low reimbursement rates has led to an increase in rural hospital closures when patients in these communities need access to healthcare the most.
Daschle notes how the changes brought about by the pandemic will alter hospital operations in the future and that new methods for generating operating revenues must be explored. As a result, there are strategies that have helped small and large hospitals to continue operating during and after the pandemic:
- Use telehealth communications to reduce costs
- Develop new business models for provider care by doctors, physician assistants, and administrators
- Move to “value-based” payment protocols based on out-patient care conditions
- Incorporate more ancillary hospital services (services that support the work of the primary physician, such as radiology, laboratory services, etc.)
- Increase marketing efforts to bring back reluctant patients for elective procedures
A Sector To Consider Despite the Financial Impact of COVID-19
Health insurance providers have seen a reduction in claim filings since the onset of the pandemic, which reduces their operating costs and generates unanticipated profit. This has resulted in substantial windfall profits for some health insurance companies. According to an article published in August 2020, it is predicted that this trend should continue over the current quarter and the next quarter. Fears about contracting the coronavirus from a hospital visit have reduced the number of elective surgeries that would have normally taken place as well as other limitations for treatments. The reduced costs have skyrocketed insurance company profits.
Taking Steps to Combat the Financial Impact of COVID-19
Different companies and organizations will have to incorporate a variety of activities and actions to reduce losses and improve financial conditions. After 6 months of adapting to a more challenging world, many companies have identified the areas they need to focus on and improve upon to weather the storm. Investors should pay particular attention to several key actions that will let them know if the company they’re interested in has been proactive in solving problems. Listed below are a few areas investors may want to investigate* as a part of their due-diligence process to determine if a potential investment has taken steps to remain financially solvent and secure:
– Discretionary spending review
– Future capital expenditure review
– Accounts payable and accounts receivable analysis
– Workforce reductions – past and future
– Supply chain optimization programs
– Operations improvements
– Short-term and long-term cash flow analysis
*The advice of a qualified professional stockbroker or analyst is always recommended before purchasing or selling any financial instrument.
Time to Get in the Game?
For investors seeking growth opportunities for their portfolios, the current market climate is very strong despite the difficulties presented by the COVID-19 pandemic. Forward leaps in technology, medicine, manufacturing, and scores of other industries are being positively affected by a very negative circumstance. Due to the pandemic, society has evolved with greater awareness surrounding exposure in social settings. Changes in educational dynamics, a reluctance toward visiting hospitals and other health care centers or health care providers, and other various health-safety measures are now commonplace and considered appropriate. With these changes come opportunities to support companies and organizations that confront the pandemic head-on.
Having reviewed the details on the current financial impact of COVID-19 in the healthcare sector, you should have a better understanding of the opportunities that are present in the industry. For more information on this topic, contact us to speak with one of our specialists today.
Sheheryar Shah is responsible for leading mergers and acquisitions activity for current portfolio investments, developing and accessing investment opportunities, providing strategic management support, and monitoring investment performance. Before joining the company full time in 2016, he worked as a strategy and finance consultant for ZT several years.