Contributors: Madi Whyde, Alex Malin, Spencer Coronado, Keith Ponsler

As the healthcare sector begins to recover from the coronavirus (“COVID-19”) pandemic, insights and experiences from payors and providers paint an optimistic picture for 2021.

In this two-part series, VMG has summarized key observations regarding the following two major themes from public healthcare firms:

Part 1: COVID-19’s Trailing Impact on Payors and Providers

Providers: Near Pre-COVID-19 Levels; Referral Pattern Shifts

An unexpected surge in COVID-19-related volumes in the fourth quarter of 2020 led to a period of anxious anticipation for stakeholders awaiting the release of the year’s earnings reports. However, Q4 2020 EBITDA was unexpectedly in-line or above Q4 2019 levels. Despite the challenges providers faced throughout the year, COVID-19 appears to have spurred innovation, collaboration, and other efficiencies for public operators. Q4 2020 earnings calls, the latest occurring on March 8, 2021 (RadNet), consisted of management’s reflections on the year, providing insight into the trailing effects of COVID-19. Many of the public sector’s providers have indicated volumes returning toward pre-COVID-19 levels, while some sub-sectors continue to be disproportionately impacted. In particular, lower acuity cases in the acute care sector and post-COVID-19 patients entering the physical therapy and rehabilitation spaces. Home health and hospice providers additionally indicated a burgeoning shift in referral patterns toward lower cost of care options in home health services.

Acute Care

“Despite another surge in COVID cases, hospital volumes held steady compared to Q3. Our USPI surgical volume trends improved slightly, recovering to about 95% of 2019 levels. As we’ve discussed in the past, more complex and emergent procedures have recovered from the pandemic at a stronger pace than less critical, lower acuity care. Our COVID inpatient cases were approximately 11% of our Q4 hospital admissions compared to about 10% in the third quarter.”

Daniel J. Cancelmi, CEO & Executive VP – Tenet Healthcare Q4 2020 Earnings Call Transcript

“Quarter-over-quarter, our same-store admissions for our acute care hospitals alone was up almost 20%, up 18%. In addition to that, many of the operators, as I mentioned on the last earnings call, were able to make lot of expense adjustments. We’ve seen that with some of the HCA reporting. That is the same thing with our operators as well. So, I think that as HCA reported, I think that they all will come out of this in a much stronger position. And we are very excited about where they are operationally, and we’ll continue to see those numbers grow. I do not know when we get back to a trailing 12 above where we were pre COVID, but these are very, very strong numbers. When you think about a 2x coverage with an entire quarter being shut down, that’s extremely strong.”

Edward K. Aldag, Founder, Chairman, President & CEO – Medical Properties Trust, Inc. Q4 2020 Earnings Call Transcript

“In terms of the rebound of this current wave, as I said earlier, cases peaked mid-January. We were already active in our redeployment plans, just like we have in the subsequent waves — or I’m sorry, previous waves of COVID, wave 1 and wave 2. A little bit slower of a rebound in some of our communities, I think largely due to some patient hesitancy. We’re hearing a little bit more from our providers that patients are getting the vaccine and now want to wait for that vaccine to take effect. So, we say that with optimism that bringing patients back into the health care system vaccinated, reducing the spread, all that would bode well for us in the near to midterm.”

Tim L. Hingtgen – CEO & Director – Community Health Systems Q4 2020 Earnings Call Transcript

“Across many dimensions, we improved our enterprise capabilities, which should allow us to support our local health systems better and enhance their abilities to provide higher quality care with greater efficiency. More importantly, we demonstrated an organizational ability to respond quickly and effectively to possibly the greatest challenge the company has ever experienced. And now I believe we are emerging on the backside of this event stronger and better positioned to grow and drive value for our stakeholders.

In the face of the highest surge yet of the COVID-19 pandemic, we finished the year with strong financial results in the fourth quarter. These results were driven once again by highly acute inpatient volumes, coupled with solid cost management.”

Samuel N. Hazen, CEO & Director – HCA Healthcare, Inc. Q4 2020 Earnings Call Transcript

“During the fourth quarter of 2020, we also continued to experience a material unfavorable impact on our operations and financial results from the COVID-19 pandemic before giving effect to the revenues recorded in connection with the CARES Act and other governmental grants. Specifically, we experienced an increased wave of COVID patients in December 2020, which peaked in the first half of January of 2021. The negative impact resulting from this elevated level of COVID volumes was primarily a function of accompanying declines in elective and scheduled procedures, declines in both acute and behavioral patient days, along with increased expense pressures, particularly on salaries and wages.

What we have generally noted in 2020 is that the level of intake or inquiries has remained rather strong. And what has really occurred, particularly, I think, later in the year, is more challenges for us to meet that demand either because of COVID patients in our behavioral facilities that preclude us from admitting non-COVID patients, proxy for them on their units on their floors, whatever, or because we’ve got a significant chunk of our labor force that either has been exposed to the virus or has the virus or is out for some other, I’ll call virus-related reason, and we simply can’t sort of operate all of our beds in a particular hospital or a particular geography at a point in time.”

Steve G. Filton, Executive VP, CFO & Secretary – Universal Health Services, Inc. Q4 2020 Earnings Call Transcript

Post-Acute Care

Post-acute care has been uniquely impacted by the COVID-19 pandemic, with drops in patient volume at the start of 2020 giving way to increased referral patterns for home health by the end of 2020. With quality of care in home settings increasing, the aging boomer population, and COVID-19 causing individuals to want to receive treatment in the comfort of their own home, home health is positioned to see a large increase in patients moving forward.

“Factors that have impacted our volumes include the number of COVID-19 cases in a community, the status of operations at acute care hospitals, the number of exposed or positive staff in quarantine, delays in obtaining COVID-19 test results for patients and employees and capacity limitations created by semi-private rooms in some of our hospitals. While COVID patients do not comprise a large percentage of our patients, many of our hospitals, home health agencies and hospice agencies treat patients recovering from the virus. These patients, many of whom have spent time on ventilators, had endured extended stays at an acute care hospital. They are extremely weak and require intense rehabilitation to regain both their strength and cognitive abilities.”

Mark Tarr, Executive VP & CEO – Encompass Health Corporation Q4 2020 Earnings Call Transcript

“We continue to take on COVID-19 confirmed and suspected patients, with that number more than doubling in the fourth quarter in home health and up 70% in hospice. Since the pandemic began, we’ve treated 26,600 of these patients. Our institutional admissions have also increased sequentially during the same time frame and are approaching pre-COVID level, which is closer to the norm for us.

Home health was up [in spend] by 2% with hospital care, physician and clinical services and nursing home care all down low- to mid-single digits. What this demonstrates is that the pandemic has resulted in a shift in referral patterns, with more patients, families, physicians and discharge planners choosing home health over more costly and potentially higher-risk concrete care settings.”

Keith G. Myers, Co-Founder, CEO & Chairman – LHC Group Q4 2020 Earnings Call Transcript

“The most complex issue facing VITAS over the past 9 months has been the disruptive impact the pandemic has had on traditional hospice referral sources, which, in turn, has impacted our patient census patterns. Fortunately, the portions of the health care continuum have — certain portions have normalized, and hospital referral and admissions have significantly improved from low admission rates experienced early in the pandemic. This is reflected in our second half of 2020 admission and census activity. Our third and fourth quarter 2020 admissions increased 4.7% and 2.8%, respectively. Normally 2 sequential quarters of solid admissions growth would result in an increase in average daily census. However, despite the admissions growth, our average daily census declined 2.8% in the fourth quarter. This decline in census is a direct result of disruption in senior housing, which includes nursing homes and assisted living facilities.”

Kevin J. McNamara, President & Director – Chemed Corporation Q4 2020 Earnings Call Transcript

“…The COVID-accelerated trends of doing more for more in the home, no one is better positioned than Amedisys to take advantage of the share shift into the home. And as we grow our SNF-at-home capabilities, technology innovations and other high acuity programs, we expect to take even more share from other post-acute providers. It’s truly an exciting time to be at Amedisys.”

Paul Berthold – Chairman, President & CEO – Amedisys Q4 2020 Earnings Call Transcript

Dialysis

“Despite the good work in 2020, the challenges of COVID remain… The disproportionate impact COVID has on patients with underlying health issues and the elderly continues to manifest itself in the dialysis community. The higher rates of patient mortality that we talked about last quarter unfortunately accelerated in November and continued through January. We estimate that our patient census at the end of 2020 was approximately 7,000 less than what it would have been otherwise absent COVID.”

Javier J. Rodriguez, CEO & Executive Director – DaVita Inc. Q4 2020 Earnings Call Transcript

“Relative to Q3, we experienced changes in first mortality which has had a compounding effect throughout the year; second, a reduction in expense offsets in the quarter, particularly related to the healthcare costs for our teammates, which have helped to temper the net financial impact of COVID in Q2 and then in Q3; and third, higher direct costs related to COVID, including certain benefits to help our frontline teammates with the hardships of COVID and higher PPE costs.”

Joel Ackerman, CFO & Treasurer – DaVita Inc. Q4 2020 Earnings Call Transcript

Clinical Laboratories

“We expect the base business to improve. That’s a significant margin tailwind versus the prior period because we are — in any given window of time, a highly fixed cost operation on our base business.

[We] expect erosion in our COVID volumes. That creates a headwind and how those 2 pieces offset each other is hard to predict slightly, if you understood me specifically. But I would, at this point, expect that the COVID reduction more than offsets the base.”

Mark J. Guinan, Executive VP & CFO – Quest Diagnostics Q4 2020 Earnings Call Transcript

Payors: Increased Consumer Product Offerings

Payors are poised for the future with increased telehealth services and digital-first solutions available to patients amid the COVID-19 pandemic. UnitedHealth Group noted the increased cost savings and on-demand nature of these services that help meet patient needs during this difficult time.

“As I reflect on what we’ve learned from the pandemic, I am energized by the way the collective health care system responded to the crisis and how actions taken to combat the pandemic strengthened and accelerated critical tenets of the system. As an industry, in partnership with policymakers, we took deliberate and sustained actions to remove financial barriers and enhance access to care in response to the pandemic, easing some of the burden on our nation’s most vulnerable population at a time when they need it most. Supported by CMS, health plans and providers proactively addressed social determinants of health that were exacerbated by the pandemic and quickly pivoted to the telephonic and in-home care, advancing in a matter of months what may have taken years absent the pandemic.”

Bruce Dale Broussard, President, CEO & Director – Humana Inc. Q4 2020 Earnings Call Transcript

“While we estimate and accrue for the incremental revenue from anticipated submissions as the year progresses, there is a higher degree of uncertainty in our revenue projections compared to a normal year. Let me spend a few minutes addressing the drivers of this increased uncertainty. First, while we worked tirelessly throughout 2020 to ensure members had access to and were receiving the appropriate level of care, including by significantly increasing outreach and availability of in-home care and providing access to video telehealth clinician visits, the meaningful drop in non-COVID medical utilization in November and December was not expected. Those are important months as they round out our ability to drive meaningful clinical interactions with our members, and therefore, the unexpected decline in utilization affected our ability to appropriately document their conditions. Second, the mix of utilization was very different in 2020 relative to prior years. For example, the dramatic increase in the number of telehealth visits from 2019 to 2020, although critical in allowing our members to access care while affording us the opportunity to document their conditions, nonetheless, creates greater uncertainty around the type and volume of diagnoses codes collected. Separately, utilization for in-patient and non-in-patient continued to increase for COVID diagnosis throughout the year. Accordingly, within the mix of submissions from 2020 that drive our 2021 revenue, we also expect organic diagnosis code submissions tied to COVID claims, for which we have limited visibility at this time. These are just 2 examples of how emerging experience in 2020 creates more uncertainty in our MRA revenue projections for 2021 because we are not able to place the same level of reliance on historical trends as compared to a normal year.”

Brian Andrew Kane, Chief Financial Officer – Humana Inc. Q4 2020 Earnings Call Transcript

“As a general rule, we have seen an inverse relationship between COVID treatment costs and levels of non-COVID utilization, as surges in the pandemic led to less nonessential care being sought by our members. While the ratio of COVID treatment to non-COVID depressed utilization has varied, to date, we have seen in our Medicare book that the level of depressed utilization has more than offset the treatment cost. The shape of the COVID case curve is one of the largest drivers of these 2 related factors, and as such, they remain the 2 largest sources of uncertainty for 2021, given the unprecedented nature of the pandemic.”

Brian Andrew Kane, Chief Financial Officer – Humana Inc. Q4 2020 Earnings Call Transcript

Future Forecast

As patient volumes returned during Q4 2020 across most sectors, many operators noted a recent COVID-19 surge in December of 2020, with expectations that the vaccination options available will solidify the market’s metrics over time. Both payors and providers indicate an optimistic yet cautious outlook regarding 2021 and have stressed the importance of the vaccine’s distribution. While home health and hospice providers noted a shift in referral patterns, many providers indicated lasting changes toward telehealth and digital options, providing lower cost of care options to patients. Part 2 of this article will include detailed market commentary and outlook on the lingering effects of the Pandemic.