Pandemic hit the ASC sector hard, but it's also ripe for recovery: 6 updates from Moody's

The ASC sector will be among the hardest hit sectors in the Moody's U.S. healthcare corporate portfolio, according to a report released on April 21.

Moody's named the ASC, dental and physical therapy sectors as being the hardest hit sectors in healthcare because all rely on elective surgeries, which have been postponed or canceled in many states to combat the coronavirus pandemic. However, the analysts authoring the report also believe these fields could be quick to recover.

"The timing of a recovery is uncertain, but we believe that when the crisis subsides, these companies will be among the first to recoup lost volumes because there will be pent-up demand for routine, preventative and other deferrable care," according to the report.

Here are six key observations:

1. The volume ASCs will recoup depends on the company's business profile as well as macroeconomic factors, say the analysts. While some will cancel procedures indefinitely due to loss of insurance, there are some that will overcome volume declines based on cost management, geographic diversity and business mix.

2. Moody's either downgraded many ASC companies or put them on review to downgrade. The current status of large ASC chains includes:

· Surgery Partners: Caa1, on review for downgrade
· Covenant Surgical Partners: B3, on review for downgrade
· Eyecare Partners: B3, on review for downgrade
· Tenet: B2, stable
· HCA Healthcare: Ba1, stable
· United Health: A3, stable
· Envision Healthcare: Caa2, negative

Envision derives 15 percent of its revenue from its ASCs and is reportedly considering filing for bankruptcy.

3. The report estimates around 70 percent of surgeries performed at ASCs are elective, but the remaining 30 percent that are more urgent will be prioritized after states lift elective surgery restrictions.

4. Geographic diversity will be an important factor since ASCs in concentrated areas, and those in the areas hardest hit by COVID-19, could experience delays or similar economic challenges. Moody's reports Covenant is the most diversified with 44 ASCs in 19 states while Surgery Partners reports 45 percent of revenue coming from ASCs in three states.

5. The ASCs most likely to weather the negative effects of the pandemic are centers that can conserve cash. Moody's reported Surgery Partners and Covenant Surgical Partners are highly acquisitive, with the ability to reduce growth capital expenditures, which will put them in a better position going forward.

6. ASCs can take advantage of the Coronavirus Aid, Relief and Economic Securities Act, which gives all providers for Medicare patients stimulus grants. Further stimulus plans could also help ASCs.

More articles on surgery centers:
Financial hit from COVID-19 could lead to ASC closures, more consolidation: 4 insights
Permanent closure is a possibility for 25-location Wisconsin pain practice
AAAHC encourages ASCs to follow safety guidance around COVID-19 pandemic

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