The COVID-19 pandemic may make the health care sector less resilient than it normally would be in a downturn.

Historically, the health care sector has outperformed other sectors during down markets. This time may prove different because COVID-19 is giving rise to both humanitarian and economic impacts. Hospitals and health systems have reconfigured themselves to deal with the immediate health crisis. At the same time, social distancing efforts have been employed to buy more time for front line medical personnel. These efforts have had a cascading impact, effectively shutting down many parts of the economy. While the sector might otherwise prove resilient to a typical economic downturn, the COVID-19 pandemic puts a unique strain on health care resources.

Here’s a look at how these factors are affecting health care subsectors today.

  1. Hospitals and health systems face cash flow issues

As hospitals have shifted their focus toward treating a huge influx of COVID-19 patients, their revenue and spending patterns have shifted. High-margin revenue streams from elective procedures have largely disappeared.[1] Meanwhile, the costs of testing and treating COVID-19 while protecting health care workers has put extra strain on hospitals’ cash flows.[2]

  1. Some private practices experience major revenue losses

The situation can be significantly worse for health care practices not focused on treating COVID-19, such as physician groups, specialists, and dental practitioners. These types of practices have had to curtail their activities due to the implementation of social distancing.[3] While they wait for a return to more normal revenue flows, many of them may need to turn to small business assistance—a move that puts them in line with a large number of their non-health-care small-business peers for government funds.[4]

  1. Health insurers maintain a stable outlook

Insurers have largely indicated a willingness to pay for their members’ COVID-19-related treatments. However, credit ratings agency AM Best has retained a stable outlook for the health insurance industry, largely based on favorable earnings trends in recent years.[5] Insurers may also likely be able to adjust rates next year to mitigate any potential losses.

  1. Pharmaceutical and biotech companies race for a cure

Large pharmaceutical companies are working together in response to the COVID-19 outbreak, sharing information and fast-tracking promising drugs.[6] While the industry’s revenues have remained stable so far, worries about supply chain disruptions have increased uncertainty about the potential effects of a longer-term shutdown.[7]

Managing a time of constant change

Until more is known about the course of the pandemic, it will be difficult to gain certainty about many things—including the outlook for health care sector companies.

Wilmington Trust’s experts are watching this rapidly changing situation closely. If you have any questions regarding issues caused by COVID-19, including questions about your investment strategy, business financing, and insurance coverage, contact us today.

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs.

The information in this article has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed.  The opinions, estimates and projections constitute the judgment of Wilmington Trust and are subject to change without notice.

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[1] Healthcare Innovation, “Projected Financial Impact of COVID-19 Leaves Healthcare Leaders Searching for Help,”  March 30, 2020, https://www.hcinnovationgroup.com/finance-revenue-cycle/article/21131880/projected-financial-impact-of-covid19-leaves-healthcare-leaders-searching-for-help.

[2] Medscape, “Hospitals Face Cash Crunch in 60-90 Days Due to COVID-19,” March 27, 2020, https://www.medscape.com/viewarticle/927612.

[3] MedPage Today, “COVID-19 Shutters Some Private Practices,” March 27, 2020, https://www.medpagetoday.com/infectiousdisease/covid19/85637.

[4] Axios, “Skepticism Rises over Government’s Small Business Bailouts,” April 3, 2020, https://www.axios.com/skepticism-rises-over-governments-small-business-bailouts-dfb57d82-32f8-433f-8eda-f9f267836fbc.html.

[5] HealthPayer Intelligence, “Payer Claims, Economics, Operations Will Suffer Due to COVID-19,” March 24, 2020, https://healthpayerintelligence.com/news/payer-claims-economics-operations-will-suffer-due-to-covid-19.

[6] FierceBiotech, “Big Pharma companies join forces for fightback against COVID-19,” March 27, 2020, https://www.fiercebiotech.com/biotech/big-pharma-companies-join-forces-for-fightback-against-covid-19.

[7] European Pharmaceutical Review, “COVID-19 Update: Coronavirus and the pharmaceutical supply chain,” April 1, 2020, https://www.europeanpharmaceuticalreview.com/article/116145/covid-19-update-coronavirus-and-the-pharmaceutical-supply-chain/.