What to watch as health systems and insurers report Q1 results

As payers and providers start to report first-quarter earnings, a key question will be how recovery from the financial hit of the COVID-19 pandemic is progressing. Now that federal relief funds for providers are largely exhausted and payers could be seeing more people return to care upon receiving a vaccine, it’s unlikely the companies are out of the woods.

Insurers generally withstood the effects brought on by the pandemic last year better than providers. Providers saw visits nosedive as a result of the pandemic — spurred by lockdowns or patient fear — and for insurers that resulted in record profits as they benefited from not paying for the care patients were putting off.

Insurance executives have said they expect that pattern to dissipate, especially as cases slow and vaccinations rise to potentially achieve herd immunity and some semblance of normality.

For both insurers and health systems, volumes will be an important metric. It remains to be seen how quickly patients will return to in-person care, and in some cases, they may choose to continue telehealth or non-hospital outpatient settings after the pandemic subsides.

The success of the vaccine rollout in the U.S. is a good sign, but with hospitals in Michigan reporting recently they are full with COVID-19 patients, it’s clear the coronavirus will continue to have a major impact in 2021.

Providers can’t count on federal funds in 2021

Full-year reports from large health systems showed most remained profitable despite the multiple pauses in lucrative elective and other care deemed not emergencies. This was largely possible, however, because of the $175 billion Congress allocated to providers more than a year ago.

Although some systems managed without the lifeline, even returning funds in some cases, many relied on it to keep them in the black. Congress and CMS took other actions, including advance payments and a pause to Medicare sequester cuts that was just extended.

Fourth-quarter earnings showed care levels starting to normalize, although volumes have varied by specialty. But January and February included record rates of coronavirus infections and deaths, potentially leading people to continue staying out of the hospital for non-emergencies.

Still, hospitals are facing a rough year, according to some prognosticators. A report Kaufman Hall prepared for the American Hospital Association found hospitals could face lost revenue of anywhere from $53 billion to $122 billion for fiscal year 2021.

Where the loss comes along that range depends on the pace of vaccinations, patient willingness to return for in-person care and whether cases of COVID-19 ramp down continuously throughout the year.

Erik Swanson, senior vice president for data and analytics at Kaufman Hall, said Q1 reports are likely to show major year-over-year changes because January and February of last year were relatively normal. Hospitals are seeing some bright spots, though, and month-over-month growth seems promising.

“What we saw in this last month that seems to be driving that is finally starting to see a more consistent uptick in that outpatient revenue and some growth on the outpatient side in a more considerable way,” he said.

In addition to margins and volume numbers, Swanson will be looking at expenses, as those figures are likely to remain inflated with the continued need for personal protective equipment and rising wages for travel nurses.

It could be the case that hospitals enjoy an uptick in volume as people seek out care they delayed as a result of the pandemic. “We believe pent up demand is already being addressed and will boost elective volumes for a couple of quarters,” Jefferies analysts wrote in a note last week.

Tenet will be the first big publicly traded hospital operator to report later on Tuesday. The company said last month that it estimates it could lose $39 million in the quarter or profit by as much as $41 million depending on factors like patient return. The largest for-profit chain, HCA Healthcare, reports Thursday. Both recorded profits and improving volumes in Q4, although Tenet executives were cautious about how 2021 would shake out financially.

Payers watching for volume rebounds

The concerns from insurance companies that flush times may be over could be seen in the final quarter of 2020. Some major insurers saw profits tumble in the fourth quarter as COVID-19 testing and treatment costs outweighed deferred care. It led Anthem to cut its 2021 guidance and Centene announced plans to cut 3,000 jobs.  

So as the sector readies for first quarter results to roll in, industry observers will be closely watching volume trends, and whether the patients that do return are sicker and more costly after delaying care throughout the pandemic.

It’s important to point out that after a winter surge, cases of COVID-19 began to fall dramatically in the first quarter, signaling a potential resurgence of care during that period, especially as vaccinations began to ramp up.

UnitedHealthcare, however, kicked off earnings season last week with a favorable report showing a 44% increase in profit and noting that utilization was still depressed.

It will also be important to observe which insurers gain market share after the federal government re-opened the Affordable Care Act exchanges for a special enrollment period to help uninsured Americans obtain coverage during the pandemic.