Labs Lost Less & Will Recover More than Other Healthcare Sectors, Says New Report

Although it’s not exactly “Happy Days Are Here Again,” a new S&P report is predicting that the healthcare sector has seen the worst of the COVID-19 pandemic and won’t have to go through “a return to the lows of earlier stages of pandemic in late March/early April.” However, the report also says a full rebound to pre-pandemic levels probably won’t happen until a coronavirus vaccine becomes available.

Not as Bad for Labs as It Was for Other Sub-Sectors

The economic devastation that COVID-19 wrought on healthcare was unprecedented, according to the report, with outpatient surgeries declining by as much as 90 percent and hospital admissions dropping 60 percent. Physical therapy, home healthcare and dental services were also among the hardest hit. S&P doesn’t expect a full recovery for these sub-sectors until 2022.

Labs got off relatively easy, the report finds. In fact, diagnostics, lab testing and life sciences actually posted net gains during the pandemic. Of course, those gains are disproportionate and belie the losses suffered by the majority of labs not in the molecular or respiratory virus testing space. Still, S&P expects these sub-sectors to get back to near pre-pandemic levels by the end of this year, with no impact to their general credit ratings.

The Shape of Recovery

Although the recovery has already begun, the report notes that it has been largely V-shaped, with hospital admissions back to within 10% of pre-pandemic levels and outpatient surgeries almost back to normal. But the assumption underlying the optimism about patients getting back to receiving the care they deferred during the pandemic remains unproven. And even if the assumption is right, the surge is likely to ebb once everybody gets caught up.

Meanwhile, the increasing numbers of uninsured—which stands at roughly 33.5 million, including the at least 5.4 million Americans who lost their health insurance due to COVID-19 job losses and economic dislocation—could prove to be the fly in the ointment. “The adverse change in payors mix and likely increase in charity care will mean greater uncertainty for healthcare providers,” the report notes. “And while healthcare is largely insulated from economic downturns, the pandemic has highlighted the still significant discretionary aspects of healthcare. How the recession and unemployment colors the healthcare discussion in Washington remains to be seen.”

Grounds for Optimism in Lab Testing

S&P expects the increase in demand for COVID-19 testing and testing products to continue for at least several more quarters. These gains will come at the same time as increases in testing for elective surgeries and widespread COVID-19 screening of the asymptomatic in schools, workplaces and other settings undergoing reopening. And, if and when a vaccine does become available, lab companies will once more benefit from the massive demand for testing necessary to produce the billions of doses that will be needed.

The cloud to this silver lining remains the downward pressures on reimbursement rates for lab testing from not only Medicare and Medicaid due to PAMA, but also private sector payors.

Takeaway

“It’s not the beginning of the end, but it may be the end of the beginning.”

Winston Churchill uttered those words after General Montgomery’s 8^th Army defeated Rommel’s Afrika Korps at the November 1942 Battle of El-Alamein, marking Britain’s first major land battle victory of the Second World War. And while there would be nearly three more years of blood, sweat and tears to shed, Churchill turned out to be right.

The S&P report comes to a largely equivalent decision as far as healthcare sector economic recovery goes (although the prognostications for labs, diagnostics and life sciences are far more rosy than for other sub-sectors). Here’s to hoping that the new report coming to the similar conclusion with regard to the economic tribulations caused by the COVID-19 pandemic proves just as prophetic.