Elective surgery pause in Texas is bad credit news for hospital operators

Texas Gov. Greg Abbott's proclamation June 30 suspending elective surgeries at hospitals in several counties is credit negative for for-profit hospital companies, according to Moody's Investors Service. 

The June 30 proclamation requires hospitals in Cameron, Hidalgo, Nueces and Webb counties to postpone surgeries and procedures that are not immediately medically necessary, and the governor previously suspended elective care at hospitals in Bexar, Dallas and Travis counties. 

The language of the executive order does not include ASCs, and it gives hospitals some flexibility over which surgeries they consider medically necessary. "These two factors differ from the nationwide pause on elective surgeries that was mandated in March/April, likely resulting in a less severe drop in surgeries in Texas than hospitals experienced earlier on," Moody's said. 

Since elective surgeries are a primary source of profit for acute care hospitals, delaying elective procedures in those counties, which are among Texas' most populous, will weaken revenue and profit of hospital companies operating in those areas, according to Moody's. 

Among the major for-profit hospital operators, HCA Healthcare derives the largest percentage of business from Texas. The Nashville, Tenn.-based company derives about 26 percent of its revenues from services in Texas. 

About 23 percent of Dallas-based Tenet Healthcare's hospital beds are in Texas, while King of Prussia, Pa.-based Universal Health Services derives about 16 percent of its revenue from business in the state. Among the major for-profit hospital operators, Franklin, Tenn.-based Community Health Systems is the least exposed. The company relies on Texas for about 12 percent of its revenue, according to Moody's. 

"We believe that these larger for-profit hospital systems are better positioned now than they were in March/April to handle a surge in COVID-19 patients," Moody's said. "These companies are geographically diverse and have experienced surges in COVID-19 patients in other markets, even though Texas was not a hotspot earlier on."

In Texas, hospitals have the option to direct patients to affiliated ASCs. Tenet and HCA both operate a significant number of ASCs in the state, Moody's said. 

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