The Return of Surgeries Stumps Wall Street, Hospitals Alike
The Return of Surgeries Stumps Wall Street, Hospitals Alike
(Bloomberg) -- Patients in need of a hip replacement or heart valve aren’t the only ones eager to see hospitals reopen for non-essential procedures.
Every day, hospitals and medical suppliers are losing out on billions of dollars in delayed sales. Yet, the reopening of hospitals will require a delicate balance of ensuring patient safety with capacity to handle Covid-19 cases.
Companies like Johnson & Johnson have attempted to qualify what a return to normal will look like, noting signs of stabilization in the third quarter and recovery in the fourth. But many others, including members of Wall Street, are struggling for answers.
“No one knows, and I think anyone who says they know is lying. That’s the honest answer,” JPMorgan Chase & Co. analyst Robbie Marcus said. “There’s a reason that almost all the companies in the medtech universe withdrew guidance, it’s that they don’t have enough information as we sit here today to give expectations with any certainty.”
The ongoing shutdown could drive $50.7 billion in losses per month for hospitals and health systems across America, data compiled by the American Hospital Association show. The report says canceled services like non-elective surgeries could alone drive $161.4 billion in lost revenue through June.
The billions in delayed and lost sales for companies that sell products like heart valves, knee and hip replacements and spinal implants are piling up, as is the risk for patients. While some procedure delays aren’t life-threatening -- like cleaning up an injured joint -- missed surgeries to replace things like a leaky heart valve could kill patients.
‘Biggest Driver’
“The biggest driver for this, for better or worse, is going to be the economic reality for hospitals and physicians,” Jefferies analyst Raj Denhoy said by phone. “If they don’t start to open up for these elective, revenue-generating procedures how long can they reasonably survive?”
Bloomberg News spoke with a dozen Wall Street analysts, investors, doctors and health professionals about the reopening of hospitals and outpatient facilities for elective procedures. The responses showcased the fluidity of the situation that varies considerably on a state-by-state and hospital-by-hospital basis. About 35 states can meet the White House coronavirus task force’s criteria to restart elective procedures in the outpatient setting, analysis conducted by Wells Fargo Securities show.
“I don’t own any of the for-profit hospitals because I’m just not sure how that’s going to work out,” Teresa McRoberts, lead health-care portfolio manager at Alger, a $30 billion growth equities investment firm, said by telephone. “Every single hospital is bleeding money and I don’t know if our politicians are going to be able to come up with enough money to salvage that.”
The federal government has allocated $175 billion for medical providers as part of the CARES Act and other relief bills to replace some lost revenue from the shutdowns and cover costs related to Covid-19 care. However, the stimulus measures haven’t extended across the industry to medical device makers.
Seniors Delay
Comparing survey results of patients who have deferred procedures since the start of the pandemic depends mainly on age and needed surgery. On the whole, data compiled by a bevy of banks and research institutions show older patients, or those with procedures that require overnight stays, are most likely to delay their procedure by six months or not have it done at all.
“Convincing consumers that it is safe to seek care in hospitals and physicians’ offices will take time,” Boston Consulting Group partners led by Sanjay Saxena wrote in a report. “At least some of the volume that has shifted to lower-cost and more convenient telehealth and virtual-care formats will remain there.”
Another topic of debate for specialist and generalist investors alike is whether certain procedures will come back on line quicker than others. One theory is that patients in need of more urgent surgeries will be welcomed back before those whose procedures are more elective in nature. However, the timing on when different doctors will start to see patients isn’t exactly black and white.
For hospitals like Tenet Healthcare Corp. and its subsidiary United Surgical Partners International, more complex surgeries are starting to trickle in while pain, gastrointestinal, ear, nose and throat procedures have been slower.
“We are seeing the demand kind of beginning to improve significantly across all specialties, but of course some are coming back a little faster than others,” USPI Chief Executive Officer Brett Brodnax said during a May 5 earnings call. “If you look at which procedures are actually coming back more quickly, it’s probably the higher complexity cases in the area of spine, total joints, general surgery -- some of those things that have been delayed but are certainly necessary to get done as soon as possible.”
Wall Street’s View
Add into the equation that some procedures tend to drive more revenue than others, such as orthopedic surgeries, and the picture gets more muddy.
“The reality is that orthopedic surgeons have bills to pay as well, so to say that orthopedics is going to just have to wait in line for every leaky heart valve to be replaced is misplaced,” Jefferies’s Denhoy said.
Twenty one of the at least 27 health-care companies in the S&P 500 that have bailed on their outlooks for the year are medical technology firms, according to data compiled by Bloomberg. That’s on top of many businesses that have held off telling investors and analysts what they expect for the middle of the year.
“They haven’t given guidance -- and I don’t think it’s just because they’re trying to use the pandemic as coverage -- I honestly don’t think they know any better than anyone else,” Denhoy said.
The inability for sales representatives to meet with doctors to pitch new technologies and equipment is also likely to weigh on companies that are hoping to grow sales from newer products.
Despite the blind spots, investors are seemingly gaining some optimism. The iShares U.S. Medical Devices ETF, has snapped back 43% from a March low as it trades near levels last seen in late February.
However, the uncertainty of a second wave of the virus this year or at the start of 2021 still lurks.
“The virus is not one-size fits all; some areas are much worse than others, and I don’t think the return of elective procedures will be one-size fits all,” Alger’s McRoberts said. “I don’t think things are going back to normal this year. It’ll get better hopefully, but normal is a ways away.”
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