U.S. Hospitals Emerging Into A Changed World

Liz Sweeney
7 min readNov 28, 2021


This is part 3 of a 3-part series on U.S. hospitals, capital markets, and the credit impact of the coronavirus. Watch the introductory video. Read part 1. Read part 2.

As the U.S. emerges from the pandemic, things will never be the same for acute care hospitals. Some challenges were already present before the pandemic — rising salary costs, pharmaceutical inflation, slowly worsening payor mix, new price transparency rules, and increasing competition from nontraditional sources, including giants like Walmart, CVS Health, and Amazon. On top of these challenges, the pandemic intensified cost pressures and fueled rapid growth in alternative care options including telehealth and hospital-at-home programs. And consumers, increasingly accustomed to convenient digital experiences in other aspects of their lives, are demanding the same from healthcare providers. Finally, the most recent report from the Medicare trustees paints a “daunting payment picture” for healthcare providers.

For sure, some emerging trends are opportunities for proactive hospital management teams. Those that invested early in digital patient experience, for example, will gain a competitive edge over laggards. However, many current industry challenges contain little upside. Supply cost inflation, employee burnout, high turnover, staffing shortages, and wage acceleration are amenable to proactive management, but are ultimately an exercise in damage mitigation where success means being less worse off.

Despite the challenges, hospitals are faring very well in the capital markets, as we discussed in Part 1 of this series. In addition, as we discussed in Part 2, hospitals have mostly learned how to manage through the ebbs and surges of the coronavirus while also caring for non-covid patients, a herculean and complicated task. Hospital balance sheets are at record strength, according to rating agencies. Still, the industry hasn’t faced an operating environment this challenging in recent memory. What should investors, analysts, and lenders look for in the next 1–2 years? We highlight three of the many ways the U.S. hospital industry may never be the same.

Source: S&P Global Ratings, “U.S. Not-for-Profit Acute Health Care 2020 Medians”, Aug. 30, 2021. Trend line added.

1. Staffing emerges as the top pain point

Early in the pandemic, many hospitals had excess staff as elective care was largely eliminated, while the anticipated surge of COVID-19 patients often took weeks or months to materialize. Some hospitals even did furloughs and layoffs. But as the pandemic wore on and non-covid patient care resumed, staffing shortages emerged, driven by the emotional toll of caring for sick and dying patients, exhaustion from recurring surges of virus activity, and even abuse from virus skeptics.

Vaccine mandates also contributed to staff shortages as some healthcare workers chose to be terminated or placed on leave rather than comply with the mandates. Staffing challenges also appear to be associated with increased union activity and strikes. Staffing shortages are a double whammy for hospitals, who are paying more for the staff they have (often through expensive clinical staffing agencies), and still occasionally are shutting down units or divert patients for lack of staff, which hurts volume, revenue, and reputation.

Key considerations for the credit community will be salary and benefits inflation, adequacy of staffing for key clinical services, union activity, impact on volume and revenue, ability to maintain clinical quality metrics, and management actions to mitigate staffing challenges.

2. Disruptive potential of telehealth and other site-of-care shifts

Pre-pandemic, telehealth use was miniscule, estimated at less than 1%. As in-person visits plummeted in March/April 2020 by almost 70%, telehealth soared as a safe alternative for certain healthcare needs. Healthcare providers scrambled to rapidly install the procedures, bandwidth, and reimbursement codes necessary to ramp up telehealth programs. According to a McKinsey & Company study, by April 2020 telehealth utilization for outpatient care was 78 times higher than just two months prior. Usage declined as provider offices reopened for in-person visits, but by mid-2021 telehealth utilization stabilized at 38 times higher than pre-pandemic, according to the study.

Source: COVID-19 Healthcare Coalition, from private payor claims, Medicare Advantage, and Medicaid HMO claims

What are the credit implications of growing telehealth usage? We see two significant risks.

- Hospital-owned physician practices face greater competition from large telehealth companies offering convenient and inexpensive visits. While many hospital-owned practices offer telehealth options too, they often charge the same as for an in-person visit and don’t always offer convenient off-hours access. Telehealth companies are often favored by health insurance plans which incentivize use by members with low per-visit costs. Self-insured employers can also contract with telehealth companies for a “virtual-first” approach to reducing the cost of employee health care, and healthcare insurance companies are starting to offer virtual-first plans.

- But the bigger risk in our view is to the referral chain on which hospital volumes heavily rely, which often start with a primary care visit, then a referral to a specialist, and ultimately a hospital. Hospitals invested significantly in primary care physician practices in large part to secure the front-end of this chain of referrals. Telehealth companies will interrupt these long-standing referral chains with their own referral algorithms, which may be incentivized by the patient’s employer or health insurer. Assuming telehealth doesn’t change the overall need for hospital care, it will still make a significant impact by altering long-established referral patterns, creating winners and losers among hospitals.

Credit analysts’ evaluation of telehealth’s impact will include whether a hospital has a comprehensive telehealth strategy that recognizes disruptive potential starting with primary care and moving up the chain to the hospital. Analysts will also monitor patient volumes at hospital-owned physician practices, the growth of telehealth competitors in the market, telehealth strategies of employers and health insurers, and any resulting inpatient market share shifts.

Other site-of-care changes can have similar disruptive effects. So-called “hospital at home” programs are growing rapidly, spurred by inpatient capacity constraints, fears of coronavirus spread within the hospital, and a CMS pilot program which incentivizes healthcare systems to experiment with home-based acute care. Disruptive risks include potential for patients to prefer hospitals with at-home programs and the growth of specialized home-based care companies that were already experimenting in this space prior to the pandemic. These companies have experience, scale, and technology platforms that many hospitals haven’t yet acquired.

3. Consumer experience and transparency

The pandemic accelerated consumer use of technology for many basic needs, widening the population of tech-competent consumers. Consumers clearly want a better digital healthcare experience, including appointment scheduling, reminders, patient records, billing, and price transparency. In a recent survey conducted by HIMMS and Solutionreach, nearly 7 in 10 consumers said they want to receive text messages for healthcare appointment confirmations, reminders, pre-visit instructions, and other notifications. Importantly, this includes a whopping three fifths of those ages 50+. More than a third of consumers would be willing to switch providers to receive more modern communications like real-time text messaging.

Consumers also want more price transparency before making appointments and are willing to shop for better prices. A consumer survey by NRC Health found that 97% of consumers want to know the pricing for a test, exam, or screening in advance, and 3 out of 4 would choose a provider who shares prices over one who doesn’t. Another, perhaps bigger risk of price transparency is “wholesale” strategies, where employers, insurers and third parties leverage price transparency now required on hospital websites, which may result in patients being directed to providers that demonstrate better value according to the data mined by wholesalers.

The message is clear: consumers consider convenience, technology, and transparency to be at least as important as traditional provider characteristics such as reputation, peer recommendations and quality measures. Price transparency has potential to create winners and losers by shifting large amounts of volume to favored providers. Credit analysts will be examining providers’ digital strategies and capabilities to assess the risk of patients migrating to other providers with more convenient technology platforms. They’ll also be watching the effect of new transparency rules, including whether consumer behaviors change, and the effect of wholesale strategies in a hospital’s local market.

If you missed Part 1 of our series — Healthcare Providers Are Essential. Do Capital Markets Agree?we explored whether the public’s elevated understanding of the essentiality of the hospital sector and the federal government’s financial support for hospitals during the COVID-19 pandemic has changed the way capital markets view the sector.

In Part 2 — Do U.S. Hospitals Have A Case of Long-Haul COVID?we discussed what the pandemic may mean for the health and sustainability of the sector and similarities between hospitals’ current health and “long-haul COVID”, an informal term for a range of lingering and sometimes debilitating effects experienced by some recovering COVID patients.

Liz Sweeney is Senior Consultant, U.S. Public Finance at SwissThink, which offers learning solutions and consulting for credit markets. She is also a board member of University of Maryland Medical System and a debt advisor to nonprofits and municipalities.



Liz Sweeney

Board member and public finance expert with specialties in credit analysis, debt advisory, municipal disclosure, ESG and climate change.