Dive Brief:

• The spread of COVID-19, the virus that sparked an outbreak two months ago beginning in Wuhan, China, will have mixed credit implications for healthcare companies in the United States, according to a report released Wednesday from Moody's Investors Service.
• For hospitals, the effect will depend on the length of stay for patients with the disease. Any further outbreak would increase patient volume but could pressure margins if facilities are forced to cancel more lucrative elective procedures.
• The outbreak is credit negative for U.S.-based device and pharmaceutical companies that make products in China or rely on it in the supply chain. Payers are not likely to be materially affected, barring a pandemic, Moody's said.

Dive Insight:

The U.S. declared a public health emergency at the end of last month for COVID-19, which is caused by a member of the coronavirus family. There are as of Thursday 14 confirmed cases of the virus in the United States and more than 45,000 worldwide — mostly in China, according to the latest figures from the World Health Organization.

During a call with reporters Wednesday, Nancy Messonnier, director of the Centers for Disease Control's National Center for Immunization and Respiratory Diseases, said the agency expects community spread in the U.S. and is "planning for increased demand on our healthcare system." This includes "taking steps to make sure there are enough supplies and appropriate guidance to prevent the spread of the disease, especially among healthcare personnel caring for patients," she said.

The CDC recommends providers treating potential cases of the virus be vigilant, follow infection protocols and use personal protective equipment.

The spread of the outbreak over the past month and a half has wreaked havoc on stock markets. Moody's said healthcare companies will certainly see an impact due to China's place in the global medical supply chain and other factors related to how prevalent COVID-19 becomes in the U.S.

Moody's noted that if the virus does spread widely in the U.S., demand will also increase for certain medical products like hospital gowns, masks, gloves, infection prevention kits and ventilators. This would benefit companies like Cardinal Health, Owens & Minor and Vyaire Medical, so long as they can meet demand.

But device makers will likely see a credit negative effect from supply chain disruption, even if the outbreak is contained to China. Companies hit most in that area are Boston Scientific, BD and Abbott, Moody's said.

Last week, the FDA awarded its first emergency use authorization for a test to detect and diagnose the disease, though some states have found during the verification process potentials flaws. CDC is working to resolve that issue. HHS has said it is working with biotech Regeneron on antibody treatments.

For hospitals, outbreaks like seasonal flu can boost margins in a profitable way, but prolonged hospital stays get expensive as temporary labor must be hired and more overtime paid. Hospitals that aren't well prepared for a surge can also suffer from an increase in hospital-acquired infections.

"Complications that may result from hospital acquired infections are not reimbursed by Medicare and often require treatment in the intensive care unit, which is one of the most expensive areas to staff," Moody's noted.

Hospitals in the U.S. have said they're prepared for wider spread of the disease after learning lessons from the Ebola outbreak in 2014. Rebecca Bartles, executive director of system infection prevention at Providence, told Healthcare Dive recently the hospital treated the first U.S. patient with COVID-19 and the process went smoothly.

The system remains ready for such an occurrence at all times. "Drilling for high-consequence disease happens routinely," she said.