How COVID-19 is affecting the healthcare sector

As the COVID-19 crisis deepens, healthcare companies are having to adapt – and fast. In this article, CIL’s healthcare team outlines the key sources of disruption for the sector and how it might fare on the other side.

Some health and care businesses have found themselves forming part of the solution and benefitting from that position. Those that provide government-reimbursed or COVID-19-relevant services should retain revenues despite operational challenges. CIL believes the consumer-facing segments will suffer a short-term, cyclical impact but health and care markets will remain fundamentally strong.

This episode could adjust valuations as well as remind investors of the health and care sector’s defensive attractions.

Healthcare

• In the UK, the NHS was already under considerable strain; waiting lists have been rising and self-pay has been gaining share. This strain is clearly being amplified. Given the standstill on elective activity, how much demand will there be on exit? It is our view that private providers and private-pay will have to soak up the overflow.
• There are similarities in the US market. Elective visits and treatments have been cancelled and patient volumes are down, including in primary care and emergency room visits. This has meant that non-respiratory and intensive care-focused providers have had to close and make redundancies.
• Lock-down and self-isolation have deprived community-based services such as dentistry and vets of business. Some pent-up demand will be recovered, but probably not all.
• The pandemic is driving demand for kit and consumables in hospital and community settings. It has also driven demand for digital consultations.
• COVID-19 has underlined NHS staffing problems in the UK: this should be good for staffing agencies, albeit getting hold of staff in the short-term is clearly tough. While in the US, many laid-off healthcare staff will be redeployed from other specialities to COVID-19 units.
• Listed pharma share prices have fared better than other sectors; some clinical trials activity has been impacted.

Social care:

• COVID-19 is removing staff from an already stretched social care workforce. These staffing issues should be eased later as unemployment rises
• In the UK, regulatory requirements around staffing ratios in care homes may need to be relaxed during this time. More broadly, routine social care inspections have been suspended across adult and children’s services, creating safeguarding concerns.
• Social dislocation from the lock-down and a recession will lead to additional demand for social care.
• The unfortunate deaths caused by the virus will leave some care home beds empty. But the clearing of bed-blockers from hospitals will fill them.

UK Funding:

• The new Conservative government was already promising more money for the NHS. The NHS’s heroic efforts will make it easier to justify this additional spend. But where will the money come from? This episode is budgeted to add the £350bn of support to an existing £1.8tn government debt.
• The Job Retention Scheme is not expected to be used by employers who are receiving other public funding.

If you would like to discuss any of the points in the article, please get in touch with Giles Johnson or James Silk.