COVID trends are varying across the U.S., and the same is true for credit risk in the nonprofit health care sector.

It has been said health care is a local business. While there are macro issues that affect the industry at large from time to time, such as the Affordable Care Act and Medicaid expansion, the rubber really meets the road on the local level. Variables such as laws and regulations, regional economies and area demographics in specific states and municipalities all significantly influence the performance of the related health care providers.

The same can be said for the impact of the recent outbreak of the highly contagious Delta variant. Demographics, socioeconomic indices and even local politics are material components of the experience with the virus. The confluence of these factors can be seen in the vaccination rates, a key determinant of infection, of a given location. Data shows that all of the top 10 states, as measured by recent COVID-related hospitalizations, have vaccination rates at or below the U.S. average of 52%, with Florida and Texas leading the way. By contrast, all but one of the states with the highest vaccination rates (New York) are at the opposite (lowest) end of the hospitalization list.

This recent spike in COVID admissions will no doubt pressure health care providers in these hotspots more than other parts of the country that are seeing fewer new cases. Lost revenue from deferred procedures (self-imposed this time rather than federally mandated at the outset of the pandemic), as well as additional costs including supplies (personal protective equipment or PPE) and staffing, will result in financial strain on hospitals in these areas. However, we expect the vast majority of providers to manage through this stressful period and, while not unscathed, successfully emerge from the current outbreak. The financial condition of any particular hospital will also be an important part of its ability to withstand the pressures brought about by the recent spike in cases. Overall, however, the health care sector has proven resilient, and the lessons learned from the initial outbreak will help providers continue to deal with the stresses of COVID and the Delta variant.