Healthcare companies are at higher risk of loan defaults than many other industries, a new report shows.

The healthcare sector has the highest probability of defaulting in the first quarter of next year, with a median of 4.4% S&P Global Market Intelligence Data Compare U.S. industry shows. That probability is up from 3.3 percent at the end of last year, according to an analysis by Standard & Poor’s, which is based on volatility in listed companies’ share prices and country- and industry-related risks.

“Prior to the pandemic, people thought of healthcare as ‘recession-proof.’ But this is a fundamentally different environment,” said RSM director and senior healthcare analyst Matt Wolff. “Vendors have had to shut down non-emergency procedures, either because of the lockdown or not having staff to run them. They’ve paid more staff they have and reimbursement levels haven’t gone up. They’re not going to hire their staff to get out of this.”

People always need healthcare, that’s why many say Industry not following wider economic volatility. but staffing shortagecancel non-emergency procedures and pandemic fear They highlighted the healthcare sector, the report said. Healthcare default rates are typically close to 1%, much lower than other industries, Past reports show.

According to S&P, the healthcare industry is the three most likely to default on its debt, with healthcare facilities at 9.15%, healthcare technology at 7.37% and healthcare services at 6.76%.

But Kevin Holoran, a senior director at Fitch Ratings, said the sample size of medical institutions was only 22 and likely included relatively weak for-profit organizations. He said the report does not signal the broader U.S. public finances health care sector, which has many investment-grade nonprofit hospitals with a median rating of A/A+.

If a healthcare company breaches its debt covenants and runs short of cash, lenders often work with the organization or investors to restructure the terms of the loan. Without a Chapter 11 reorganization or liquidation, lenders may choose to reorganize the company’s board of directors, acquire equity in the company, or demand payment in kind. Financial instability can also attract potential buyers looking to acquire an organization at a discount.

The COVID-19 pandemic and recession are expected to set off a wave of bankruptcy across multiple industries. But Wolf said that never really materialized because of state and federal financial aid.

“We’ve actually seen a massive uptick in new forms of business as people are being let go and try new things,” he said.

Higher personnel costs coupled with reimbursement cuts pose a long-term threat to the healthcare industry, experts say. Quarantine restarts This month, cut the Medicare reimbursement rate by 2%. Another round of 4% Medicare cuts will be launched next year, totaling about $36 billion.

Meanwhile, many Americans forgo health care last year due to lockdowns, costs and other obstacles. Those who re-enter the system are likely to be sicker and more expensive to treat, Wolfe said.

“These are significant headwinds for the healthcare industry,” he said.