CHS Kicks Off 2024 With A Net Loss As Expenses Remain High

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Dive Brief:

• Community Health Systems posted mixed first-quarter earnings results on Wednesday as operating revenue improved but costs remained high. Overall, the health system reported a $41 million net loss.
• Operating revenues grew marginally year over year, rising 1% to total $3.1 billion. Still, CHS’ revenue surpassed its operating expenses, which totaled $2.9 billion.
• CHS generated $96 million in cash from operating activities during the quarter, up from $5 million in the same period last year, as admissions increased and CHS cut expenses.

Dive Insight:

Despite launching recovery and restructuring initiatives last year, CHS has lagged behind its for-profit peers — HCA Healthcare, Universal Health Services and Tenet Healthcare — in its financial recovery following the COVID-19 pandemic. Credit ratings agency Fitch Ratings has labeled CHS a “substantial credit risk,” noting “default is a real possibility.” 

CHS is more highly leveraged than its peers and has a weaker operating profile, according to Fitch.

In the first quarter, CHS continued to carry high debt loads and low amounts of available cash for debt payments. CHS had $15.3 billion in total liabilities during the first quarter and $11.5 billion in long-term debt.

Meanwhile, the health system reported just $48 million in cash and cash equivalents — the funds companies typically rely on to meet short–term obligations. However, CHS’ adjusted debt-to-earnings before interest, taxes, depreciation, and amortization was “slightly improved” year over year, CFO Kevin Hammons told investors on a Thursday morning call.

The health system has “more than adequate liquidity” due to a $680 million asset-based loan, but may still pursue divestitures in the coming quarters to shore up reserves, Hammons said. 

This week, CHS announced it would sell a Tennessee hospital for $160 million to Hamilton Health Care System. Executives said the deal is expected to close in the second quarter. Last year, CHS divested eight hospitals and the majority interest of another.

CHS said it’s made progress on controlling expenses. After physician fees hammered for-profit hospitals during the back half of last year, the system prioritized insourcing specialists. CHS has brought 29 emergency departments and two anesthesia departments in-house since last fall. 

The health system also cut contract labor costs by 22.6%, according to Hammons. 

The system also benefited from increased patient volumes, excutives told investors. Same-store admission and adjusted admissions rose 3.8% and 1.9% year over year, respectively.

CHS is the second health system this quarter to report increases in revenue from inpatient services compared to the first quarter last year — a trend one analyst called “a little unusual.” Univeral Health Services first called out the trend on its own earnings call earlier Thursday morning.  However, UHS’ result was more expected due to the system’s heavy presence in the inpatient behavioral care market.

Hammons attributed the rise in inpatient service revenue to CHS’ efforts to reduce length of stay, which has freed up room for increased patient flow, as well as recent capital expenditure dedicated to inpatient care.

The system also benefited from increased reimbursement rates and supplemental reimbursement programs, according to the earnings report.

CHS did not adjust its 2024 guidance following the results.