Community Health Systems touts seeds of success in its new ACOs even as net loss balloons to $325M

Community Health Services held its third-quarter earnings call on Tuesday morning. (Getty/monsitj)

Health giant Community Health Systems lost $325 million in the third quarter. But some of its new initiatives, such as its accountable care organizations, are a bright spot. 

Much of CHS’ ballooning net loss can be attributed to a $262 million settlement with the Department of Justice over kickback and fraud allegations at Health Management Associates, one of its health systems. 

Wayne Smith, CEO of Community Health Systems, said on an earnings call with investors that the system is pleased that the settlement has been finalized, even if it does skew third-quarter results.  “We're very happy to have the HMA matter over with,” Smith said. “It’s been a long haul and it’s been a little bit of a distraction." 

Overall revenues also declined in the third quarter, with the $3.45 billion marking a 6% decrease from the year previous. But that drop was expected as CHS continues to sell off its low-performing hospitals; by comparison, revenues on a same-hospital basis increased by 3.2%.

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Net operating revenue through the third quarter is down 13% compared to this point in 2017. 

Moody’s Investors Service warned that the big-ticket settlement could “severely weaken” the cash-strapped system. CHS has been on a financial skid of late, which includes posting a $2 billion loss in the fourth quarter of 2017. Amid declining revenues and admissions, it has sold off a number of its assets

The financial struggles drove investors to call for Smith to be fired last summer, alleging that he and other executives ignored concerns from shareholders while reaping payouts themselves. 

CHS remains one of the largest publicly traded health systems in the country and includes 117 hospitals across 20 states. 

Despite the ongoing financial woes, CHS executives highlighted some new initiatives that are a bright spot in the company’s operations. 

Its accountable care organizations, which CHS launched at the beginning of this year, covers nearly 250,000 Medicare patients, and the system is already seeing readmission rates decline as a result, said Tim Hingtgen, president and chief operating officer, on the earnings call. 

“We’re seeing a number of benefits...which points to better care coordination and quality,” Hingtgen said. 

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The ACOs have a 90% retention rate among participating independent physicians for year two, Hingtgen said, and has drawn interest from an additional 150 primary care providers for 2019. 

CHS leaders also said that the system is continuing to pursue deals to sell off some of its hospitals, and that should all deals close it will boost revenue by as much as $2 billion. 

There is also sustained interest in these assets, executives said on the earnings call, as other providers seek to grow market share by obtaining available regional facilities.