Community Health Systems' third-quarter earnings may have fallen roughly in line with its 2020 performance but executives at the for-profit system are optimistic about the short- and long-term future.
Along with recovering volumes, executives say they are making forward progress on clinical capacity and operational efficiency investments and are expecting those initiatives to bear fruit.
“Our recent investments … will help meet growing demand for healthcare services in the months and years ahead and drive market share gains across our portfolio,” CEO Tim Hingtgen said during the system’s third-quarter earnings call.
Executives told investors that CHS is ahead of schedule on several initiatives aimed at expanding margins and positioning its clinical locations for future growth in healthy markets.
These efforts have included overhauls of the system’s supply chain, claims processing and nurse recruitment, the latter of which President and Chief Financial Officer Kevin Hammons said has been centralized to better reflect how the system already hired on its doctors. CHS has also been wrapping up its multi-year divestiture program, Hammons said, and recently reduced its debt by more than $1.3 billion.
The investments have also extended to CHS’ core portfolio of hospitals. After shedding portions of its portfolio that didn’t match the system’s broader strategy, Hingtgen said that CHS has been working to incrementally increase the bed capacity of several facilities, open new and lock in joint venture and partnership opportunities across areas like rehabilitation and behavioral care.
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Along with other investments into higher acuity service lines, its transfer center service, telehealth, care coordination and patient experience, he said that the system is now well-positioned to increase revenues across its core markets.
“These investments are working,” he said. “They have greatly improved our competitive position and are creating opportunities for incremental market share gains into the future.”
CHS’ preparations appear to be coinciding with a renewed demand for healthcare services.
Overall, admissions during the three-month period fell 5.5% year over year while adjusted admissions dropped 3.4% year over year—metrics that the executives noted would be impacted by CHS’ divestitures of certain hospitals.
When looking at volumes on a same-store basis, however, the system saw a 2.8% and 4.7% year-over-year increase in admissions and adjusted admissions, respectively. Same-store net operating revenues also increased 7.1% over the third quarter of 2020.
These volumes came as the for-profit system treated more COVID-19 patients than it had during previous phases of the ongoing pandemic, the executives said.
New COVID-19 admissions at CHS facilities peaked in August, although COVID-19 patient days didn’t begin to meaningfully decline until late September, Hingtgen said. Meanwhile, the system was generally able to meet the demand for non-COVID services and will be able to further increase its capacity for these patients should COVID-19 cases continue their downward trend, he said.”
“We are grateful to our medical staffs, clinical support teams and hospital leaders who again ensured exceptional care for their patients during this latest surge,” Hingtgen said in a statement. “We are also pleased with our results this quarter, especially as we balanced the demands of caring for COVID-19 patients while remaining focused on our growth strategies, key investments and operational improvement plans, which we believe will continue to drive positive results in the future.”
CHS reported net income of $144 million for the three months ending Sept. 30, up slightly from the $128 million it reported for the same quarter last year. The system reported profits of $111 million attributable to stockholders, just a hair below last year’s $112 million.
Net operating revenues for the quarter landed at $3.12 billion, also down from last year’s $3.13 billion.
The quarter also saw the sale of CHS’ unconsolidated minority equity interests in its two-hospital Macon Healthcare joint venture with HCA Healthcare subsidiaries for $110 million in cash, reflecting a pretax gain of roughly $26 million during the quarter.
The “strong performance” has led CHS to raise its guidance for the remainder of the year, Hingtgen said. The system now projects net operating revenues to fall between $12.15 billion and $12.35 billion, with adjusted EBITDA expected to fall between $1.78 billion and $1.82 billion.
Total operating costs and expenses during the third quarter landed at $2.78 billion, with $19 million of that total offset by Paycheck Protection Program and Health Care Enhancement Act funds.
With or without the relief, the quarter’s total still fell between the $2.84 billion in total operating costs and expenses it had reported last year.
CHS was among the few providers reporting a year-over-year reduction in salaries and benefits costs, both as a total sum and as a percentage of net operating revenues.
Executives attributed the costs reduction to the system's aforementioned operational improvement initiatives but did say that salaries and contract nursing wages were increased “pretty significantly” due to COVID-19 pressures. CHS recognized these contract worker payments as “other operating expenses,” but did not disclose how much those wages contributed to the $716 million total reported under that category.
Year to date, CHS has reported a net income of $52 million, about $77 million of which came from pandemic relief funds. Both of these were down from the $200 million and $337 million in net income and relief it had seen at this time last year.
Nine-month total revenues for 2021 were $9.14 billion, up from $8.67 billion in 2020.
As of Sept. 30, CHS reports $1.29 billion in cash and cash equivalents. That number is set to fall, however, as Hammons told investors that CHS paid off its remaining $814 million balance of Medicare accelerated payments in cash during October.
The system also disclosed in its earnings that it has submitted a combined application for the fourth phase of the Provider Relief Fund and other funds for providers serving rural patients but has not yet received those funds and cannot predict how much it will receive.
CHS owns, operates or leases 84 hospitals across 16 states. It banked $511 million in profit and $11.8 billion in revenue across all of 2020.