Community Health Systems (CHS) executives told investors to expect a cool down in contract labor utilization, rebounding demand for healthcare services and greater returns from its investments over the next several months.
During its Thursday morning earnings call, the for-profit health system highlighted a steady rise in non-COVID-related patient volumes that are inching closer and closer to pre-pandemic numbers.
At the same time, executives said the system has been bumping up its capacity across core markets. In 2021 alone, the company invested $469 million of its capital into new outpatient services, such as freestanding emergency departments or ambulatory surgical centers, while adding more beds and surgical suites for inpatients, CEO Tim Hingtgen said.
“While non-COVID-related volumes continue to trail pre-pandemic baselines for the industry, we expect to meet deferred demand as it returns to the healthcare setting over the next several quarters,” Hingtgen said.
Hingtgen also noted that the system hasn't yet "realized the full benefit" of its multiyear margin improvement initiative due to the pandemic, but believes that it will begin to see incremental operational gains in 2022 and beyond as those improvements solidify and COVID-19 cases presumably decline.
The executives told investors that the ongoing quarter will likely be the slowest of the 2022 fiscal year, partially due to a spike in contract labor use during January's omicron wave.
The need for those temporary workers is steadily declining, they said and is expected to continue dissipating due to the dip in COVID-19 cases and other workforce strategies CHS is investigating.
For the quarter ended Dec. 31, CHS pulled in fourth-quarter net operating revenues of $3.23 billion, above the market’s expected $3.16 billion and 3.7% over the previous year’s $3.12 billion.
The year-over-year revenue increase came in spite of volume reductions. For the fourth quarter of 2021, admissions were 7.3% lower than the previous year while adjusted admissions fell 2.1%, according to the health system.
Those numbers do somewhat reflect the sale of several hospitals outside CHS' core markets and the overall loss of over 800 licensed beds over the past year. When viewing same-store volumes, CHS’ admissions declined just 3.9% year over year while adjusted admissions rose 1.7%.
Meanwhile, total patient days were roughly static year over year but increased on a same-store basis. Average length of stay rose from 4.7 days to 5 days year over year across both avenues.
CHS reported roughly 8,000 inpatient COVID-19 admissions during the quarter, equating to 8% of its total admissions. Executives noted this was lower than the 13% share seen during the prior quarter and more in line with the first quarter of 2021.
"We certainly confronted the same challenges as others in the health industry as COVID-19 negatively impacted patient volumes and various expense categories," Hingtgen said. "But once again, our teams demonstrated their ongoing commitment and resourcefulness, adeptly managing through the evolving and at times unpredictable environment.”
On a same-store basis, CHS’ net operating revenues rose 6.7% over last year’s fourth quarter.
CHS’ overall operating costs and expenses for the quarter were roughly equivalent to the prior year after excluding the impact of pandemic relief funds. The company saw a minor decline in total supply and salaries and benefits spending from year to year, although the quarter's rise in contract labor was reflected by a jump in its "other operating expenses."
Net income attributable to stockholders was $178 million ($1.34 per share), above the market’s roughly 60 cents per share estimate but well below the $311 million ($2.57 per share) recorded during the fourth quarter of last year.
However, excluding adjusting items such as settlements and the previous year’s gains from early extinguishment of debt, the quarter’s $1.15 per share beat the previous year’s 96 cents per share net income attributable to stockholders.
Adjusted EBITDA for the quarter was $540 million, including $46 million of pandemic relief funds.
CHS also noted that federal pandemic relief funds played a substantial role in those net income numbers. The most recently ended quarter was boosted by about $30 million (22 cents per share), whereas the prior year’s final quarter benefited by $115 million (95 cents per share).
“2021 was another strong year for CHS. We advanced key clinical and operational initiatives and made strategic investments that position the company for future growth," Hingtgen said. "Leaders across the organization executed their plans to achieve strong operational and financial performance, and we finished 2021 with a solid fourth quarter.
As of Dec. 31, 2021, CHS was sitting on $507 million in cash and cash equivalents, down from $1.68 billion as of Dec. 31, 2020. Total assets also declined year over year from $16 billion to $15.22 billion. The system has no outstanding Medicare accelerated payments as of Dec. 31, 2021.
For fiscal 2021 as a whole, CHS increased its net operating revenues from $11.79 billion to $12.37 billion.
Net income for the year attributable to stockholders was $230 million ($1.76 per share), down from the $511 million ($4.39 per share) of the prior year. Again excluding adjusting items, the system’s net income attributable to stockholders was $2.45 per share versus the previous year’s 45 cents per share.
Adjusted EBITDA for the full year was $1.97 billion, up from last year's $1.81 billion.
Full-year admissions declined 5.9% from 2020, while adjusted admissions dropped 2.3%. On a same-store basis, those same measures rose 2.2% and 5.9% year over year, respectively.
“As we move forward, we expect the company’s focused investments and operational initiatives to drive incremental growth and drive value for all stakeholders,” Hingtgen said in a statement.
Looking ahead, CHS projected 2022's full-year net operating revenues to land between $12.6 billion and $13.1 billion. It expects adjusted EBITDA in the range of $1.83 billion to $1.98 billion and net income per diluted share between $1.00 to $1.50.