Community Health Systems executives and traders look to be at odds over how big an impact the company's first-quarter miss will have on its projected performance for the remainder of 2023.
The large hospital chain reported Monday a $51 million loss attributable to shareholders (-$0.40 per share) for the first quarter of 2023 compared to the $1 million (-$0.01 per share) of early 2022.
The earnings represent a roughly $0.27 miss from the consensus estimate. CHS' shares were valued about 35% below Monday’s closing value as of 1:00 p.m. Tuesday.
The company looked to highlight rising volumes and investments toward future growth in its announcement as well as during an earnings call held Tuesday morning.
To explain the net loss, CEO Tim Hingtgen acknowledged "some other more challenging dynamics, such as payer mix changes and increased medical specialist fees … despite our ability to favorably manage other controllable expenses."
Hingtgen said that the company had expected some payer mix shift due to inflation, which would put additional pressure on patients with commercial coverage who would be less willing to deal with high copays or deductibles.
However, CHS was caught off-guard when "substantially all of the increase in volume" was from lower paying Medicare Advantage (MA) patients, the CEO said during the investors' call.
CFO and President Kevin Hammons said the company has also seen medical specialists seeking higher billable revenue as a result of inflation and No Surprise Act billing changes, helping to fuel a $40 million year-over-year increase in medical specialist fees and $20 million year-over-year increase in professional liability.
CHS has plans in place to renegotiate and shuffle out some of the higher contracts with others, he said, and so does not expect higher specialist fees to be a continued headwind.
CHS also hopes to overcome the early-year hurdles by continuing its focus on volume growth and expense reduction, particularly on the labor side as its centralized recruitment resources expand past nursing and into other clinical positions in a bid to transition away from contract labor.
Together, these expectations led CHS' leadership to a more optimistic view of the company's projected 2023 performance compared to analysts.
"At this point, we still feel comfortable with the midpoint [of our FY2023 guidance]," Hammons said in response to a question about whether the market should be expecting results in the lower range of guidance.
"The miss between our actual results and consensus is bigger than the mix between our actual results and what we had anticipated for the first quarter," Hammons said. "So as we think about where we're at compared to where we expected to be, we're not as far off as the consensus would suggest. Therefore, getting back to the midpoint, we still feel comfortable."
CHS' net operating revenues fell 0.1% year over year to $3.1 billion, in part reflecting a decrease from 83 to 79 hospitals during that period. Net operating revenue increased 1.7% year over year on a same-store basis.
Total operating costs and expenses, meanwhile, rose about 2% to $2.9 billion for the quarter.
The quarter’s bright spot was an industry-wide rise in patient volumes. At CHS, admissions and adjusted admissions were respectively up 1.2% and 5.8% year over year. On a same-store basis, those same measures rose to 4.8% and 9.4% year-over-year increases.
As discussed above, however, government-covered patients made up about two-thirds of CHS' year-over-year volume growth, and about two-thirds of that governmental growth was on Medicare Advantage, Hammons said. These MA patients bring about 85% to 90% of the payment for CHS than their fee-for-service counterparts, he told investors.
During the fourth quarter of 2022, CHS reported a 2.8% year-over-year net operating revenue decline, a 1.3% same-store revenue decline, $414 million in net income, a 1.9% increase in admissions, a 5.2% increase in adjusted admissions, a 4.4% increase in same-store admissions and an 8.2% increase in same-store adjusted admissions.
System leadership said at the time they expected rising volumes would fuel much of the system’s projected net revenue growth for 2023.
Following the divestitures of two hospitals on Jan. 1 and April 1, CHS now sits at a total of 78 owned or leased affiliate hospitals and over 1,000 total sites of care across 15 states. It reported $12.2 billion in net operating revenues and $46 million in net income attributable to stockholders across all of 2022.
The first quarter’s jump in volumes has been a constant among the numbers reported in recent weeks by for-profit contemporaries HCA Healthcare, Tenet Healthcare and Universal Health Services. Unlike CHS, those systems were able to secure a profit for the year’s opening frame.