Editor's note: This story has been updated with commentary from Community Health Systems' first quarter earnings call.
Community Health Systems' narrow first-quarter net loss landed right in line with Wall Street’s expectations, though the public for-profit hospital operator increased its net operating revenue on higher volumes stemming from this winter's severe flu season.
The health system's financial results also included a slight reduction in year-over-year adjusted EBITDA due to a combination of the flu volumes' lower acuity, ongoing payment battles with commercial payers and a 9% increase in medical specialist fees.
Investors questioning the system's executives during a Thursday morning earnings call prodded for clues on whether CHS would be feeling the weight of the White House's tariff policies and other developments coming out of Washington. Others questioned whether the unusual volume and acuity trends, heightened expenses, recent divestitures and debt transactions announced Wednesday would affect 2025 guidance issued in February—to which executives explained that much of the variance and uncertainty has already been priced into the projections.
"I want to acknowledge the fact that healthcare providers are currently facing a number of uncertainties," CEO Tim Hingtgen said near the top of the earnings call. "Navigating any potential changes that may come out of Washington in the weeks and months ahead make planning more challenging, but our team is closely following these developments and advocating for policies that maintain and strengthen our health system and all healthcare delivery systems."
“Even though healthcare providers are navigating significant change as our operating environment continues to evolve, we remain confident that our strategies are strengthening our operations and positioning the company for long-term success,” Hingtgen said in the results announcement.
Net loss attributable to CHS was $13 million (-$.10 per diluted share), an improvement over the $41 million loss (-$0.32) of the prior year’s first quarter—though the losses were narrower for both periods after adjustments (for impairment and loss on sale of business and related costs).
Net operating revenues landed at $3.16 billion, just above expectations and a 0.6% year-over-year increase. On a same-store basis taking CHS’ recent divestitures into account, net operating revenues rose by 3.1%.
Both of those came alongside a 1% decrease in total admissions and a 2.3% dip in adjusted admissions, but respective same-store increases of 4% and 2.6%. Still, same-store net revenue per adjusted admission rose 0.5% over the prior year, reflecting rate growth in commercial plans and traditional Medicare, but dipping Medicaid rates and unfavorable shifts in payer and acuity mix.
On the latter, executives noted that the volumes were more heavily weighted toward medical cases than surgical cases due to the heightened flu season, which tends to decrease average acuity.
Additionally, Hingtgen explained that CHS also saw a reduction in elective procedures, particularly among commercially-covered patients, which he attributed to "some of the disruption in the economy, some of the discussion of recession and severe tariffs, or potential impact of tariffs," he said. "...When you think about your patient population, those with higher deductible copays and high-deductible plans are probably [at] the most financial risk in the first quarter before their deductibles and copays are met."
CHS’ adjusted EBITDA dipped slightly from Q1 2024’s $378 million to this quarter’s $376 million. The company attributed the reduction to declines in acuity and non-patient revenue, more patient claim denials and higher costs for outsourced specialists, only partially offset by same-store volume gains, higher reimbursement rates, supplemental reimbursement program funds and trimmed contract labor spending.
On the expense side of that equation, executives said the company's internal cost-reduction initiatives managed to hold supply spending flat, offsetting inflationary growth. However, medical specialist fees, which were a sore spot in 2022 and 2023, still rose about 9% year after year due in large part to increases within anesthesiology. The company expects that pressure to continue across the year, but remain below the spike of prior years.
On future expense growth related to President Donald Trump's shifting tariff policies, Chief Financial Officer Kevin Hammons noted that about 70% of the system's total supplies are purchased through HealthTrust Performance Group, a group purchasing organization. These purchasing arrangements come as fixed-price contracts with roughly three-year durations, shielding the company from immediate changes. Further, about half of the group's purchasing is domestic, and therefore unaffected by tariffs, and less than 5% of its purchasing is from China, which is facing the steepest duties.
CHS is also taking an advocacy approach to federal policies that could affect its revenues. Executives said they're maintaining pressure on Washington to renew Affordable Care Act enhanced subsidies, but soothed investor concerns by noting that CHS' business on the exchanges, while growing, represents less than 6% of its total net revenue.
Payer denials, meanwhile, are across the board expected to continue for the near future and are priced into the year's guidance. Though that pressure is "stable" compared to what CHS faced in the fourth quarter, executives warned that these payment delays and downgrades will be affecting year-over-year comparisons until the third quarter, when payers began to ramp up their pushback last year.
"Our advocacy efforts regarding this troubling trend that’s affecting all healthcare providers will continue, but we expect year-over-year headwinds that we called out in the third quarter of 2024 to persist until we anniversary in the second half of the year," Hammons said.
Concurrent with Wednesday afternoon's earnings announcement, CHS announced debt refinancing and a buyback transaction. The company was able to do so, in part, thanks to the proceeds of recently closed divestitures and another pending divestiture unveiled in April. Another "potential divestiture [is] now in advanced discussions," executives teased, but that deal won't have a material impact on cash flow projections for the remainder of the year.
Still, the debt transactions "will further reduce the company’s net leverage, improve our maturity profile and enhance shareholder value while not meaningfully affecting free cash flow," Hammons said. "Furthermore, we’re getting all of this done despite the recent dislocation in the capital markets."
CHS logged $12.6 billion in net operating revenue across 2024 but was alone among its public for-profit peers in notching a net loss—$516 million for the full year, though much of that included impairment and loss on divestitures and early extinguishment of debt.
As of April 23, CHS owned or leased 72 hospitals and over 1,000 sites of care across 14 states.
CHS is the first of the major for-profit health systems to announce earnings results for Q1 2025, with HCA Healthcare set to follow on Friday.