CHS to overhaul tech systems across the company with a new, integrated Oracle platform

To streamline operations and improve its margins, Community Health Systems leaders announced the for-profit system is launching an enterprise-wide, multiyear modernization and optimization initiative that will include an integrated Oracle-powered platform.

The so-called Project Empower initiative—which came alongside word of the hospital operator's $38 million net loss for the second quarter—will combine the Cerner (now owned by Oracle) electronic health records system that more than half of CHS' hospitals are already using with other financial, supply chain and human capital management systems offered by the tech company, executives told investors during a Thursday morning investor call. 

Doing so will allow the company to "remove a number of disparate systems" and "significantly" increase its ability to view and manage large-scale data, CHS President and Chief Financial Officer Kevin Hammons told investors on Thursday.

"Through better management of our supply chain and our workforce, reduced variability in processes and outcomes, and enhanced data to support our decision-making to capitalize on opportunities, we anticipate significant cost savings and other financial benefits from Project Empower," Hammons said. 

The push isn't limited to a technology overhaul, Hammons continued, as CHS will also be working to redesign its workflows and back office functions to increase efficiency.

Project Empower builds on a general strategic margin improvement program CHS kicked off in late 2019. Implementation will begin "over the next couple of months" and "will take us ... probably through next year to fully implement," Hammons said. 

But while Project Empower gives CHS a longer runway for margin improvement, executives pointed to key volume, revenue and workforce metrics, as well as capital investments and hospital divestitures, as the company's more immediate path out of the red. 

Outside of the bottom line $38 million net loss (-$0.29 per diluted share) for the second quarter, the for-profit chain increased its net operating revenues by 6.2% year over year to $3.12 billion while same-store admissions and adjusted admissions rose 4.8% and 4.9%, respectively.

Same-store surgery rose 6.2% year over year "with strength across a number of specialties, including cardiovascular, colorectal, urology and gynecology," CEO Tim Hingtgen told investors.

Payer mix, which turned out to be a stumbling point in the beginning of the year, improved slightly during the second quarter and is expected to strengthen through the rest of 2023, executives said. 

Clinician recruitment and other workforce efforts have also been panning out for the company in recent months, Hingtgen and Hammons said.

Year to date, physician recruitment is up 13.1% year over year while nurse hiring rose 5.3%, the latter of which Hingtgen attributed to a combination of tuition reimbursement, nursing school programs, CHS' centralized nurse recruiting model and other avenues for existing employees to become nurses. 

Average hourly wages across the company rose 2.8% since last year and were down 0.6% sequentially, which Hammons characterized as a strong result considering industry-wide labor shortages and inflation. Contract labor expenses declined 15% from Q1 2023 to $74 million "and well below the peak of $190 million in the first quarter of 2022," he said. 

These improvements helped the company mitigate—but not eliminate—its net loss compared to the second quarter of 2022’s $326 million shortfall (-$2.52 per diluted share).

CHS’ loss landed right in line with analysts’ consensus estimates, though it comes on the heels of an unexpectedly rough first quarter in which executives said they were caught off guard by an influx of lower-paying Medicare Advantage patient volumes. While investors bludgeoned the company's share pricing back in May, this week's results drove the stock by roughly 20% on Thursday.

Year to date, CHS has now logged $89 million in net losses (-$0.68 per diluted share) compared to a $327 million loss (-$2.54 per diluted share) during the first half of 2022. Net operating revenues across the two quarters rose 3% year over year to $6.22 billion and same-store admissions and adjusted admissions rose 4.8% and 7.2%.

Of note, the most recent quarter included the divestiture of three hospitals, each in separate deals, as well as word that CHS would be selling another three of its Florida hospitals to Tampa General Hospital for about $290 million.

These divestitures from non-core markets are accompanied by investments in new outpatient locations and other service expansions in the company's growth markets, executives said.

As of Aug. 2, CHS now spans 77 owned or leased affiliate hospitals and more than 1,000 sites of care. The organization reported $12.2 billion in net operating revenues and $46 million in net income attributable to stockholders across all of 2022.