CHS posts bigger Q2 net loss, but still beats Wall Street forecasts

By | August 5, 2019

Dive Brief:

  • For-profit hospital operator Community Health Systems posted a wider net loss of $ 167 million on revenues of $ 3.3 billion in the second quarter of 2019.That’s a 7.3% decrease in revenue year over year from $ 3.56 billion in 2018, but slightly higher than Wall Street expectations.
  • On a somewhat brighter note for the Franklin, Tennessee-based chain, CHS saw same-store admissions increase 2.3% and adjusted admissions increase 1.8% year over year in the quarter, bucking the recent industry slump in patient volume.
  • As part of its ongoing divestiture strategy, CHS has entered into definitive agreements to sell three additional hospitals and is continuing to look for potential buyers as it trims the fat, the company said. The company now has 107 facilities, slightly higher than its goal of 100 before year’s end.

Dive Insight:

CHS has stabilized somewhat over the past year, selling of dozens of hospitals in order to pare down debt. However, the health system — one of the region’s largest employers — has yet to reverse its losses or become profitable again. Talk of bankruptcy has surfaced in recent weeks.

The system has faced a flurry of problems, including flatlining patient volume due to a gale force of provider headwinds, ongoing legal spats with Microsoft and the government, and a troubled 2014 acquisition of Florida-based Health Management Associates for $ 7.6 billion that turned sour after HMA was found guilty of false billing and physician kickbacks.

CHS revamped its corporate strategy as part of efforts to bring down its heavy debt load, which remained largely unchanged over the quarter at $ 13.39 billion. Over the past five years, CHS has shed more than 80 hospitals from its portfolio and continues to look for potential buyers.

Earlier this month, CHS completed the divestiture of two hospitals, 245-bed Tennova Healthcare-Lebanon in Tennessee and 167-bed College Station Medical Center in Texas, to Vanderbilt University Medical Center and CHI St. Joseph Health, respectively, as part of its sell-off strategy.

CHS also plans to focus more investments in populated areas in an attempt to improve performance and margins. By the end of 2019, 95% of CHS facilities will be located in areas with populations over 50,000 with better rates of employment (and, correspondingly, insurance), Wayne Smith, CHS’s CEO for over two decades, said last quarter.

Sloughing off hospitals and pivoting away from rural markets seems to have helped somewhat with CHS’ operations. Overall admissions were down 11.5% compared to the second quarter of last year, due to fewer facilities, but same-store admissions saw a slight uptick in the quarter. Additionally, same-store net operating revenues grew 4.9% year over year.

Competitors HCA Healthcare and Tenet also reported rising admissions in the quarter. But in the case of the Nashville-based behemoth HCA, it was for the 21st consecutive quarter.

“We believe strategic investments in our transfer program, Accountable Care Organizations, service lines, and access points are driving stronger same-store volume and net revenue performance,” Smith said in a statement. “We also believe that continued execution of these strategic initiatives, along with effective expense management, will lead to incremental growth in the back half of the year.”

But CHS’s next big debt payment is due in 2021, and investors and analysts have aired doubts the operator will be able to pony up. That dwindling confidence contributed to CHS’s lowest share price ever: $ 1.92 apiece Aug. 2, down from a peak of almost $ 53 in 2015.

The company also reported a high net loss, of $ 118 million last quarter, on slightly higher revenues of $ 3.38 billion, sparking some rumbling from financial analysts about impending bankruptcy.                    

But the quarter’s results don’t spell doom for the 107-bed hospital operator just yet. CHS surpassed consensus Wall Street earnings and revenue estimates for the three months ended June 30. Additionally, operating cash flow was strong in the quarter at $ 132 million, up from $ 12 million in the same quarter 2018.  

CHS expects revenues of $ 12.9 to $ 13.2 billion in the year and a net loss per share between $ 2.00 and $ 1.65. CHS execs will discuss the results Tuesday morning at 11 a.m. EST.

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