Dive Brief:
- Community Health Systems lowered its full-year earnings guidance as more of the hospital operator’s patients lose insurance and defer lucrative elective surgeries.
- Executives said on a call with investors last week that macroeconomic pressures had dampened high acuity surgeries and dented revenue, while more uninsured patients previously on Affordable Care Act plans sought out care at its hospitals.
- The hospital chain now expects to take in adjusted pretax earnings of $1.2 billion to $1.3 billion this year, down from the $1.3 billion to $1.4 billion it previously expected.
Dive Insight:
Executives at for-profit hospital chains have called out declining surgeries this quarter, saying that patients have been deferring procedures due to affordability concerns. The decrease has dampened earnings at CHS’ peers, including Universal Health Services.
While some hospital chains, like Tenet Healthcare, were able to weather the decline by funneling more patients to lucrative, high-acuity surgeries, CHS wasn’t able to capture those patients.
Although CHS saw a 2% year-over-year rise in same-store surgeries, the hospital chain saw fewer high-margin patients in elective orthopedic and general surgeries, according to CEO Kevin Hammons.
“Those are more elective-type procedures, and that's what's being deferred,” he said. “We believe this is a patient decision around care and being influenced by financial decisions.”
Patients getting surgeries with commercial insurance — which typically reimburses doctors the most — declined, leading to flat growth in same-store revenue per adjusted admission.
Hammons said that CHS expects to recapture those patients.
“There’s pent-up demand,” the CEO said. “Ultimately, we think that it comes back into the system because when you need a joint replacement, it’s not going to heal on its own.”
In addition to surgery challenges, CHS was pressured again by a rise in uninsured patients, which has battered for-profit hospital earnings this year. Executives across the sector have speculated that these uninsured patients are those who have been priced out of ACA plans following the expiration of enhanced subsidies last year.
CHS’ uninsured volumes began ramping up during the second quarter this year, Hammons said. As a result, patients are showing up at emergency rooms for lower-acuity services for conditions that could be treated by primary care doctors if they had insurance.
Almost half of CHS’ 3.6% growth in adjusted admissions this quarter came from uninsured patients, CFO Jason Johnson said.
Those uninsured patients added bad debt and increased uncompensated care at the hospital chain: Uncompensated care at CHS rose to 32.9% of adjusted net revenue, versus 25.2% during the prior-year period, according to an analysis from Jefferies.
Uninsured patients from ACA plans caused CHS to lose up to $35 million in the quarter. The company now expects to lose between $80 million and $90 million this year due to the subsidy expiration.
CHS has consistently underestimated the financial impact from the subsidy lapse: It originally expected to lose between $20 million to $30 million this year, before raising its outlook again in July to a loss of $50 million to $75 million.
CHS recorded an $86 million loss in the quarter, down from a profit of $130 million in the prior-year period. Operating revenues were $2.8 billion, a 10% decrease year over year.
