CHS underperforms in Q2, looks to more divestitures
- Community Health Systems announced this week its net loss attributable to CHS' stakeholders was $137 million in Q2 2017, down from $1.4 billion during the same period in 2016.
- On an earnings call on Wednesday, CEO Wayne Smith stated the hospital operator is — in addition to 30 previously disclosed divestitures — exploring hospital sales of at least $1.5 billion of net revenue.
- On the call, Smith acknowledged divestitures require a large share of internal resources and expects the next grouping of sales to be smaller than 30 hospitals. He also stated the next round may take longer than six months to complete, and sales could enter into 2018.
For Q2, CHS found net operating revenue was $4.14 billion, compared to $4.6 billion in the second quarter of last year, a 9.7% decrease. Smith, in a prepared statement, said the financials reflect weaker-than-expected patient volumes. "The results were also impacted by increases in medical specialist fees, purchased services and information systems expense,” said CHS.
The hospital chain planned to divest 30 hospitals this year in hopes of cutting its $15 billion debt, but is looking to accelerate the financial squaring with more divestitures. CHS lost $1.7 billion last year. For the 20 deals that have already closed in 2017, CHS reported the annualized revenue is about $2.4 billion.
On the call, Smith said the divestitures will help the hospital operator — the second-largest investor-owned health system with 143 hospitals at the end of Q2 — focus its restructuring on its profitable properties in desirable markets as well as growth opportunities.
Smith stated while patient volume expectations were down, certain markets performed well in Q2, such as Fort Wayne, Indiana; and certain Arizona and Arkansas properties. Florida properties had seen good performance, which Smith added hadn't been the case previously. "I think we're on the right track" to help improve margins and cash flows, he said on the earnings call.
The ultimate goal, he said, is to have sustainable hospitals in growth markets and reduce debt by 2018.
President and COO Tim Hingtgen on the earnings call stated CHS will be continuing to expand its access strategy, such as investments into freestanding emergency departments and urgent care facilities. As seen in HCA's Q2 report, declining admissions can be attributed to losses in lower acuity settings. For CHS' example, Hingtgen noted 90% of emergency department admission decline was on the outpatient side.
In addition, the operator is putting more resources into a transfer center program that brings such operations in-house and is expanding it into softening markets. Hingtgen stated the program gives CHS more visibility into the emergency department and bed management.
He added standardizing scheduling templates has helped to yield improved patient volumes and will be added to more sites in 2017. These efforts will help add new revenue streams for the operator.
Moving into the next quarter, Smith noted on the call that Q3 is historically the company's lowest performing quarter.
- CHS CHS Q2 Powerpoint Slides
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