- Community Health Systems reported fourth quarter net operating revenues of $3.45 billion, a 12.9% increase compared with $3 billion for the prior period, beating Wall Street expectations by $70 million. Admissions dropped 9.7% on the quarter compared to 2017, while occupancy rates and length of stay increased. Investors were pleased and drove up shares.
- CHS reported after the market close Wednesday that investors shouldered a $328 million loss on the quarter, compared to a net loss of $2 billion for the same period in 2017. A $266 million paid to settle charges against troubled subsidiary Health Management Associates took some of the blame, after HMA was found guilty of false billing and physician kickbacks, which CHS admitting to knowing before acquiring the company in 2014.
- The health system saw a 15% decrease in total admissions in 2018 compared to the year prior. That's largely due to the company's ongoing divestiture plan, which saw 11 hospital sales and three permanent hospital closures completed last year.
CHS remains haunted by its $7.6 billion acquisition of Florida-based HMA in 2014, a deal it is still paying for with $13.4 billion in long-term debt and a major civil lawsuit to boot. As a result, the chain's hospital fire sale is still raging, and with more than 80 hospitals sold or closed in the past three years, analysts believe the end may be in sight.
The hospital system ended 2018 with $14.16 billion in operating revenues, a 7.8% decrease compared to $15.35 billion for the same period in 2017.
CEO Wayne Smith set an ambitious goal in the beginning of 2018, announcing the company's intentions of slimming down to 100 hospitals. CHS, one of the country's largest for-profit health systems, sold off 30 hospitals in 2017. By the third quarter of 2018, their hospital count totaled 117. At the moment, CHS owns 112 hospitals, having sold three already in 2019 and having entered agreements to sell four others, according to its earnings release.
Divestitures helped CHS whittle its debt down 3.6% from 2017 to 2018. Jefferies analysts called the quarter positive, calling it "one of its best quarters in recent years."
"We believe continued margin expansion is likely as [CHS] begins to reap the benefits of the portfolio rationalization it has completed over the last 2 years, including the closure of some relatively large underperforming hospitals in late 2018," the wrote.
Those divestitures contributed to the hit CHS took on admissions. On a same store basis, admissions decreased 1.3% for the quarter while adjusted admissions decreased 0.4% compared with the same period in 2017. Net operating revenues increased 2.8% on a same-store basis compared to 2018. Same-store operating results included in the earnings report omitted results from hospitals CHS cut off in both 2018 and 2017.
With its divestiture campaign coming to an end, hospital management will need to revert their gaze back to operations. Total operating costs and expenses for the quarter totaled $3.6 billion, a 31.5% drop compared to the same quarter in 2017.
That will "take some time," Jefferies analysts said. With debt relief on the distant horizon, CHS' high debt load will "drive a higher-than-average level of stock volatility that makes it difficult for investors to step into the name," they said.
Investors were impressed with CHS' fourth quarter results. Shares were up about 15% in afternoon trade.
Aside from its admissions woes — a thorn in the side of nearly every major American health system aside from HCA — CHS was barraged with litany of legal troubles, many of which can be traced back to its divestiture efforts.
Microsoft sued the company in March, alleging CHS willfully infringed its copyrighted software and breached contractual agreements when it "intentionally facilitated the continued use of Microsoft software" by hospitals it had divested. By August, CHS was being investigated by the SEC over EHR adoption and compliance under the federal Meaningful Use program. One of three EHR networks CHS deploys is an in-house system built by HMA.
By November, CHS found itself in yet another legal battle, this time with Dallas-based Steward Health Care, with CHS accusing Steward of failing to pay $10 million for its 2017 acquisition of eight CHS hospitals.