Dive Brief:
- Declining admissions and headwinds from recent divestitures dragged for-profit hospital operator Community Health Systems’ earnings into the red during the first quarter, according to results posted this week.
- CHS posted a $58 million loss in the first quarter, compared to a $13 million loss in the prior-year period.
- Executives said on a Wednesday morning call with Wall Street investors that it believed its low admissions in the quarter were a “temporary” disruption due to flagging consumer confidence, macroeconomic headwinds and “aggressive” actions from insurance companies. “CHS delivered financial results toward the low end of expectations,”CFO Jason Johnson said on the call.
Dive Insight:
CHS called out last quarter that it could see lower volumes in the first half of 2026 given that consumer confidence was muted at the end of the year. Executives said they expect volume growth to pick up in the back half to help CHS meet its guidance of low single-digit volume growth at the end of the year.
Same-store adjusted volumes declined 1.3%, while adjusted admissions fell 0.5% in the quarter compared to the prior-year period. When accounting for divestitures and other factors, consolidated volumes fell more than 10%.
Some of the volume loss was driven by “softness” in elective procedures like hip and knee surgeries, Johnson said. Same-store surgeries declined 2.2% compared to the prior-year period.
Volume pressures weren’t concentrated in any one market, CEO Kevin Hammons said on the call.
Rather, executives said demand for healthcare was down in the first quarter due to “consumer fears” like political instability, the increased cost of living, a poor job market and the U.S.’ war with Iran.
Care denials from insurers also didn’t help, according to Hammons, including the “aggressive practices used by the managed care companies that drive inefficiency, unnecessarily delay payment and interfere with the delivery of medical care.”
“They’ve turned the dial up on denying pre-authorizations in more cases,” the CEO said.
Although volume pressures were “across the board,” CHS believes admissions declines were concentrated in patients with commercial and Affordable Care Act coverage.
Adjusted admissions for patients with exchange coverage — which make up between 4% to 5% of CHS’ total admissions — was down 3.9% in the quarter. The hospital operator has been assuming a $20 million to $30 million loss in earnings before interested, taxes, depreciation and amortization this year due to the expiration of enhanced ACA subsidies. Still, CHS said it didn’t have any new information about ACA disenrollments, and likely wouldn’t until the second or third quarter this year.
Lower volumes dragged CHS’ operating revenue in the quarter down to roughly $3 billion, a 6% decrease compared to the prior-year period. The hospital operator’s adjusted EBITDA also fell nearly 18% in the quarter to $309 million.
Divestitures also dinged CHS in the first quarter. The operator has been sprinting to sell its hospitals in an effort to pay down its high debt loads. In the first quarter, CHS completed divestitures in Tennessee, Pennsylvania and Alabama. The divestitures, due to lost revenue streams, represented a $25 million hit to EBITDA in the first quarter.
Despite the low volumes, CHS declined to revise its guidance for the year. The operator expects to gain revenue of between $11.6 billion and $12 billion in 2026. Executives said they expect earnings to be boosted throughout the year as more state-directed Medicaid payments are approved and itemized.
Executives said they expect CHS’ recent investments to improve on the operator’s growth, including its announcement this week that it would acquire the Surgical Institute of Alabama, an ambulatory surgical center. CHS’ didn’t disclose financial details, but executives said that the acquisition was CHS’ largest since 2016.
