Community Health Systems' Earnings Hampered by Rising Costs, Divestitures

The fourth quarter marked another period of financial struggle for the health system.

Community Health Systems continues to feel pressure on its bottom line as it works to reshape its portfolio to become profitable.

Increased costs from claim denials and outsourced medical specialists, along with lost revenue from ongoing divestitures, cut into the hospital operator's fourth quarter and year-end earnings, CHS reported.

The Franklin, Tennessee-based health system saw its losses jump to $516 million for 2024, compared to a $133 million loss in 2023, while the fourth quarter featured a $70 million loss, versus a $46 million gain over the same period in the previous year.

CHS has recently been divesting hospitals to open up funding, clear debt, and boost its finances. In 2024, it sold Tennova Healthcare-Cleveland to Hamilton health Care System for $160 million before offloading two North Carolina hospitals to Iredell Health System.

This year, CHS is expected to sell ShorePoint Health in Florida and Lake Norman Regional Medical Center in North Carolina, which CHS CFO Kevin Hammons anticipates bringing in $550 million in gross proceeds, he told investors on an earnings call.

"In addition to these previously announced transactions, we continue to advance discussions on additional divestitures that we expect to announce in the near future, also at very attractive multiples," CHS CEO Tim Hingtgen said on the call. "All told, these pending and expected transactions should generate more than $1 billion in total proceeds, which we expect to lead to meaningful deleveraging and increased shareholder value."

CHS has also been investing in outpatient care, such as purchasing 10 Arizona-based urgent care centers and opening two freestanding emergency rooms.

Speaking on the shift in strategy from acute care to outpatient care, Hingtgen said the core portfolio is smaller, but "generating roughly these similar amount of net revenue as three or four years ago. So we know that our investments are yielding the intended outcomes, caring for more patients and driving that type of growth."

However, CHS leadership highlighted challenges CHS is facing with costs stemming from claim denials and medical specialist fees.

In terms of denials, Hingtgen noted that the situation "has shown some stabilization since the third quarter."

Meanwhile, CHS experienced a "sharper increase" in medical specialist fees, which rose 12% in the fourth quarter on a same-store basis for a total of $170 million. For 2024, medical specialist fees hit $640 million, representing a 10.9% climb on a same-store basis from the previous year.

"To mitigate this trend, we have scaled our proven capabilities for managing in-sourced hospital-based services beyond hospitalist and emergency medicine into a growing number of anesthesia programs," Hingtgen said.

In its initial guidance for 2025, CHS is forecasting net revenue of $12.2 billion to $12.6 billion, and adjusted EBITDA of $1.45 billion to $1.6 billion.