The for-profit hospital operator made strides in several areas in the quarter to stabilize its bottom line.
Community Health Systems' (CHS) finances are trending in the right direction, though challenges persist which could be shaped by shifts in Washington.
In its first-quarter earnings report, the Franklin, Tennessee-based health system showed revenue growth on higher volumes and improvement on deleveraging its portfolio through divestitures, while contending with increasing medical specialist fees, payer denials, and policy uncertainties under the new presidential administration.
Overall, CHS trimmed its net loss for the first three months of the calendar year down to $13 million, compared to $41 million in 2024's first quarter.
Encouraging results for the period were headlined by operating revenue increasing 0.6% to $3.16 billion and same store operating revenue jumping 3.1%. CHS saw greater patient from the flu season, which contributed to a 4% increase in same store admissions.
Meanwhile, the system sold several assets that will allow it to reach its goal of hitting over $1 billion in divestiture proceeds, CHS leadership highlighted on an earnings call with investors. Divestitures of Shore Point Health System in Florida and Lake Norman Regional Medical Center in North Carolina were completed in the quarter, along with the sale of 50% ownership interest in Merit Health Biloxi in Mississippi. CHS also recently announced an agreement to sell 80% ownership in Cedar Park Regional Medical Center in Texas, expected to close later this year.
"These transactions will further reduce the company's net leverage, improve our maturity profile, and enhance shareholder value while not meaningfully affecting free cash flow," CHS CFO Kevin Hammons said on the call. "Furthermore, we're getting all of this done despite the recent dislocation in the capital markets."
CHS' operating expenses for the quarter were $2.85 billion, a slight decrease from the $2.9 billion reported over the same period last year. The system reduced contract labor spend by $8 million year-over-year, but dealt with medical specialist fees increasing 9% to $163 million. Hammons stated that the system expects to continue feeling pressure from rising medical specialist fees in 2025, though at more manageable levels than those seen from 2022 to 2023.
Investors asked CHS leadership about their handling of potential policy changes as well. Between tariffs and possible funding cuts to Medicaid, health systems are reckoning with market volatility.
"I want to acknowledge the fact that healthcare providers are currently facing a number of uncertainties," CHS CEO Tim Hingtgen said. "Navigating any potential changes that may come out of Washington in the weeks and months ahead makes planning more challenging. But our team is closely following these developments and advocating for policies that maintain and strengthen our health systems and all health care delivery systems."
Regarding tariffs, Hammons pointed to CHS purchasing over 70% of its supplies through HealthTrust Purchasing Group, a group purchasing organization that comes with fixed pricing. Less than 5% of the system's purchases are from China.
On Medicaid, CHS leadership said they've not included directed payment program reimbursement for Tennessee or New Mexico due to those programs not receiving approval by the administration yet. However, CHS expects those programs to be eventually approved, which would contribute $100 million to $125 million annually to the system's EBITDA.
Jay Asser is the CEO editor for HealthLeaders.
KEY TAKEAWAYS
Community Health Systems grew operating revenue to $3.16 billion in the first quarter, with a 4% rise in same store admissions driven by flu season and increased demand for services.
Multiple hospital sales this year will get CHS to its goal of $1 billion in divestiture proceeds, reducing debt and boosting financial flexibility.
CHS continues to see specialist fees rise and is taking a wait-and-see approach on Medicaid and tariff-related policy changes.