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Payer Denials Shake Community Health Systems Q3 Earnings

Analysis  |  By Marie DeFreitas  
   October 30, 2024

What can be done about aggressive payer tactics?

Community Health Systems reported its third quarter income on October 23, coming in at $3.09 billion. The 69-hospital system saw minor growth since last year, but its earnings were notably dampened by some payer activity.

Despite higher patient volumes and growth in its ambulatory surgery center, CHS saw payer denials and downgraded coding affect its Q3 earnings. Additionally, the health system took a financial hit from operational disruptions and damage from Hurricane Helene last month.

"We are seeing some payers aggressively deny payment for medically necessary services that have been provided for our patients,” CHS CEO Tim Hingtgen told investors and analysts on the earnings call. “For several quarters now, the challenges that we and our industry are facing regarding increasing denial activity by payers has been well documented. And over the last few years, in response to this challenge, we have stood up an enhanced utilization review program and centralized physician adviser services to ensure our patients are placed in correct care status and that we receive appropriate payment for their care."

More than half of those denials and downgrades are from Medicare Advantage plans, Chief Financial Officer Kevin Hammons told investors on the call.

"While denial activity is not new, the tactics used by the payers have become more aggressive, and we have experienced an approximate doubling of denials in the quarter compared with the prior year, which is an increase above our expectations," he said. "This resulted in an approximate $10 million headwind for the quarter."

CHS logged a net loss of $391 million, a loss of $2.95 per share in Q3, a 330% decrease from a loss of $91 million, or a loss of 69 cents per share, in the same quarter a year ago, according to the report.

The Payer Problem

We’ve said it before and we’ll say it again: Payer denials are wreaking havoc across the healthcare landscape. With these more aggressive tactics, as well as AI powered solutions to deny care, payers are leaving providers scrambling.

Specifically, many Medicare Advantage plans operated by commercial payers are often taking less-overt avenues to deny care or delay reimbursement. A report by Kodiak Revenue Cycle Analytics hones in on one of these tactics.

Many health systems have created financial balance by reducing their contract labor costs. For CHS, the system’s contract labor spend decreased $4 million, bringing it to $41 million in the third quarter.

While tactics for dealing with payer challenges can be limited for providers, CFOs need to examine all available options. Some suggest conducting weekly payer meetings to ensure both parties have accurate up-to-date data and minimize the margin for error.

Providers can also use software to automate the prior authorization process, which can improve claim approval rates. One payer is jumping on this option to help ease the struggles of the prior authorization process. CFOs can also conduct regular internal audits to identify and correct coding and billing errors.

 

Marie DeFreitas is the CFO editor for HealthLeaders.


KEY TAKEAWAYS

Community Health Systems reported a Q3 income of $3.09 billion, showing slight growth, but also dulled by payer denials.

Aggressive denial tactics by payers are a prevalent issue in healthcare and the challenge seems to be growing.

CFOs need to examine all avenues for dealing with payer denials, including other ways to balance out finances.


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