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Amid Q1 hit, CHS says portfolio reorganization finished

Dive Brief:

  • Community Health Systems on Tuesday reported $18 million in first quarter net income, swinging from a loss of $118 million a year earlier, but revenue fell to about $3 billion from $3.4 billion, coming in slightly below Wall Street estimates. 
  • The hospital chain reported a roughly 13% drop in admissions, or 5% on a same-store basis, with COVID-19 contributing to those declines starting in the second half of March as the pandemic ramped up.
  • Franklin, Tennessee-based CHS disclosed it received $245 million from the Coronavirus Aid, Relief, and Economic Security Act provider relief fund, money it does not have to pay back. It will need to repay the $1.2 billion in accelerated Medicare payments it also received.

Dive Insight:

The system sold off three hospitals during the period as it continues to pare down facilities, and in the filing announced it has entered into several definitive agreements to sell a total of seven hospitals. 

CHS said the sale of three hospitals caps the end of a long restructuring, spurred by a botched acquisition of Health Management Associates in 2014. HMA, a CHS subsidiary, was hit with a $260 million fine in 2018 to resolve allegations of defrauding government programs.

The 99-hospital chain plans to stash its CARES funding away as a “second quarter benefit to revenue” pending SEC approval, executives said during a Wednesday call with investors.

Hospitals across the country have seen volumes diminish amid the ongoing pandemic, and CHS is no exception. On a same-store basis first quarter admissions fell 5.2% compared with the same period a year prior.

April is proving to take an even bigger hit. Admissions on a same-store basis are now down 35% compared with the same period a year prior, surgeries are down 70%, and emergency room visits are down 45%.

“Obviously our second quarter will be materially impacted by the COVID-19 pandemic and the uncertainties around the timing of recovery,” CFO Kevin Hammons said.

Executives also highlighted a dramatic spike in telehealth, with the chain now hosting 20,000 telehealth visits a week compared to less than 100 a month prior to the pandemic.

But company leaders expressed optimism about reopening of local economies in some of their highest volume states, allowing them to resume elective procedures and make up for depleted volumes and lost revenue.

President Tim Hingtgen noted shelter in place orders have been lifted or modified in more than half of the 17 states where CHS operates, including four of its five highest revenue generating states: Indiana, Texas, Alabama and Tennessee.

CHS hospitals in all but two states are scheduled to resume elective procedures beginning next week. Hingtgen said that assuming COVID-19 cases continue to decline in those states, he expects that “every market will be in a position to restore services throughout the month of May.”

Despite withdrawing 2020 guidance, Hammons said CHS’ current cash on hand, upcoming proceeds from the signed definitive agreements, and possibility of receiving additional provider relief funds gives it “ample liquidity to manage through this crisis, return to normal operations and be well positioned for growth moving forward.”

Rivals HCA Healthcare and Universal Health Services have also reported volume drops in the first quarter of this year as most hospitals have halted lucrative elective procedures to free up resources for treating COVID-19 patients. Tenet reports its earnings next week.

Kaufman Hall has reported plummeting operating margins for hospitals across the country and expects “more negative results in the future.”

This story has been updated with commentary from an investor call.

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