5 Things CHS Competitors Should Note in the Hospital Operator’s Recent Financials

Community Health Systems, Inc., (CHS) the leading public company operating hospitals as measured by number of facilities, announced its fourth quarter and end-of-year financial results to investors, this week. The industry-wide trend toward lower hospital admission numbers hurt its profitability  and sent its stock down. However, there was more in the report and earnings call that competitors should take note of.

Overall, CHS’s fourth quarter saw a 10.5 percent decrease in total admissions and a 6.7 percent decrease in total adjusted admissions compared with the same period in 2012. For the whole year, total admissions were down 6.7 percent compared with the same period in 2012, the Brentwood, Tenn.-based company reported.

“Our financial and operating results for the fourth quarter reflect a continuation of the challenging operating environment for health care providers over the past year,” stated Wayne T. Smith, CHS’s chairman and CEO in the earnings press release. “As we previously announced, weakness in volume, combined with higher bad debts and a less favorable payor mix, affected our operating revenues during the fourth quarter.”

However, Smith pointed to progress in other factors on the earnings call, and these are notable to competitors as well as investors.

1. Physician recruiting is up slightly and they are putting resources behind this as they see it as a key driver of both volume and market share growth going forward. Currently, around 27,000 physicians are part of CHS and they added 2,141 new physicians in 2013, a slight increase over 2012.
2. CHS has a level of participation in the new health insurance exchange plans that should drive the newly insured to CHS facilities. According to W. Larry Cash, CHS’s president of Financial Services, CFO and Director, 83 percent of CHS’s hospitals are participating in the lowest-cost bronze plan, and 75 percent in the lowest-cost silver plan. CHS hospitals participating in the first or second lowest-cost bronze plan are 89 percent, and first and second lowest-cost silver plan are 92 percent. In addition, 95 percent of CHS hospitals are participating in the lowest-cost bronze plan in their respective markets, and 94 percent in their respective markets in the lowest-cost silver plan.
3. When it merged with Health Management Associates last year, CHS also restructured its debt. The more favorable rates could make it more agile in its future acquisition plans.
4. CHS believes it’s over the hump in electronic health record investment. “The electronic health record activity that affected us [last year] should not [in 2014],” Cash said in the earnings call.
5. Safety and quality are top agenda items in preparation for a future where quality is a key part of reimbursement. CHS notes that 93 of its hospitals were named Top Performers on Key Quality Measures by the Joint Commission. Three years into its high reliability and safety plan, CHS says it has reduced serious safety events 10 percent, readmissions 8 percent and hospital-acquired infections 16.3 percent in 2012, with an additional 11.7 percent reduction in 2013.