Winter hits first combined CHS-HMA financials

With 65 percent of Community Health Systems’ (CHS’s) entire portfolio of hospitals severely impacted by the severe winter weather seen in the Midwest, East Coast and Southeast states, its first financials since its blockbuster merger with Health Management Associates (HMA) was completed was below its previous expectations and pushed its stock price down.

According to Wayne T. Smith, CHS’s chairman and chief executive officer, the weather impact on adjusted EBITDA was approximately $25 million, and this translated into a reduction in earnings per share of about 14 cents. With a normal winter, earnings per share would have been 41 cents.

However, on an earnings call with investors, Smith pointed to the many other positive financial indicators since the merger with HMA and noted that he was “extremely pleased” with the financial and operational results the company achieved in the first quarter of 2014. “Let's remember, this is not about one quarter but long-term opportunities, especially with Affordable Care Act benefits this offers our company and our shareholders,” he said.

CHS’s net operating revenues increased 28 percent on historical comparison to $4.2 billion and its adjusted EBITDA increased approximately 9.2 percent to $541 million. In addition, Smith highlighted the success the company has had so far in integrating CHS and HMA operations, rolling out quality initiatives and improving physician recruitment. CHS recruited 613 physicians in the first quarter of 2014 compared to the 418 CHS and HMA recruited on a combined basis in the first quarter of 2013. CHS also had a 15 percent reduction in Serious Safety Events, approximately a 23 percent reduction in hospital-acquired conditions and approximately a 19 percent reduction in readmissions for diagnoses included in the Medicare readmission reduction program.

“We're very bullish on our ability to achieve synergy levels that we've discussed before,” Smith said. “We still believe we will achieve $100 million in synergies in 2014, and $250 million in total over a two-year period. We have estimated that we will have already achieved $12 million in synergies just in two months.”

However, smaller competitor Tenet Healthcare, which also released its Q1 financials this week, was hit by bad weather, too, in all but three of the states it operates in, and it still reported volume trends continuing to strengthen and “running ahead of our expectations in spite of severe weather in many of our markets,” as company President and CEO Trevor Fetter said on his earnings call with investors.

Tenet’s EBITDA for the first quarter ended March 31, 2014, was $387 million, an increase of $113 million, or 41 percent, as compared to $274 million in the first quarter of 2013. This was despite loses from Medicare sequestration, an uncapped health plan contract in Arizona and a decline in California Provider Fee Program revenue recognition.  

“Our strategy of driving growth in higher-margin, faster-growing capital-light businesses is paying dividends, with strong performances in outpatient and Conifer,” Fetter noted. “The Vanguard integration is proceeding smoothly, and we are increasingly confident that our acquisition synergies over the longer term will exceed our $100 million to $200 million range.”