Community Health Systems, a 69-hospital system, posted $3.09 billion in third-quarter revenue, up slightly from a year ago, thanks to higher hospital patient volumes and growth in its ambulatory surgery center business.
But, the health system’s Q3 earnings were dampened by a significant increase in payer denials and coding downgrades by managed care plans, according to executives in an earnings call Thursday. CHS also took a financial hit from operational disruptions and hospital facility damage from Hurricane Helene in late September.
“We are seeing some payers aggressively deny payment for medically necessary services that have been provided for our patients. For several quarters now, the challenges that we and our industry are facing regarding increasing denial activity by payers has been well documented,” CHS CEO Tim Hingtgen told investors and analysts on the call. “And, over the last few years, in response to this challenge, we have stood up an enhanced utilization review program and centralized physician advisor services to ensure our patients are placed in correct care status and that we receive appropriate payment for their care.”
CHS’ physician advisor service has been able to obtain a high rate of reversal on initial insurer denials, he noted. ‘Nevertheless, the rate of denial activity by payers continues to grow and has continued to pressure our topline,” he said.
More than half of those denials and downgrades 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 is making incremental investments in its centralized patient financial services processes and teams and its physician advisor program “to continue to advocate for the appropriate classification of care for our patients and payment for the services our health systems provide,” Hingtgen said.
The health system logged a net loss of $391 million, or 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 its Q3 financial report. Same-store emergency room visits were up 0.8%.
CHS’ Q3 revenue was in line with Wall Street analysts’ expectations while earnings per share missed the Street. The health system’s share price dipped 6% on Friday after the earnings report.
Adjusted EBITDA in Q3 was $347 million, up from $360 million a year ago. Adjusted EBITDA margin for the quarter was 11.2% compared to 11.7% a year ago.
On a same-store basis, net operating revenues increased 5.1% for the three months ended
Surgeries improved 3.1%, led by growth in lower acuity outpatient cases driven by CHS’ consistent investment in ambulatory surgery sites of care, Hingtgen said.
“Patient demand for services was good overall, but inpatient acuity skewed lower than expected, affecting net revenue,” he said.
The health system, headquartered in Franklin, Tennessee, also was impacted by back-to-back hurricanes, Milton and Helene, as its hospitals serve communities in Florida, Georgia and east Tennessee.
One facility had to evacuate patients, consistent with local orders, and several hospitals had to delay elective procedures, executives said. Short Point Health System, south of Tampa, Physicians Regional Healthcare System in Naples and Tennova Healthcare – Newport Medical Center experience the biggest impact.
ShorePoint Health Punta Gorda in Florida sustained major damage from flooding and remains closed for the reminder of the year as remediation efforts are underway, according to executives.
Missed revenue and incremental costs as a result of Hurricane Helene, which struck September 29, totaled $7 million, Hammons said.
The health system made progress in reducing its contract labor costs, which were down 24% year over year. Contract labor spend declined $4 million sequentially to $41 million in the third quarter. “That reflected the continued progress made possible by our recruitment and retention efforts,” Hammons said.
He said CHS is making progress on its plan to generate $1 billion from sales of its facilities.
In August, the health system completed the sale of 351-bed
In July, the health system announced plans to sell three Pennsylvania hospitals to Woodbridge Healthcare in a deal valued at $120 million.
The majority of the remaining deals will close in the fourth quarter or first quarter of 2025, Hammons noted.
Hingtgen told investors CHS has been delivering on its strategic growth plans, noting several key capital investments. The health system’s Knoxville North Tower expansion has helped boost patient volumes, posting a double-digit increase compared to a year ago, he said.
On the outpatient side, CHS nows operate a total of 18 free standing ED locations, following the opening of new centers in Alabama and Texas. It also completed an expansion of the hospital emergency department at Grandview Medical Center in Birmingham, Alabama. “All of these projects have resulted in immediate volume growth,” Hingtgen said.
CHS also plans to acquire 10 urgent care centers from Ca
CHS lowered its guidance for 2024 adjusted EBITDA to $1.5 billion to $1.54 billion dollars. The health system is projecting 2024 revenue to come in between $12.45 billion to $12.55 billion.
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