Troubled Tennessee Hospital Chain Says It’s On The Way Out Of Rural Areas

https://www.nashvillepublicradio.org/post/troubled-tennessee-hospital-chain-says-it-s-way-out-rural-areas#stream/0

Community Health Systems now owns 118 hospitals in 20 states while divesting facilities in small towns, where hospitals of all kinds have struggled in recent years.

Community Health Systems now owns 118 hospitals in 20 states while divesting facilities in small towns, where hospitals of all kinds have struggled in recent years.

The selling spree is primarily meant to pay down the company’s outsized debt load left over from when Community Health was growing as fast as it could. But the hospital chain was also strategically pulling out of small towns, including several in Tennessee.

CEO Wayne Smith told investors gathered at this week’s annual J.P. Morgan Healthcare Conference in San Francisco that it’s almost entirely left communities with fewer than 50,000 people — once its calling card compared to competing hospital chains.

“So our markets look a lot more like HCA and Universal and Tenet than they did in the past,” Smith said late Wednesday during a company presentation. “We’re no longer a non-urban, or for some of you all a rural, hospital company.”

As it’s repositioned, Community Health’s stock price tumbled to nearly two dollars a share, stoking concern of whether the company could even recover.

The hospital chain has continued to see shrinking admissions and ER visits, but executives assured investors this week they’ve regained their footing.

“Those divestitures have helped us in terms of paying down our debt, improving our margins, improving our cash flow, which you will see more of in 2019,” Smith said.

 

 

 

CHS sees massive Q3 net loss amid weak volume, aftershocks of HMA settlement

https://www.healthcaredive.com/news/chs-sees-massive-q3-net-loss-amid-weak-volume-aftershocks-of-hma-settlemen/540868/

Credit: Rebecca Pifer / Healthcare Dive, Yahoo Finance data

 

Dive Brief:

  • Community Health Systems reported third quarter net operating revenues of $3.5 billion, a 5.9% decrease compared with $3.7 billion from the same period last year but slightly higher than analyst expectations.
  • In its earnings release after market close Monday, the Franklin, Tennessee-based hospital operator also disclosed a massive shareholder loss in the quarter of $325 million, or $2.88 per diluted share. CHS had a net loss of $110 million, or $0.98 per diluted share, in Q3 2017.
  • Lower volume was partially to blame, as the quarter saw a 12.4% decrease in total admissions and a 12.2% decrease in total adjusted admissions compared with the same period in 2017. The report also pointed the finger at the financial aftershocks of its troubled purchase of Health Management Associates (HMA), along with loss from early extinguishment of debt, restructuring and taxes.

Dive Insight:

CHS, one of the largest publicly traded hospital companies in the U.S., reported its highest operating cash flow since the second quarter of 2015, according to Jefferies. The third quarter figure of $346 million is also significantly higher than the $114 million from the same quarter last year.

Similarly, volume and revenue didn’t tank as heavily on a same-store basis as they did overall. Same-facility admissions decreased just 2.3% (adjusted admissions by 0.8%) compared with a year ago. Net operating revenues actually increased by 3.2% during the quarter compared with last year, beating analyst expectations.

But declining admissions show how hospital operators continue to struggle under the fierce headwinds 2018 has blown their way so far. CHS is clearly not immune, as the 117-hospital system faces ongoing operational challenges, bringing in financial advisers earlier this year to restructure its copious long-term debt.

The 20-state hospital operator continues to deal with the fiscal fallout from its roughly $7.6 billion acquisition of Florida hospital chain HMA in 2014. The Department of Justice accused the 70-facility HMA of violating the Stark Law and the anti-kickback statute for financial gain between 2008 and 2012, activities CHS reportedly was aware of prior to the merger.

Just last month, CHS announced a $262 million settlement agreement ending the DOJ investigation into HMA’s misconduct. However, that liability was adjusted during the third quarter and, taking into account interest, now totals $266 million. The fee will reportedly be paid by the end of this year.

The settlement also slapped an additional $23 million tax bill on the 19,000-bed system under recent changes to the U.S. tax code.

But that’s not the only regulatory brouhaha CHS has dealt with this quarter.

Since August, CHS has been under civil investigation over EHR adoption and compliance. Annual financial filings show that the company received more than $865 million in EHR incentive payments between 2011 and 2017 through the Health Information Technology for Economic and Clinical Health Act, payments that investigators believe may have been overly inflated.

To deal with the burden, CHS has continued its portfolio-pruning strategy into the third quarter (although a recent Morgan Stanley report notes the system has a very high concentration of weak facilities, and those at risk of closing, relative to its peers). 

During 2018 so far, CHS has sold nine hospitals and entered into definitive agreements to divest five more. The earnings report also divulged CHS is pursuing additional sale opportunities involving hospitals with a combined total of at least $2 billion in annual net operating revenues during 2017, taken in tandem with the hospitals already sold.

The ongoing transactions are currently in various stages of negotiation, the report notes, but CHS “continues to receive interest from potential acquirers.”

CHS is cast in a better light when balance sheet adjustment and non-cash expenses are discarded, as well. Adjusted EBITDA was $372 million compared with $331 million for the same period in 2017, representing a 12.4% increase and suggesting the company can still generate cash flow for its owners in a more friendly atmosphere than the one Q3 provided.

But, though Q2 results were a bright spot in an otherwise gloomy year for the massive hospital operator, its shares have lost about 30% of their value since the beginning of the year (compared to the S&P 500’s decline of roughly 0.5%).

Jefferies believes that CHS should improve its balance sheet and drive positive same-store volume growth, along with speeding up divestitures to raise cash to pay down debt, in order to improve its stock performance.

 

 

CHS subsidiary to pay $262M to settle fraud probe

https://www.beckershospitalreview.com/legal-regulatory-issues/chs-unit-to-pay-262m-to-settle-fraud-probe.html

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Franklin, Tenn.-based Community Health Systems subsidiary Health Management Associates has agreed to pay the federal government $262 million to settle fraudulent billing and kickback allegations.

The settlement resolves allegations that HMA billed government payers for inpatient services that should have been billed as less costly observation or outpatient services, paid physicians in exchange for referrals, and submitted claims to Medicare and Medicaid for falsely inflated emergency department facility fee charges.

HMA’s conduct occurred between 2003 and 2012, before CHS acquired HMA. HMA was facing multiple qui tam lawsuits and was the subject of criminal and civil investigations when it was acquired by CHS, and CHS cooperated with the government in its investigation.

“Since acquiring HMA in 2014, it has been our goal to resolve the government’s investigation into all of these allegations which occurred prior to the acquisition and which were already under investigation at the time of the transaction,” CHS said in a press release.

In addition to the $262 million settlement, HMA entered a nonprosecution agreement with the Justice Department. Under the NPA, the government agreed not to bring criminal charges as long as HMA and CHS cooperate with the investigation, report evidence of violations of federal healthcare offenses, and ensure their compliance and ethics programs satisfy the requirements of a corporate integrity agreement between CHS and HHS’ Office of Inspector General.

Under the settlement, Carlisle HMA, the HMA-affiliated entity that formerly operated Carlisle (Pa.) Regional Medical Center, agreed to plead guilty to one count of conspiracy to commit healthcare fraud. CHS divested Carlisle Regional in 2017.

“We are pleased to have reached the settlement agreements so we can move forward now without the burden or distraction of ongoing litigation,” said CHS. “As an organization, we are committed to doing our very best to always comply with the law in what is a very complex regulatory environment and to operate our business with integrity, ethical practices and high standards of conduct.”

 

CHS faces investigation related to EHR incentive program

https://www.beckershospitalreview.com/legal-regulatory-issues/chs-faces-investigation-related-to-ehr-incentive-program.html

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Franklin, Tenn.-based Community Health Systems has received a civil investigative demand related to the company’s adoption of EHRs and adherence to the meaningful use program, according to CHS’ latest financial filing.

Under the meaningful use program, now called the promoting interoperability program, CMS distributed incentive payments to eligible providers for installing EHR systems and using them to engage patients and families and to improve care coordination.

In its financial filing, CHS said it is responding to a civil investigative demand related to its “adoption of electronic health records technology and the meaningful use program.”

Federal and state authorities issue these types of demands to collect records and information related to ongoing civil investigations, including False Claims Act cases.

CHS declined to comment on the investigative demand beyond what is included in the financial filing.

EHR incentive payments grabbed the attention of federal regulators after HHS’ Office of Inspector General released a report in 2017 that revealed Medicare made approximately $729.4 million in EHR incentive payments to medical providers who did not comply with federal requirements.

 

CHS Records $2B Loss in 4Q

http://www.healthleadersmedia.com/finance/chs-records-2b-loss-4q?utm_source=edit&utm_medium=ENL&utm_campaign=HLM-Daily-SilverPop_02282018&spMailingID=13023891&spUserID=MTY3ODg4NTg1MzQ4S0&spJobID=1360020486&spReportId=MTM2MDAyMDQ4NgS2

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CEO Wayne Smith says the company’s turnaround is making progress, even as shareholders take it on the chin, losing nearly $18 per share in the fourth quarter of 2017.

Community Health Systems, Inc. lost more than $2 billion in the fourth quarter of 2017, nearly $18 per share, owing to converging challenges that include plummeting revenues and lower hospital volumes, the company reported.

Franklin, Tennessee–based CHS said net operating revenues for the three months ended December 31, 2017, totaled $3 billion, a 31.6% decrease, compared with $4.4 billion for the same period in 2016.

Net operating revenues for all of 2017 totaled $15.3 billion, a 16.7% decrease, compared with $18.4 billion for the same period in 2016.

Despite the sea of red ink, CHS CEO Wayne T. Smith was upbeat, and said the company’s turnaround effort is making headway.

“We are pleased with our progress in the fourth quarter and expect to carry that momentum through 2018, as we execute strategies that we believe will strengthen our core business and drive improved results,” Smith said in prepared remarks.

“During the fourth quarter, we completed our 2017 announced divestiture plan and we intend to continue to optimize our portfolio in 2018 to help pay down debt and refine our portfolio to stronger markets,” Smith said.

Smith said that for 2018, CHS remains “committed to growth initiatives to advance our competitive position, including expanding our transfer and access program across our networks, launching Accountable Care Organizations, and strategically expanding outpatient services.”

According to a filing from CHS:

  • Net operating revenues totaled more than $3 billion in the fourth quarter and were adversely impacted by a $591 million increase in contractual allowances and provision for bad debts.
  • Net loss attributable to CHS stockholders was $2 billion, or nearly $18 per share, compared with net loss of $220 million, or nearly $2 per share (diluted) for the same period in 2016.
  • Adjusted EBITDA was $409 million.
  • Cash flow from operations was $156 million, compared with $327 million for the same period in 2016.
  • Operating results for the fourth quarter reflect a 19.2% decrease in total admissions, compared with the fourth quarter of 2016. Same-hospital admissions fell 1.7% and adjusted admissions decreased .9% over the same period.
  • Operating results for all of 2017, reflect a 14% decrease in total admissions when compared with 2016.
  •  Hurricanes Harvey and Irma resulted in a $40 million loss of net operating revenues, owing to evacuations and population disruptions before the storms, and recovery efforts afterward.
  • As part of its efforts to pay down outstanding debts, CHS sold 30 hospitals in 2017, and continues to negotiate other divestitures in 2018.
  • CHS recorded non-cash impairment expense totaling $1.7 billion in the fourth quarter, from an impairment charge of $1.4 billion on the value of goodwill for the CHS’s hospital reporting unit and impairment charges of $341 million to reduce the value of assets at hospitals that CHS has sold, plans to sell, and at underperforming hospitals.

 

CHS to sell additional hospitals worth $2B in revenue

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/chs-to-sell-additional-hospitals-worth-2b-in-revenue.html

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Franklin, Tenn.-based Community Health Systems completed its 30-hospital divestiture plan Nov. 1. Now, the company expects to sell another group of its hospitals with combined revenue of $2 billion, Chairman and CEO Wayne Smith said during a third quarter earnings call.

To improve its finances and reduce its heavy debt load, CHS put a turnaround plan into place last year. As part of the initiative, the company announced in early 2017 that it intended to sell off 30 hospitals. In August, CHS extended its divestiture plan. The company said it would sell a group of hospitals with combined revenue of $1.5 billion in addition to the 30 hospitals already announced.

With the sales last week of Highlands Regional Medical Center in Sebring, Fla., and Merit Health Northwest Mississippi in Clarksdale, Mr. Smith said the 30 hospital divestitures are complete, and the company is once again expanding its divestiture plan.

“We are now pursuing sale transaction of hospitals accounting for at least $2 billion of net revenue, which has increased from $1.5 billion last quarter,” Mr. Smith said.

Mr. Smith said the company has signed several letters of intent for the hospitals in the next group of divestitures, accounting for more than $1.2 billion in net revenue.

“Our goal is to emerge from this process with a sustainable group of hospitals that are positioned for long-term success and growth,” he said.

With the help of proceeds from the hospital sales, CHS brought down its long-term debt load to $13.9 billion in the third quarter of this year, from $14.8 billion in the same period of 2016.

The company ended the most recent quarter with a net loss of $110 million on revenues of $3.67 billion. That’s compared to the third quarter of 2016, when the company posted a net loss of $79 million on revenues of $4.38 billion.

These Hospital Bonds Are on Life Support

https://www.bloomberg.com/gadfly/articles/2017-10-27/a-49-billion-hospital-emergency-heads-toward-junk-bonds

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Junk-bond buyers appear to have a blind spot when it comes to for-profit health care companies.

They’ve snapped up bonds of Tenet Healthcare Corp. and Community Health Systems Inc. despite the drastically souring outlook for both hospital operators. Some of this may be idiosyncratic or the result of specific investors’ strategies (or unwillingness to sell). Franklin Resources Inc., for example, now owns nearly 20 percent of Community Health’s total debt and more than half of its $1.9 billion of bonds maturing in 2019, according to recent filings compiled by Bloomberg.

In general, however, as credit investors plow into broad indexes of riskier assets, it appears they’re simply turning a blind eye to the ugly balance sheets of hospital operators amid an increasingly difficult backdrop. Federal programs like Medicaid are clamping down on costs. And the Trump administration’s various efforts to weaken the individual insurance market will potentially put hospitals on the hook for more uncompensated care as fewer people sign up for health care coverage.

Meanwhile, Tenet and Community Health made some questionable decisions in recent years to borrow billions of dollars to make acquisitions that now look pricey. These companies don’t generate a ton of cash at the best of times, and much of what they do have now goes to debt service rather than much needed hospital improvements.

CIRCLING THE DRAIN

It’s hard for companies to confront mountainous piles of debt when they don’t generate consistent cash flow.

These hospital operators have a narrowing field of options right now. Tenet recently tried, and failed, to sell itself, which sent its shares plunging on Thursday. Both hospitals report earnings within the next few weeks. If HCA Healthcare is any guide — the company pre-announced worse-than-expected third-quarter earnings last week — they won’t be pretty.

But still, no one in the bond market seems to care. Tenet’s bonds have soared 7.8 percent so far this year, even though its stock has fallen 13.3 percent. Community Health debt has gained 16.5 percent, four times the 4.1 percent gain in its shares.

DIVERGING FATES

Bond investors seem to be turning a blind eye to difficulties recognized by stock investors

This seems sort of ludicrous. One hedge fund manager, Boaz Weinstein of Saba Capital Management, sees this as an opportunity to short some of these companies’ junior bonds. Weinstein pointed out at a conference this month that Community Health’s $14 billion pile of debt is 20 times the value of its equity.

Unless the company’s fortunes turn around, it will be forced to reckon with its debt in painful ways for its business as well as the returns of creditors. It’s hard to see how the business could get better with President Donald Trump’s continuing attempts to torpedo health care insurance subsidies, which is widely expected to hurt hospital profitability.

Credit investors at some point are going to have to come to grips with this. Community Health and Tenet, along with HCA, account for $49 billion of debt in a broad U.S. high-yield bond index. This pile is looking increasingly vulnerable to a day of reckoning.