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 shares sink to new low

https://www.beckershospitalreview.com/finance/chs-shares-sink-to-new-low-100518.html

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Shares of Franklin, Tenn.-based Community Health Systems closed Oct. 4 at $2.67, their lowest closing price ever and down 1.1 percent from the day prior.
The hospital chain’s stock price traded as low as $2.62 on Oct. 4 after closing Oct. 3 at $2.70 per share. Over the past year, CHS shares have traded between $2.62 and $7.62.

CHS saw its net loss shrink in the second quarter of 2018 as the company continued to refine its hospital portfolio. The company is using proceeds from the hospital divestitures to pay down its debt load.

 

5 key takeaways from hospitals’ Q2 results

https://www.healthcaredive.com/news/5-key-takeaways-from-hospitals-q2-results/530072/

Earnings results were mixed for hospital operators in the second quarter, with debt-laden health systems slagging and high-performing counterparts pulling ahead.

 

 

CHS sees net loss narrow to $110M, pursues $2B hospital divestiture plan

https://www.beckershospitalreview.com/finance/chs-sees-net-loss-narrow-to-110m-pursues-2b-hospital-divestiture-plan.html

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Franklin, Tenn.-based Community Health Systems, which operates 119 hospitals, saw its net loss shrink in the second quarter of 2018 as the company continues to refine its hospital portfolio.

CHS said revenues dipped to $3.56 billion in the second quarter of 2018, down 14 percent from $4.14 billion in the same period of the year prior. The decline was largely attributable to CHS operating 24 fewer hospitals in the second quarter of 2018 than in the same period of 2017. On a same-hospital basis, revenues climbed 3.3 percent year over year.

After factoring in operating expenses and one-time charges, CHS ended the second quarter of 2018 with a net loss attributable to stockholders of $110 million. That’s compared to the second quarter of 2017, when the company recorded a net loss of $137 million.

“Our second quarter results reflect progress in our key areas of strategic focus, most notably improvements in same-store operating results, progress on divestitures and successful refinancings,” said CHS Chairman and CEO Wayne T. Smith in an earnings release.

As part of a turnaround plan put into place in 2016, CHS announced plans in 2017 to sell off 30 hospitals. The company completed the divestiture plan Nov. 1. To further reduce its debt, CHS intends to sell another group of hospitals with combined revenues of $2 billion. The company has already made progress toward that goal.

During 2018, CHS has completed seven hospital divestitures and entered into definitive agreements to sell five others. CHS said it continues to receive interest from potential buyers for certain hospitals.

“As we complete additional divestitures this year, we believe our portfolio will become stronger, and more of our resources can be directed to markets where we have the greatest opportunities to drive incremental growth,” Mr. Smith said.

CHS’ long-term debt totaled $13.67 billion as of June 30, a decrease from $13.88 billion as of the end of last year.

 

Temple University Health System hires restructuring officer for potential sale

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/temple-university-health-system-hires-restructuring-officer-for-potential-sale.html

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Philadelphia-based Temple University’s board of trustees announced June 20 the institution will hire a chief restructuring officer for its affiliated health system, and is considering the potential sale of two of its hospital assets, according to The Inquirer.

Temple University President Richard Englert and Temple University Health System CEO Larry Kaiser, MD, said in a joint statement to the community TUHS “faces significant operational and financial challenges. More must be done to maintain a viable and sustainable healthcare enterprise in a highly competitive and volatile market,” according to the report.

Officials also said the health system is considering the sale of Jeanes Hospital and the Fox Chase Cancer Center, both in Philadelphia.

The Inquirer reports Temple University Health System incurred a net loss of $31.1 million in the nine months ended March 31, compared to the system’s $19.9 million loss the year prior.

 

CHS beats expectations with cost cuts despite volume slump

https://www.healthcaredive.com/news/chs-beats-expectations-with-cost-cuts-despite-volume-slump/522579/

Dive Brief:

  • Community Health Systems beat Wall Street expectations Tuesday when it reported a small adjusted net profit during the first quarter, as its cost cutting helped offset weak admissions volume. Its net loss narrowed to $25 million, compared to a net loss of $199 million in the year earlier period.
  • Net operating revenues dropped nearly 18% to $3.69 billion, compared with $4.49 billion for the same period in 2017. The health system continues to struggle with declining admissions, reporting a 2.4% decrease for the quarter.
  • CHS sold off 30 hospitals last year and continues its divestment strategy this year.

Dive Insight:

The Brentwood, Tennessee-based hospital operator is hoping to pare down its outsized debt, much of which was acquired when the company bought the financially-distressed Florida-based system Health Management Associates for $7.6 billion in 2014.

In January, CEO Wayne Smith told investors his goal is to slim down to 100 hospitals in “significantly improved markets.” The company is attempting to make $1.3 billion off of divestitures this year, counting six pending divestitures this year in Florida, Louisiana and Tennessee.

The strategy might be paying off. With 30 fewer hospitals, the company’s inpatient and outpatient revenues for Q1 each increased 0.1% on a same-store basis, and income from operations skyrocketed 198% to $212 million, compared to $71 million in 2017.

Jefferies noted the system offset lower volumes by keeping labor and staffing costs low.

Still, it said future growth “hinge[s] largely on seeing a stabilization in organic volume trends, which has eluded the company for eight consecutive quarters.”

The analysts said new initiatives like an accountable care organization were promising, “though their benefits will likely take a few quarters to materialize.”

Last year, ASL Strategic Value Fund sent a letter to CHS’ board of directors saying “it is time” to replace the CEO. The letter, dated Aug. 8, argued that action is needed immediately as management’s “previous missteps have resulted in billions of dollars of shareholder losses.”

In a comment issued with the earnings report, Smith argued to investors that the company’s turnaround strategy is beginning to work.

“We achieved continued progress across a number of our strategic and operating initiatives,” he said. “During the first few months of the year, we expanded our transfer and access program, launched Accountable Care Organizations, and invested in both outpatient capabilities and service line enhancements across our markets. These efforts helped drive a good financial performance during the first quarter and position the Company for further anticipated improvements during the balance of 2018.”

However, CHS still has a long way to go. The company recently brought in financial advisors to help restructure $13.8 billion in long-term debt.

 

Tenet continues hospital sell-off spree with deals in Illinois, Texas

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/tenet-continues-hospital-sell-off-spree-with-deals-in-illinois-texas.html

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Dallas-based Tenet Healthcare divested a Chicago-area hospital and sold its minority interest in four Texas hospitals.

Tenet completed the sale of MacNeal Hospital in Berwyn, Ill., and its local physician practices to Chicago-based Loyola Medicine, which is part of Livonia, Mich.-based Trinity Health. MacNeal Hospital includes 374 acute care beds, a 12-bed rehabilitation unit, a 25-bed inpatient skilled nursing facility and a 68-bed behavioral health program.

“We look forward to serving a greater number of patients through our expanded delivery network, thanks to the resources, providers and value-added care made possible by adding MacNeal Hospital and its physicians to our system,” Larry M. Goldberg, president and CEO of Loyola Medicine and Trinity Health’s Illinois region, said in a statement.

Tenet also announced the completion of several other deals on Feb. 2. The company sold its minority interest in Baylor Scott & White-Centennial in Frisco, Texas, and Baylor Scott & White-Lake Pointe in Rowlett, Texas, to Dallas-based Baylor Scott & White Health. The company transferred its minority interest in Baylor Scott & White-Sunnyvale (Texas) to Texas Health Ventures Group, which is a joint venture between Tenet’s United Surgical Partners International subsidiary and Baylor Scott & White Health. Tenet also sold its minority interest in Baylor Scott & White Medical Center-White Rock in Dallas to Pipeline Health, a hospital management company based in Manhattan Beach, Calif.

Tenet ended the fourth quarter of 2017 with a net loss of $230 million, compared to a net loss of $79 million in the same period of the year prior. To improve its financial position, Tenet launched a $250 million cost reduction initiative last year, which involves divesting hospitals in non-core markets and cutting 2,000 jobs, or about 2 percent of the company’s workforce.

Tenet’s hospital divestiture plan is expected to yield more than $1 billion of proceeds. In the first quarter of 2018, Tenet received $550 million of cash proceeds from the divestiture of MacNeal Hospital, the sale of its minority interest in the Texas hospitals and the sale of two hospitals in Philadelphia.

Tenet sees net loss swell to $230M, says $1B hospital divestiture plan is on track

https://www.beckershospitalreview.com/finance/tenet-sees-net-loss-swell-to-230m-says-1b-hospital-divestiture-plan-is-on-track.html

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Dallas-based Tenet Healthcare, which operates 74 hospitals, saw its net loss widen in the fourth quarter of 2017.

The for-profit hospital operator ended the fourth quarter of 2017 with revenues of $5 billion, up from $4.9 billion in the same period of the year prior. On a same-facility basis, patient revenue was up 6.1 percent year over year in the fourth quarter of 2017, with adjusted admissions up 1.3 percent.

After factoring in operating expenses, a $252 million write-down of the company’s deferred tax assets due to the Tax Cuts and Jobs Act, and a $22 million year-over-year increase in noncontrolling interest expense, Tenet reported a net loss of $230 million in the fourth quarter of 2017. That’s compared to the fourth quarter of 2016, when the company posted a $79 million net loss.

To improve its financial position, Tenet launched a $250 million cost reduction initiative last year, which involves divesting hospitals in non-core markets and cutting 2,000 jobs, or about 2 percent of the company’s workforce.

Tenet’s hospital divestiture plan is expected to yield more than $1 billion of proceeds. A presentation published with the company’s fourth-quarter financial results said the hospital divestiture plan is on track. Tenet sold its last two Philadelphia hospitals in January, and the company said it expects to complete the divestiture of 368-bed MacNeal Hospital in Berwyn, Ill., in March.

Tenet is also exploring the sale of Conifer Health Solutions, its healthcare business services subsidiary. The company said in December it expects to decide whether to sell Conifer during the first half of 2018.

 

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.

CHS reports $110M net loss, completes 30-hospital divestiture spree

https://www.beckershospitalreview.com/finance/chs-reports-110m-net-loss-completes-30-hospital-divestiture-spree.html

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Community Health Systems, a 127-hospital chain based in Franklin, Tenn., posted a net loss of $110 million in the third quarter of 2017, compared to a net loss of $79 million in the same period of the year prior.

CHS said revenues dipped to $3.67 billion in the third quarter of this year, down from $4.38 billion in the same period of 2016. The decrease in revenue was attributable, in part, to lower patient volume. On a same-facility basis, admissions were down 14.8 percent in the third quarter of this year. When adjusted for outpatient activity, admissions decreased 15.5 percent year over year.

The company’s financials also took a $40 million hit from hurricanes Harvey and Irma in the three months ended Sept. 30. CHS said the hurricanes caused it to incur additional expenses and miss out on revenues.

Although CHS’ operating expenses declined in the third quarter, one-time charges took a toll on the company’s bottom line. CHS said its third quarter financial results included $33 million in impairment charges and losses related to the sale of some of its hospitals.

To improve its finances and reduce its heavy debt load, CHS put a turnaround plan into place in 2016. As part of the initiative, the company announced plans this year to sell off 30 hospitals. With the sale this week of Highlands Regional Medical Center in Sebring, Fla., and Merit Health Northwest Mississippi in Clarksdale, CHS Chairman and CEO Wayne T. Smith said Wednesday the 30 hospital divestitures are complete.

“Looking forward, we remain focused on strategic initiatives that we believe will yield positive results in the future,” said Mr. Smith. “Our goal is to emerge from this process with a sustainable group of hospitals that are positioned for long-term success and growth.”

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.