Dive Brief:

• Community Health Systems grew same-store surgical volumes and outpatient volumes in the second quarter, helping the Franklin, Tennessee-based system trim losses for the second consecutive quarter. However, the system still posted a net loss of $13 million for the quarter.
• CHS attributed its improved financial position to an early “extinguishment” of debt, reduced expenses for contract labor and increased reimbursement rates.
• On an earnings call Thursday, CEO Tim Hingtgen said the results speak to CHS’ solid fundamentals, and said he believes the company can continue to improve in subsequent quarters. CHS raised the midpoint of its full-year EBITDA guidance by $10 million in light of the results. 

Dive Insight:

CHS reported $3.1 billion in revenue for the second quarter — an increase of 0.8% year over year. Same-store revenues were up 4.7% year over year for the quarter. 

Outpatient volumes and same-store surgeries drove revenue in the second quarter, according to executives. Admissions decreased by 2.8% compared to the second quarter of 2023.

Hingtgen said same-store surgical volumes reached a “new high” during the quarter, complemented by increased demand for services at CHS’ network of ambulatory surgery centers. Patient visits also increased at urgent care centers and physician practices.

The results contrast with the first quarter, in which CHS experienced higher than average inpatient volumes. During Thursday’s earnings call, an analyst asked executives about the flip in inpatient and outpatient demand from quarter to quarter. 

Both Hingtgen and CFO Kevin Hammons described CHS’ portfolio as balanced across inpatient and outpatient investments. Hingtgen told analysts not to read into “slight fluctuations quarter to quarter,” noting that CHS’ strategy was to grow both sides of its business.

CHS has recently invested in new bed towers to improve capacity management, for example, such as a bed tower in Knoxville, Tennessee, which opened in March, according to Hammons. 

The health system has also been investing for several years in growing its ambulatory surgery center investments through joint venture partnerships, according to Hingtgen. 

The health system expects volume growth to continue in future quarters as capacity management efforts pay dividends.

CHS said it is also experiencing volume boosts from the “two midnights” rule, Hingtgen said. The rule states patients must be admitted if clinicians believe their care will last more than two midnights.

The quarter marks the second consecutive quarter CHS cut losses. CHS posted a $41 million net loss in the first quarter, compared with a $51 million loss in the opening quarter of 2023.

In a research note published last week, Jefferies analysts called CHS’ performance positive and evidence of “continued improvement in its fundamentals.”

However, the analysts noted divestitures remain an area to watch, calling them “integral” to CHS’ investment story.

CHS has previously targeted more than $1 billion in asset sales to help pay down its debts. The company reiterated that figure during its earnings call, and multiple deals are underway.

However, the health system was dealt a blow last month when Novant Health called off a planned $320 million purchase of three North Carolina hospitals from CHS following a Federal Trade Commission lawsuit.

“That was an abrupt decision. But given the FTC’s lawsuit, we were prepared for the possibility that the transaction would not be completed,” Hingtgen said.

Moving forward, CHS says its planned sale of a Cleveland, Tennessee-based facility remains on track to close in the third quarter for $160 million, and Hammons said additional deals could close within the calendar year.

As CHS aims to learn from the failed Novant deal, Hammons said they’re focusing on cross-market transactions to avoid regulatory headwinds.

“As I look at the remaining opportunities and current deals that we're negotiating right now, the buyers are all out of market, typically out of state, similar with the Cleveland, Tennessee deal that we've already announced,” the CFO said. “We really don't see any headwinds on being able to complete the other deals that we're currently working on.”