Dive Brief:

• For-profit hospital operator Community Health Systems’ net income declined nearly 90% in the fourth quarter of 2023 compared to the same period last year, according to an earnings report released Tuesday.
• The Franklin, Tennessee-based provider posted a $46 million net gain for the quarter — a decline of 88% from the $414 million net gain it reported last year. 
• On a Wednesday morning earnings call, CHS executives attributed the quarterly performance to high costs for supplemental reimbursement programs and medical malpractice insurance as well as increased rates for outsourced medical specialists.

Dive Insight:

Prior to the release of its fourth quarter earnings on Tuesday, the for-profit operator, which operates 71 affiliated hospitals as well as over 1,000 total sites of care, had been in the red for each quarter of its fiscal year 2023.

CHS CEO Tim Hingtgen previously blamed poor macroeconomic conditions for the health system's losses, including reimbursement challenges, inflationary pressures and regulatory hurdles.

For the full year, CHS reported a net loss of $133 million, compared to a net gain of $46 million in 2022. However, CHS reported a positive operating margin, drawing in $12.5 billion in net operating revenue during 2023, a 2.3% increase on the $12.2 billion reported in 2022.

During the earnings call, Hingtgen pointed to high medical fees — which are currently running at 5% of CHS’s net revenue — and slowdowns from Medicare Advantage fee-for-service payments as contributors to the system’s cash shortfall in the fourth quarter and full year.

CHS also opted to accelerate interest payments of approximately $30 million during the fourth quarter that would have been due in 2024, according to the CEO. 

Still, CHS said adjusted admissions increased 1.9% during the quarter and 5.3% for the full year, driving same store net revenue growth. Increased patient volumes pushed CHS’ operating revenue to grow 1.2% year over year to $3.2 billion during the fourth quarter.

Moving forward, CHS executives said they plan to focus on expanding ambulatory and outpatient care offerings, which accounted for 54% of CHS’ net revenue in the fourth quarter. To that end, CHS divested from eight hospitals last year, including its $294 million sale of three Florida hospitals to Tampa General Hospital in December.

The Federal Trade Commission is challenging CHS’ proposed sale of two North Carolina-based hospitals to Novant Health. During the earnings call, Hingtgen expressed support for the deal.

CHS said it is “evaluating inbound interest” for additional sales that could close during 2024 and yield up to $1 billion in additional proceeds.

Operating expenses totaled $2.85 billion, falling 2.1% year over year. However, expenses still proved challenging for the provider.

“What we had not anticipated as we started 2023 was that medical specialists fees would spike as high as they did mid year... and that we would face additional headwinds from higher medical malpractice and from the outside growth in Medicare Advantage,”CFO Kevin Hammons said on the earnings call.

Looking ahead to 2024, Hammons envisions CHS will have a better grasp on cost pressures. The CFO also expects capital projects and reductions in contract labor spend to provide favorable tailwinds moving into 2024.