Poor incomes worry analysts for community health systems

“Our second quarter results were impacted by challenging operating dynamics,” CEO Tim Hingtgen said.

Financial analysts are losing faith in Tennessee Community health systemswhich operates 83 hospitals in 16 states with more than $11 billion in total revenue, since reporting declines in revenue and admissions for the second quarter of 2022.

Community Health Systems ended the quarter ended June 30, 2022 with a net loss of $326 million, compared to net income of $6 million for the same period in 2021. Community Health Systems also reported a 3.4% drop in admissions, compared to the same quarter in 2021.

“Our second quarter results were impacted by challenging operating dynamics that included lower than expected volume, lower net revenue per adjusted admission and significant contract labor costs driven by the labor market and inflationary pressures, Tim Hingtgen, CEO of Community Health Systemssaid in income report. “We have initiatives underway to actively respond to these pressures by accelerating strategic growth opportunities in key markets, working aggressively to recruit and retain permanent staff to replace contract labor, achieving further expense reductions and leveraging our centralized resources to drive better results.”

Following the discouraging earnings report, several financial analysts downgraded their ratings on the for-profit organization’s shares, including Fitch Ratings, which revised its outlook from stable to negative.

“The negative outlook reflects deteriorating operating performance in HY 2022, with significant increases in labor costs and weak volume and acuity mix driving lower revenue and margin levels for the company, leading to a significant reduction in its financial guidance for 2022 and an increase in leverage to levels posing an increased risk of downgrading”, Fitch said in his analysis.

Organization of financial information The street downgraded his grade on community health systems at a D from a C-. CitiGroup lowered its price target on community health systems to $6 from $14, and Bank of America lowered its rating to neutral on the buy. Credit Suisse lowered its price target to $6.50 from $8, and Loop Capital launched coverage on Community Health Systems with a holding rating and a price target of $5.

“The company’s strengths manifest themselves in several areas, such as its reasonable valuation levels and strong share price performance,” The street says the report. “However, countering these strengths, we also find weaknesses including deteriorating bottom line, disappointing return on equity and low profit margins.”

Community Health Systems CFO Kevin Hammons acknowledged that the organization’s second quarter results were “well below” expectations on the earnings call.

“Lower than expected adjusted volume and net revenue per admission impacted revenue,” Hammons said. “As the quarter progressed, the return of non-COVID patient volumes was lower than we had anticipated.”

Community Health Systems isn’t the only health care organization to report lackluster revenue recently. HCA Healthcare, a Nashville-based for-profit hospital system, reported a year-over-year decline in net income of $1.16 billion from $1.45 billion. Same-facility admissions for HCA fell 1.2% year-over-year in the second quarter. Labor costs, supply chain issues and labor disruptions all contributed to higher spending for the quarter. Sacramento-based nonprofit health care system Sutter Health reported an increase in total operating expenses for the second quarter of $3.55 billion, from $3.41 billion.

Hospitals and healthcare systems across the United States have been grappling with growing expenses as the cost of care continues to rise. Community health systems were not immune to this, especially when it came to labor costs. The organization saw an 8.5% year-over-year increase in its average hourly rate. Contract labor has been a burden of expense for hospitals that have continued to rely on this type of labor. Community Health Systems saw a significant year-over-year increase in contract labor to $150 million from $50 million.

“Hospitals are in a difficult position,” Erik Swanson, senior vice president of data analytics at Kaufman Hall, told HealthLeaders recently. “Organizations don’t expect these expenses to fall back to pre-pandemic levels anytime soon, they will remain high.”

Swanson shared some solutions that CFOs could consider to alleviate some of the financial pressures on hospitals and healthcare systems, including optimizing their workforce through workforce-based techniques. data, and the development and reassessment of floating pools. Hospitals can also look at patient demand on a unit-by-unit basis to better understand where they need staff the most.

CFOs can also reevaluate their non-labor contracts to get better prices on the products and services they purchase, as this is one of the main ways for hospitals and healthcare systems control their spending, says Swanson. Reviewing their supply chain to allow more efficient flow of these materials through systems and eliminating redundancies and waste in organizations can also help contain non-labor related expenses. .

“We remain focused on our plans to retain our workforce, recruit new clinical employees and reduce contract labor,” Hingtgen said on the call. “The number of nursing hires increased by more than 30% compared to the first quarter and our turnover rate decreased by 20%. These are clearly favorable trends, as we work to reduce the workforce contract and create sufficient permanent staff for key services and gain market share as demand for care increases.”

Looking ahead, and despite analysts’ comments, Community Health Systems’ management team expects to see a turnaround in the organization’s financial results for the remainder of the year.

“We believe the stronger return to deferred care, the execution of our growth and strategic initiatives, our successful expense management and continued focus on cash flow and capital structure management will enable the company to achieve its medium-term financial objectives,” said Hammons. On call. “[This] includes EBITDA margin targets of over 16%, positive annual free cash flow generation and reducing our leverage to below five times.”

Amanda Schiavo is Finance Editor for HealthLeaders.

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