CHS beats Q2 expectations with help from $564M in bailout grants

Dive Brief:

  • Community Health Systems on Tuesday posted a profit of $70 million in the second quarter as funding from federal COVID-19 relief legislation buoyed the company from losses related to dramatically lower patient volumes.
  • The Franklin, Tennessee-based hospital chain reported $2.52 billion in net operating revenue, an 18.4% decrease compared to the same period a year prior but above Wall Street expectations. Admissions decreased 24% on a same-store basis year over year as patients avoided care due to the novel coronavirus.
  • CHS said revenue decline was driven by depressed patient volumes and increased expenses related to supply chain and other expenditures. Volume declines were most pronounced in the month of April and dropped to a lesser degree in May and June.

Dive Insight:

When CHS reported its first quarter earnings this April, COO Tim Hingtgen said the company was well-positioned to restart elective procedures and recoup lost revenues in states that began lifting stay-at-home-orders.

But overall volumes have yet to recover anywhere near pre-pandemic levels, and a second surge of COVID-19 cases continues battering operators like CHS. That’s particularly true in Sun Belt states, where CHS generates about three-fourths of its net revenue, Hingtgen told investors on a call Wednesday. 

Chief Medical Officer Lynn Simon said the system cared for about 2,000 COVID-19 positive patients at the end of April, roughly 3,000 at the end of May and near 7,000 at the end of June, underscoring “the magnitude of this current surge in July.”

The bulk of those admissions came from Texas and Florida and the system is managing varying degrees of surges now in Mississippi and Alabama, Simon said. Declining hospitalizations in Arizona though mean the state may have reached its peak, she said.

One bright spot for volumes however is within CHS’ primary care practices, which utilized telehealth platforms and are now seeing increasing in-person visits and follow-up appointments, according to Hingtgen. CHS managed 230,000 telehealth visits in the second quarter, and physician practice volumes are now higher than pre-pandemic levels. 

Those practices are “the top of the funnel” for procedure and hospital volumes, and will hopefully translate into increased revenue in the near future, Hingtgen said.

Net operating revenues for the first six months of 2020 totaled $5.54 billion, a 17% decrease compared with $6.68 billion for the same period in 2019. 

CHS though, like some of the other largest for-profit health systems, received a hefty amount of provider relief funds to cushion the blow. In the three months ended June 30, the 95-hospital chain received $564 million in from the $175 billion pot of grants allocated for providers in the the Coronavirus Aid, Relief, and Economic Security Act and the Paycheck Protection Program and Health Care Enhancement Act.

About $448 million of that qualified as income for reimbursement of lost revenues and incremental expenses, and was recognized as a reduction in expenses and operating costs in the first half of the year.

CHS also got $1.2 billion during the second quarter in Medicare Accelerated and Advance Payment Program loans it expects to begin repaying in August.

The chain sold seven of its hospitals this year and has entered into definitive agreements to sell five more hospitals for $430 million. That will mark the end of its formal portfolio rationalization strategy, which started in 2017.

The company withdrew its full year guidance earlier this year and continues withholding guidance for the rest of the year.

This story has been updated to add further commentary from a conference call.

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