Community Health swings to Q3 profit, even as COVID-19 cases swelled

Dive Brief:

  • Community Health Systems on Tuesday reported a profit of $112 million after posting a loss during the same quarter a year prior. That’s also up from Q2’s $70 million profit, despite lower volumes and rising expenses amid the ongoing pandemic.
  • The Franklin, Tennessee-based chain beat Wall Street estimates, though it reported $3.126 billion in net operating revenue, a 3.7% decrease compared to the same period a year prior. Admissions on a same-store basis decreased 6.2% compared with the prior year period, and fell 11.5% for adjusted admissions.
  • CHS also announced a leadership switch-up — current COO Tim Hingtgen will replace long-time CEO Wayne Smith effective January 2021, and Smith will become executive chairman.

Dive Insight:

CHS is the latest for-profit hospital chain to report its third quarter earnings amid an ongoing pandemic and fast approaching flu season, though those headwinds haven’t stopped it from turning a profit.

It even saw more COVID-19 patients in the third quarter than it did during the first half of the year, Chief Medical Officer Lynn Simon said on a call with investors Wednesday. The numbers are falling on a monthly basis going into the fall, Simon said. 

The chain’s hospital ER and outpatient settings saw roughly 8,000 confirmed COVID-19 patients in July, 6,000 in August and about 4,000 in September.

But Smith warned it is seeing cases rise again in some of its markets, amid a nationwide resurgence.

Only two states CHS operates in re-imposed local restrictions on elective procedures this summer though, allowing it to benefit from pent up demand in some areas with low cases numbers. 

Third quarter volumes still aren’t back to pre-COVID levels, but have greatly improved since April’s lows and second quarter rates, Hingtgen said. 

Hingtgen chalked up the results to more higher acuity patients, improved contract rates and a more favorable payer mix, offsetting lower volumes. 

CHS is also nearing the end of a yearslong plan to sell off or divest a number of its hospitals. 

During the third quarter this year it completed the sale of four hospitals in Florida, one in Louisiana and one in Texas. It also announced it sold two more Texas hospitals Monday, and has definitive agreements for the sale of four more hospitals that are expected to close prior to the end of the year, CFO Kevin Hammons said. 

In tandem with reporting results, the company said Hingtgen will replace Smith as CEO starting in January. Smith, who has been CEO since 1997, had spent more than two decades at payer Humana prior to taking the helm at CHS.

The chain owns, leases or operates 89 affiliated hospitals in 16 states, after selling several hospitals this year as part of a yearslong divestiture plan.

Other chains that have reported Q3 earnings include HCA, posting a $668 million profit up 9% from the same time last year. Results came as the hospital giant returned hundreds of millions in government grants early and it faces COVID-19 surges in key markets.

Tenet however suffered a net loss from operations of $197 million in the third quarter, driven by spiking COVID-19 caseloads in many of its markets, along with higher operating expenses and lower admissions.

CHS didn’t recognize any funds in the third quarter from the Coronavirus Aid Relief and Economic Security Act or Paycheck Protection Program and Health Care Enhancement Act, though it did during the first half of the year. 

It previously recognized $448 million in those provider relief payment payments to be claimed as a reduction in operating costs and expenses. It has $271 million left in those funds on its balance sheet as a deferred liability, Hammons said. 

In terms of the relief funds, the government issued multiple changes to the qualification criteria, since June 30, we are evaluating the most recent HHS disclosures that were issued on October, 22, and expect to recognize a portion of these deferred grants in future periods,” Hammons said.

This story has been updated to add details from an investor call.