Community Health Systems (CHS) continues to reverse itself when it comes to its plans to sell—or not sell—its hospital holdings. This vacillation reflects larger issues, all of which call into question CHS’s ability to remain viable.
After a recent flurry of activity, selling 20 hospitals and announcing plans to sell 10 more, CHS CEO Wayne Smith told Becker’s Hospital Review, “We’re about finished with our divestiture process, this 30 just about lines it up.”
However, during a recent conference call with investors, the company announced that “in addition to those sales, CHS is now planning to sell another group of hospitals worth $1.5 billion in revenue,” and that “The company’s long-term debt totaled about $14.7 billion at the end of the second quarter.” So far, sales don’t seem to be making a big enough dent in CHS’s huge debt.
Analysts say CHS is a struggling company suffering from a number of poor management decisions. Sadly, these mistakes came at a time when all U.S. hospitals systems were challenged by difficult changes, with mixed results.
Take long-troubled downtown Louisville Jewish Hospital, for example. As reported in Insider Louisville, “Urban center hospitals, such as Jewish Hospital — which is losing money and was just put up for sale — generally handle a greater variety of cases than their suburban rivals . . . providing elective procedures, but also equipped and staffed to take care of victims of car crashes, industrial accidents and gunshot wounds. . . struggling financially in part because of the complexity and variety of cases they handle.”
In the same article, a spokeswoman from the Kentucky Hospital Association added, “Medicare and Medicaid did not pay hospitals enough to cover the cost of the services they provided. Medicare payments were cut under the (Obama) Affordable Care Act to help pay for the expansion of coverage under Medicaid and the health exchanges. On average, the federal government pays hospitals 8 percent less than it costs the hospitals to provide service for a Medicare patient.”
In short, inner-city and trauma patients are likely to include a high percentage of Medicaid and Medicare patients. This is a problem also for CHS-owned St. Joseph’s Hospital in Fort Wayne.
These challenges have led to an exodus in the C-suite. A Becker’s Hospital Report article entitled “CEO Turnover Increases as Hospital Losses Swell” cited examples of “Hospitals across the nation [that] have seen operating margins shrink as they face dwindling reimbursement, regulatory uncertainty and new alternative payment models.” As a result, the articles continues, “Many hospital CEOs are taking the fall for their organization’s financial challenges,” and “thirty medium- to large-sized hospitals across the country have lost their CEOs in the last six months.”
Even systems stronger than CHS are being affected–for example, Hospital Corporation of America (HCA), the largest of the for-profit chains. HCA recently reported slightly reduced admissions and lowered projected earnings. However, HCA has a strong balance sheet, has purchased and continues to purchase hospitals from CHS, Tenet Health, and Memorial Health.
Two other for-profit companies, Humana and LifePoint, reported strong second quarter financial results but struggled with the same industry problems: fewer inpatient surgeries as more outpatient surgery moves to clinic settings, and small hospital-admission increases largely supported by increases in numbers from free-standing walk-in/emergency facilities.
So, what accounts for differences in company success—and what does that mean for CHS? More tomorrow.