CHS sells more hospitals, looks to outpatient growth

Community Health Systems has sold four hospitals since New Year's Eve to cap a multi-year divestiture plan that has concentrated its portfolio in growing Sunbelt states and set up executives to focus on expanding outpatient services to drive admissions. 

In the past six years, the Franklin-based hospital operator has shrunk its network from 206 hospitals in 29 states to 85 hospitals in 16 states. Its 2020 transactions netted about $868 million in proceeds, which the company has been using to pay down its debt.

Although executives are finished refining their portfolio in earnest, they remain open to future transactions, CEO Tim Hingtgen told analysts and investors on a conference call Thursday.

In the midst of its sales, CHS also spent nearly $440 in capital expenditures that included three new ambulatory surgery centers and three new freestanding emergency departments in the outpatient sector. The creation of these facilities are less capital intensive, Hingtgen said, and more ambulatory surgical centers, freestanding emergency departments, urgent care centers and physician practice locations are in the pipeline or under active development for 2021.

“We continue our emphasis on the development of service lines, thereby further increasing our acuity levels on the inpatient side," Hingtgen said. "And our investments on the outpatient side are designed to expand entry points into our networks, providing a more convenient out-of-hospital care environments that satisfy evolving consumer expectations about the availability and accessibility of health care services.”

The company ended 2020 with lower revenue due to the divestitures but higher profits mostly attributable to federal aid related to the COVID-19 pandemic. In the fourth quarter, CHS reported $311 million in net income on $3.1 billion total operating revenue. The gain is compared to a net loss of $373 million in the same quarter of 2019 on $3.3 billion in revenue.

CHS received nearly $2 billion in financial benefits from the federal government in 2020 as part of the CARES Act and Medicare relief. Broken down, the hospital network was given approximately $1.1 billion in Medicare accelerated payments and $705 million in Provider Relief Grants, and was able to defer $140 million in payroll tax as part of the CARES Act. 

While helped by the extra relief, CHS executives have been working to increase margins after consecutive quarters reporting losses. The pandemic has thrown a wrench in labor and supplies costs, Hingtgen said, with drug costs, personal protective equipment, lab and testing supplies and more increasing same-store operational costs 500 basis points year over year. 

“As we've seen all of these strategies in 2021, we are doing so as a stronger an even more resolute organization. Our portfolio is strong and our entire organization is excited about the future. I could not be more proud of where CHS is today, responding to the needs of the patients throughout this pandemic, while also achieving marked progress on a greatest strategic and operational priorities throughout the year,” Hingtgen told investors. “I remain confident that we are continuing to position and strengthen the company to build long-term value for all of our stakeholders.”

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