Community Health Systems Slammed by Lower Volumes, Higher Labor Costs

July 29, 2022
The hospital operator is closing some service sites to help it cut staffing spending.

The toxic combination of lower patient volumes and higher labor costs pushed Community Health Systems Inc. deep into the red in the second quarter, and executives have told investors the Franklin, Tennessee-based company will post a full-year loss.

In the three months ended June 30, CHS produced a net loss of $298 million on revenues of about $2.9 billion, numbers that were down from a profit of $37 million and $3.0 billion, respectively, in the same period of 2021. As a group, the company’s 84 hospitals saw admissions fall 3.4 percent year over year while their number of patient days fell 3.7% to about 498,000.

On a call with analysts and investors, CEO Tim Hingtgen said the unexpected volume numbers coming on the heels of winter’s COVID surge surprised the CHS team because they were geographically spread out, “which is not something we’ve typically seen.” Overall patient activity, he added, came and went in fits and starts during the quarter while noting that two of the company’s 48 markets – he didn’t identify which ones – were responsible for 20 percent of CHS’ lower EBITDA during the quarter.

“It's hard to quantify what, why and where,” Hingtgen said of the broader situation. “But we're working very, very closely to make sure we understand those trends on a daily basis.”

On the labor front, CHS paid $150 million during the second quarter for contract workers, which was down from Q1’s $190 million – on a relative basis, it was about 10 percent of total labor spending versus 13 percent early in the year – but still triple the spending from the same period last year and a larger number than executives had forecast. (By contrast, larger peers HCA Healthcare Inc and Tenet Healthcare Corp. last week both reported clear improvements in their contract labor metrics.) The downward cost trend for the year, President and CFO Kevin Hammons added, will be slower than the CHS team previously expected: By the end of December, he thinks CHS will be spending about $100 million per quarter on contract workers, $30 million more than his earlier estimate.

Hingtgen and Hammons said they are upbeat about the medium- and long-term prospects of CHS’ business – “We do not view 2022 as the new baseline,” Hammons said – but are taking steps now to help them get over the Q2 hump, particularly when it comes to labor. Among them is consolidating some operations to reduce capacity in several markets.

Shares of CHS (Ticker: CYH) were down 40 percent in midday trading July 28, the day after the company published its results. Year to date, they have lost more than three-quarters of their value, shrinking the company’s market capitalization to about $420 million.

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