• Net Revenue: $3.09 billion for the third quarter.
• Adjusted EBITDA: $347 million for the third quarter.
• Same-Store Revenue Growth: 5.1% increase year-over-year.
• Same-Store Admissions: 2.4% increase.
• Same-Store Adjusted Admissions: 2.6% increase.
• Same-Store Surgeries: 3.1% increase.
• Cash Flows from Operations: $67 million for the third quarter.
• Capital Expenditures: $70 million for the third quarter; $251 million year-to-date.
• Net Debt to Trailing Adjusted EBITDA: 7.6 times at the end of the quarter.
• Contract Labor Spend: $41 million, down 24% year-over-year.
• Average Hourly Wage Rate Increase: 3.9% year-over-year.
• Impact of Hurricanes: Estimated $7 million impact from missed revenue and costs.
• Professional Claims Liability Accrual: $149 million increase.
• Guidance for 2024 Adjusted EBITDA: $1.5 billion to $1.54 billion.

• Warning! GuruFocus has detected 7 Warning Signs with CYH.

Release Date: October 24, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Community Health Systems Inc (NYSE:CYH) reported a 2.4% increase in admissions and a 2.6% increase in adjusted admissions over the prior year quarter, indicating strong demand for services.
• The company saw a 3.1% improvement in surgeries, driven by growth in lower acuity outpatient cases due to investments in ambulatory surgery sites.
• Community Health Systems Inc (NYSE:CYH) is making strategic investments, including the Knoxville North Tower expansion and a new patient tower in Baldwin County, Alabama, which are expected to drive future growth.
• The company has successfully reduced contract labor spend by 24% year-over-year, reflecting progress in recruitment and retention efforts.
• Community Health Systems Inc (NYSE:CYH) has achieved significant improvements in clinical quality and patient safety, with a nearly 20% improvement in risk-adjusted mortality index and a 24% improvement in patient safety and adverse event composite.

Negative Points

• Community Health Systems Inc (NYSE:CYH) faced significant impacts from back-to-back hurricanes, resulting in facility closures and an estimated $7 million impact from missed revenue and incremental costs.
• The company experienced a continued increase in denials and downgrades by insurers, resulting in an approximate $10 million headwind for the quarter.
• Adjusted EBITDA for the third quarter was $347 million, down from $360 million in the prior year period, with a margin decrease from 11.7% to 11.2%.
• Community Health Systems Inc (NYSE:CYH) reported a softer-than-expected inpatient acuity, impacting net revenue, which totaled $3.09 billion in the quarter.
• The company booked a $149 million increase to its professional claims liability accrual due to the national trend of outsized verdicts and larger claim settlements.

Q & A Highlights

Q: Can you clarify the expected EBITDA benefit from the new state programs in New Mexico and Tennessee? A: Kevin Hammons, President and CFO, explained that the expected annual EBITDA benefit from the programs in New Mexico and Tennessee is $100 million to $120 million, net of provider taxes. If approved in the fourth quarter, these programs would be retroactive to July 1, 2024, potentially adding six months' worth of benefit this year.

Q: How does the $40 million reduction in EBITDA guidance relate to the $100 million cut in free cash flow guidance? A: Kevin Hammons noted that the reduction in EBITDA is a significant factor. Additionally, the slowdown in the adjudication process for denied claims is impacting cash collections. Some state program payments expected in the third quarter will now be received in the fourth quarter, and working capital will be sold with a divestiture in Pennsylvania.

Q: What factors contributed to the $40 million reduction in EBITDA guidance for the fourth quarter? A: Kevin Hammons stated that about $18 million of the reduction is due to third-quarter variances, including hurricane impacts. The remaining $22 million is attributed to ongoing hurricane impacts, particularly from the closure of the Punta Gorda facility, and continued denial activity.

Q: What is driving the increase in denied claims, and how is the company addressing it? A: Kevin Hammons mentioned that the increase in denials is primarily from Medicare Advantage plans, with payers becoming more aggressive. The company is expanding its physician adviser program and appeals capabilities to combat this issue.

Q: How is the company managing the impact of IV fluid shortages? A: Dr. Miguel Benet, EVP of Clinical Operations, stated that the company has not experienced operational disruptions due to IV fluid shortages, as they primarily source from BD rather than Baxter. They have implemented logistics efforts to maintain inventory levels across hospitals.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.