Community Health at Wells Fargo Conference: Strategic Moves Amid Challenges

On Wednesday, 03 September 2025, Community Health Systems Inc. (NYSE:CYH) participated in the Wells Fargo 20th Annual Healthcare Conference 2025. The company discussed strategic initiatives and challenges, including softer-than-expected volume growth and efforts to manage costs. Interim CEO Kevin Hammond highlighted both positive steps, such as cost management and technology implementation, and challenges like economic uncertainties affecting elective procedures.

Key Takeaways

• Volume growth was softer than expected due to deferred outpatient elective procedures.
• Community Health is focusing on cost management, particularly in labor and medical specialist fees.
• The company is shifting capital expenditure towards outpatient access points.
• Project Empower, a technology initiative, is complete and poised to deliver value.
• Divestitures are in progress, with expectations for several deals in 2026.

Financial Results

• Adjusted admissions year-to-date were approximately 1%; full-year guidance revised to 0%-1%.
• A $70 million miss occurred in Q2, with another $70 million headwind expected in the second half.
• Divestiture of Cedar Park will create a $25 million headwind later this year.
• Direct Provider Payments (DPPs) are expected to provide a $140 million tailwind.
• Commercial rate increases are averaging 4% to 6%, benefiting from inflation.
• Trailing twelve-month free cash flow was slightly negative, showing improvement.
• Leverage reduced from 8% to 6.8% over the last eight quarters, targeting 5.5% or below.

Operational Updates

• Labor costs are within the guided range of 3.5% to 4%.
• Contract labor has normalized from pandemic highs.
• In-sourcing strategies have improved patient experience and physician satisfaction.
• Project Empower is complete, with a new ERP system enhancing supply chain management.
• The exchange business contributes less than 5% of net revenue.

Future Outlook

• Deleveraging focus through divestitures and core business growth.
• CapEx priorities shift towards outpatient access points and freestanding emergency departments.
• Continued pursuit of cost savings and optimization of the new ERP system.
• Commercial rate increases expected to continue at 4%-6%.

Q&A Highlights

• Volume softness driven by economic concerns affecting elective procedures.
• Medicare Advantage shows strength, while Medicare fee-for-service is softer.
• Investments in technology and AI aim to reduce denials and improve collections.
• Tariff impacts mitigated by group purchasing organization contracts.
• Divestiture discussions are ongoing, with several opportunities for 2026.

For more details, readers are encouraged to refer to the full transcript below.

Full transcript - Wells Fargo 20th Annual Healthcare Conference 2025:

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Yes. So good morning. It’s still the morning here, I think. I’m Steve Baxter, the Healthcare Services Analyst here at Wells Fargo. We’re very pleased to have Community Health with us here today.

As I’m sure many of you know, Community is one of largest operators of acute care hospitals in the country. From the company, we have President and Interim CEO, Kevin Hammond, and we have Jeff here as well as the Interim CFO. So thanks again for being here. Any opening remarks you want to make or just should we get right into the questions?

Kevin Hammond, President and Interim CEO, Community Health: No, let’s jump into questions.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Okay, great. So I think the biggest I think surprise maybe across the industry group during the second quarter’s results was maybe the slower growth of volumes that we saw. I think you noted earlier in the year the commercial demand for surgical procedures was a little bit weaker in the first quarter and didn’t improve maybe in the second quarter the way you thought it might have. Just give us an update on kind of the right way you think to characterize the volume growth coming out of the quarter and how it informs how you are thinking about the balance of the year?

Kevin Hammond, President and Interim CEO, Community Health: Sure. We have seen kind of softer than expected volume growth this year. We certainly brought a lot of momentum from kind of the back ’4. End of this year, expected that momentum to continue. But I think whether it was directly related to maybe the change in administration, not so much change, because I think a lot of the momentum that picked up in the fourth quarter related to that, but it’s more talk of tariffs, uncertainties in the economy were ahead of us, people got more concerned.

From a financial perspective, we didn’t see some of the early rate cuts that we had expected in the year, and that caused some concern. So where we have seen the most kind of softness or pullback from a volume perspective has been in some of the elective procedures, outpatient elective. And I think it’s a little more it’s related to people with high co pays and deductibles wanting to hold on to cash and they are deferring the procedures that they can. I do think that’s somewhat transitory and we will

Steve Baxter, Healthcare Services Analyst, Wells Fargo: pick back up. Okay. So, it sounds like that is primarily a commercial driven phenomenon. I guess as you look at the trends that you saw maybe in commercial payers versus what you saw in Medicare, maybe Medicaid as a volume trend, like what are the differences kind of stand out to you in the first half?

Kevin Hammond, President and Interim CEO, Community Health: Yes. We’ve seen some strength in Medicare Advantage. So more business still transitioning to Medicare Advantage and the offset to that being Medicare fee for service. A little bit of softness in Medicaid, but primarily in the commercial space is where the softness has been.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Okay. And as you’ve continued to track some of the measures around consumer confidence, like I think people maybe have gotten more used to the idea that some of the headlines that we’ve seen kind of might be transitory or maybe kind of continue to get deferred out. Do you feel like you’ve seen people more willing to act and to kind of get the procedures done? Or do you think that still kind of remains like a wait and see issue?

Kevin Hammond, President and Interim CEO, Community Health: We did see some improvement in June. I think from a consumer confidence standpoint, we probably hit a low mark in the middle of the second quarter. We did start to see some improvement in volumes in June. As we put out our guidance for the remainder of the year, we wanted to remain a little on the conservative side, because things really hadn’t turned yet, at least not where we are comfortable. So, we have guided to the back half of the year for that continued softness.

But I think we’ll as things continue to improve from a consumer confidence standpoint, I think you’re starting to hear more discussion of rate cuts. As you mentioned, people are getting a little more used to the tariffs and some of these some of the disruption from tariffs and the inflation aren’t pulling through like people had thought they might. Do believe that people will get more comfortable and begin to come back in for those procedures.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Got it. And then like totally to your point that the surgical trends were soft in the first quarter and the second quarter and they look pretty similar, There was like a considerable step down still on the adjusted admissions line despite the fact that the surgical trends didn’t change a whole lot. I guess what do you would characterize the medical volumes inside the hospital is doing? How did those act in the second quarter?

Kevin Hammond, President and Interim CEO, Community Health: Yes. The inpatient volumes were stronger. Where people really need care and don’t have a choice, we’re capturing that business in our markets. So we are seeing some strength on the medical side.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Okay. And just to kind of factor in the conversation of what you’ve now assumed in guidance for the rest of the year on the volume side, just remind us again, it sounds like you feel like you have reflected the continued softness into the new guidance or I guess how do you think about if trends stay where the second quarter is where that might influence your kind of ability to deliver on the range?

Kevin Hammond, President and Interim CEO, Community Health: I do think we have factored in the softness. So year to date through two quarters, our adjusted admissions were about 1%. We are guiding to the full year of kind of 0% to 1%, so kind of flat to only slightly negative in the back half of the year from a volume perspective, although that is a we were at 2% to 3% is where we were initially expecting the year to be. So we have kind of factored in the softness in the back half of the year.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Got it. And then there were a lot of moving parts when you revised your guidance with the second quarter. There was the kind of the what you call maybe the core underperformance. There was the inclusion of more Medicaid supplemental funds, the inclusion of maybe more divestiture, EBITDA impacts. Like just kind of walk us through, if we strip that down to the core business, what you saw in the second quarter and then kind of what you’ve factored into the back half?

How much of that deviation continues in your thinking?

Kevin Hammond, President and Interim CEO, Community Health: Maybe the way I’d do it, if I think about our full year guide at the midpoint originally was 1.525 We had about a $70,000,000 miss in the second quarter. So factoring that in, we factored another $70,000,000 headwind in the back half of the year and then about 25,000,000 from the back half of the year from the divestiture of Cedar Park, because we had that in our full year guidance for the full year. That was offset. So that’s, call it, roughly $165,000,000 of headwinds, offset by about $140,000,000 tailwind from the DPPs, which lowered our midpoint by $25,000,000 for the

Steve Baxter, Healthcare Services Analyst, Wells Fargo: it. And then in terms of what needs to happen for the 70,000,000 of underperformance to be 70,000,000 for the whole back half, so run rate $35,000,000 Like what are the key levers to get from the 70,000,000 to the implied back half?

Kevin Hammond, President and Interim CEO, Community Health: It’s a combination of a little bit of volume improvement, but payer mix improvement as well. Will also see a little bit of benefit as the new Medicare rates go into effect on tenone. So all things being equal, you get a little bit of rate lift in the fourth quarter from your Medicare rate increase. Okay.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: And then if we were just to step back and a lot of moving parts impacting the margins, but if we just focus on cost performance throughout this year, can you spend a minute or two just updating us on, I guess, where you stand on labor, both full time and your sort of use of contractors? And then maybe we can talk about professional fees after that.

Kevin Hammond, President and Interim CEO, Community Health: Sure. Jason, you want Yes. Take the labor

Jason, Interim CFO, Community Health: we’ve been really pleased with our labor. I think it’s 3.5%, 4%, which is what we’ve guided toward. And I think we’re managing toward that and still expect that to continue. Contract labor is well managed now. It’s down from the highs that were kind of at COVID or post COVID, both the rate and the usage of contract labor.

So that’s more normalized now. Med spec fees are a continued challenge. I think they’ve peaked, but they’re going to continue to be something that we’ll have to manage through.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Okay. And just in terms of the outsourced fees, I think it’s kind of migrated from early pressure in ER and anesthesiology to more recent pressure in kind of radiology, like any notable trends across the different sort of categories that you guys would call out?

Kevin Hammond, President and Interim CEO, Community Health: Yes. I would say that anesthesiology still remains our biggest We’re pain seeing more in radiology as well. That’s starting to pick up as an additional pain point. From a mitigation perspective, I think there are more mitigating steps we can take in radiology, because you can pull in technology. You can do remote reads.

There’s some AI capabilities out there. With anesthesiology, you have less But of those we are mitigating some of those increases by in sourcing, bringing more of those specialists in house to do that work. It does increase our salaries and wages. But from an EBITDA benefit, it’s a net benefit if we can bring those in.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: And you had a big in sourcing effort over the past few quarters in response to kind of market conditions and what happened to some other firms that were in the market. Just kind of update us on how the performance of those groups have worked out and just again how that informs your appetite to do more of that?

Kevin Hammond, President and Interim CEO, Community Health: They’ve worked out very well for us. We’re seeing, particularly in the ED and hospitalist side, patient experience improves. The doctors have been very pleased that we’ve brought in house. So the physician experience or physician satisfaction has been better. We’ve gotten them more integrated with our own quality programs.

So we’ve seen some quality improvements by having them in sourced. So we think that it’s probably not something we would do in every market, but certainly where there are cost pressures, it seems to make a lot of sense.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Okay. And then to pivot a little bit to the policy side of things, I think you’ve done a very good job of giving us some color on the Medicaid supplemental payment side. So we’ll come back to that in a minute. But the most near term thing that seems like it could happen to impact 2026 would be the expiration of the enhanced exchange subsidies, where that’s to occur. Just kind of update us on your most recent sort of sizing of that business to you today and any kind of initial thought process around how you might adopt some kind of provision for that in your eventual guidance for next year if that were to materialize?

Kevin Hammond, President and Interim CEO, Community Health: So from a sizing standpoint, our exchange business is less than 5% of our net revenue. So we run a little bit below probably the broader industry in terms of exchange business in our markets. So, the subset of that that could potentially be subject to reduced enhanced subsidies is only a subset. So, it’s relatively small portion of our net revenue. Where that goes from here, we don’t know.

I don’t certainly don’t know. There seems to be some momentum on further extension that we continue to hear about. As recently as last week, I was speaking with some folks from Washington, a senator from one of our states to where we have a pretty big presence and a Republican Senator who has been advocating for extending the tax credits, and he’s working on a number of his peers in the Senate to get some momentum for that. Okay.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: And as you think about trying to translate what it could mean maybe either into volume metrics or what it means to the P and L, I guess like you feel like you have enough information to be getting closer to being able to estimate that? Is it as simple as one point or two of the five largely just kind of goes away and it drops through your P and L? Or I guess how do you think about the way these people

Jason, Interim CFO, Community Health: calculations?

Kevin Hammond, President and Interim CEO, Community Health: Yes, I really don’t think we have the information to really to inform us on to be able to quantify that, because some states may deal with it differently, provide some other programs. Some of those people with the exchange programs may just down tier from a gold to a silver to a bronze and still have hospitalization coverage. And so we really don’t have the information. I think it’s pretty difficult to assess exactly dollar amount of But knowing that, again, less than 5% of our overall net revenue is subject to exchanges, it’s pretty immaterial amount.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Okay. And then just in terms of like as you’ve started to probably pay more attention to it, like in terms of how these people use the system, maybe in contrast to like an employer based coverage population, I guess, like what stands out to you is different in like the utilization of services, service categories, those type of things?

Kevin Hammond, President and Interim CEO, Community Health: I think it weights a little more heavily to the emergency type care versus any of the elective or other type care.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Okay. And then this year, on the Medicaid side of things, you’ve obviously gotten some good news on the Medicaid supplemental payments. I know those are in the run rate now and grandfathered in and all that good stuff. Do you look at your states now and think like basically your states have gotten done, what can be done here? There’s obviously been a lot of conversations about whether states can maybe look at some incremental funding streams that could still kind of get across the finish line and be considered grandfathered under the current policies?

Like where do you think your states are in that discussion?

Kevin Hammond, President and Interim CEO, Community Health: I think a few of our states are still have plans submitted that have yet to be approved. So there’s still some more upside opportunity for us. Indiana has submitted a preprint for a program to replace their existing provider tax program with the state directed payment program. Georgia has submitted for an adjustment to their plan. Texas just had theirs approved just this past week.

I think Florida has submitted for an adjustment to theirs. So I still think there is some opportunity for some additional funding mechanisms to be approved.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Okay. Any early sense of materiality or just way too early

Kevin Hammond, President and Interim CEO, Community Health: to I think say it’s too early. Yes. Yes, we try not to get too far out in front of those, particularly because CMS can come back and make changes to what’s been submitted in the preprint. A little early to tell. Okay, fair

Steve Baxter, Healthcare Services Analyst, Wells Fargo: enough. And then this maybe would have been a question related to the potential headwind from the exchanges. But I guess just as you look at planning for this operationally and trying to develop contingency plans that maybe would allow you to offset some of the potential impact of what that could mean, like are there work streams like that that are in progress for the company? Or are those just in addition to normal things you might be doing to improve margins? Like do you think there is some additional like cost opportunity or efficiency opportunity that you would be able to go at specifically in response to what the exchanges might do over the next couple of years?

Kevin Hammond, President and Interim CEO, Community Health: Right now, our priorities and we have a number of kind of cost savings priorities ongoing right now. Those are more in the normal course, I would say, and not specific to some of the current regulatory environment, because I think, one, there is a lot of work we can still be doing in the normal course to gain efficiencies to take some costs out. Our recent ERP that we have implemented, getting that stabilized and there is still a lot of tailwinds that we should gain from the information that we are now gathering as a result of having invested in that program or that technology. As I think about specific to the legislation and what we might do there, I think it’s further down the road. Those cuts really, particularly the Medicaid cuts, don’t go into effect until starting in 2028 and are phased in over a ten year period.

And there’s a lot that could happen between now and then before we wouldn’t want to get too far ahead of ourselves in terms of taking a look at various service lines and so forth. Although, probably some early planning would suggest that there is service lines that if Medicaid was not funding that we could scale back on.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: And then you have also talked about trends on denials as kind of being a stubborn pressure point for the company. Just update us, I guess, what you have seen as you’ve moved throughout the year on denials and what’s your expectation for denials through the balance of the year?

Kevin Hammond, President and Interim CEO, Community Health: If you recall, in the third quarter of last year, we saw a sizable step up in denials. It’s been pretty stable since that time. Denials haven’t payers haven’t pulled back any. It’s still we are still seeing increased denials, but it hasn’t proportionally gotten worse. So it’s been relatively stable over the last couple of quarters.

And I would think that over the remainder of the year, it would stay at the levels that they’re at. But we’re not seeing any relief at all from the payers.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: And this is is it broad based from insurers that have different business lines? Is it primarily concentrated in commercial or Medicare or somewhere else?

Kevin Hammond, President and Interim CEO, Community Health: It’s primarily concentrated in Medicare in the Medicare Advantage space. Okay.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: And then just to think a little bit about the commercial rate environment, I think we went through this cycle where the industry as a whole saw a pretty intense bout of wage inflation and helped kind of put upward pressure on commercial rates over the next couple of years. It feels like we could be getting to maybe the end of those above trend type rates. I guess as you negotiate contracting for 2026, what do you feel like you’re seeing from the payers in terms of their willingness to provide rate updates at the same level they have over the past couple of years?

Kevin Hammond, President and Interim CEO, Community Health: We’re still seeing some pretty good rate come through similar to levels over the past couple of years. So that tail with some of the inflation coming in seems to still be benefiting us on the rate negotiation. So I’d call it on average 4% to 6% rate increase on the commercial side, which is where we’ve been kind of the last two years. So, I think it’s beneficial. Historically, we were in more of a 3% to 5% range.

And right now, as I think about 2026, we’re about 75% of the way through our contracting for next year and still seeing a little higher level rate increase Got pull

Steve Baxter, Healthcare Services Analyst, Wells Fargo: it. And then it’s an interesting contrast, because on one end, you have the denials, but I think on the other hand, there’s been a lot of focus, especially recently across the industry about opportunities to use technology to leave maybe like less financing and like less yield on the table when you’re dealing with payers. I guess where do you think about where you are at in the process of maybe these initiatives that could over time improve your yield and how much visibility do you kind of have to driving that yourself versus your RCM vendors?

Kevin Hammond, President and Interim CEO, Community Health: So, we are investing a fair amount. We have been doing a lot of work on the side to kind of reduce denials to improve We our are using some technology in both those. We are using some AI to generate appeal letters and to help in those collection processes to mitigate. Had we not and even with those efforts, are kind of stable where we have been from a denial perspective. So, I would say had we not been investing and putting forth some of the additional efforts on our side, the denials would continue to get worse, because I think similar to what we are doing, I am sure the insurers are investing in technology and use of AI on their side to mitigate their cost as well.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Yes, I think that’s fair to say. And then obviously as we think about not so much we haven’t seen it and we touched on tariffs kind of earlier in the discussion, latest thoughts on I guess exposure to potential tariffs, it still seems like it’s a moving target, but like what do you see as those discussions continue to evolve?

Kevin Hammond, President and Interim CEO, Community Health: We’ve been fairly well protected through our group purchasing organization, HealthTrust Purchasing Group and having longer term contracts, a pretty significant portion, think around 50%, if memory serves me right, of our purchases are domestic purchases. We have relatively small amount of purchasing coming from China. So we haven’t seen much of an impact from the tariffs yet. Now, what we don’t have complete visibility into is like raw materials, even where we’re doing domestic purchasing, if some of the raw materials for the manufacturing are coming through and will flow through. But right now, the majority of our contracts are three year contracts.

So only about a third of those turnover each year where we’re having to renegotiate. We’ve not seen any noticeable increase in kind of pricing outside of normal inflationary increases. Okay.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Can you maybe spend a minute updating us on divestiture pipeline, the active goods you have gotten this most recent deal done and now reflected in your guidance, but where do discussions around potential divestitures stand? You have completed a lot of these over the years, just how fruitful do you think the remaining opportunity set is?

Kevin Hammond, President and Interim CEO, Community Health: So we don’t have any particular or specific deals right now that we’ve talked about. I would say that there are several opportunities in flight. We have some inbound interest. We’ve been having conversations in a couple of different markets with several different buyers on some potential transactions. It’s a little early to say yet where those will come out.

I would say that it’s highly likely that we’ll continue to pursue some divestitures. I think given where we’re at September already time flies, doesn’t it, this year that I don’t think we will get anything else done. It’s unlikely that we would have another deal completed this year. But if things continue to progress in our conversations, 2026, it’s likely we could get something done,

Jason, Interim CFO, Community Health: and we’ll continue to work on those where they make sense. We do have not a hospital divestiture, but we’ve got the outsourced lab business that we’ve announced that we expect to close at year end. It’s about $200,000,000

Kevin Hammond, President and Interim CEO, Community Health: That’s point. Yes.

Jason, Interim CFO, Community Health: And we expect another $100,000,000 of proceeds related to a divestiture of a hospital in Tennessee last year that was contingent upon the DPP in the state and that we should be coming in, in the

Steve Baxter, Healthcare Services Analyst, Wells Fargo: fourth quarter. Okay. Good to know. Do you feel like the conversations have gotten any more complicated because of the macro uncertainty or because of the policy moving parts around potential deals?

Kevin Hammond, President and Interim CEO, Community Health: I can’t say that it’s changed a whole lot. I think it impacts certain buyers differently. Certainly, with the big beautiful bill has impacted, at least in the near term, the academics, probably more so than the for profits or even some of the other non for profits just because of the loss in grant funding and some of the taxes on endowments, which go into effect immediately versus others of us who the issue is more on the Medicaid funding, which is deferred and may not actually occur. So I think that’s changed a little bit of the dynamics in terms of who some of the buyers could be or how they’re looking But at overall, I would say there’s still a fair amount of activity and interest, and I haven’t seen any change in real valuation

Steve Baxter, Healthcare Services Analyst, Wells Fargo: discussions. Yes. A similar theme, I mean, you think about your competitors and their willingness to kind of either deploy capital either like deals or kind of their own just internal CapEx plans. Do you think there is like a real kind of like pause out there at the moment or do you think that you and the rest of the industry feel like in your markets that things are going to be pretty similar to how they’ve been in the past couple of years?

Kevin Hammond, President and Interim CEO, Community Health: I think for many of us, our view is things will be pretty similar to how they’ve been the past couple of years. Again, I think the pause in some spending is probably focused more on those that have more near term impact from the regulation. And those of us that don’t have a near term impact are seeing Got things a little

Steve Baxter, Healthcare Services Analyst, Wells Fargo: it. Okay. And in terms of the company, you have these medium term targets out there. You have like a mid teens EBITDA margin that you’re going to be looking to strive to over the next few years. Like what do you think are the key areas of execution that will be required to kind of march towards those margin targets over the next few years?

Kevin Hammond, President and Interim CEO, Community Health: Of these programs are certainly beneficial to us, kind of the return of the volume. And I know we’re experiencing a little softness right now. But as I mentioned, I think that’s transitory. And as that volume comes back, particularly the volume on the commercial side should be accretive to EBITDA. And so that will help us pretty materially, I think, even on the margin Now that as we’ve gotten some of these other divestitures done, we are close to getting to free cash flow positive.

And I think on trailing twelve months basis, as of June 30, we were just slightly negative, which is a material improvement over where we had been historically. And I think we’ve seen steady improvement in that area over the past eight quarters. So that kind of flipping the positive, also allowing for some additional reinvestment or some deleveraging will really help jump start us getting to those medium term targets. Okay.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: And then, yes, just Project Empower, obviously, has come up a In bunch terms of the sort of the key milestones there, I guess, like, where do you stand in terms of things that have largely been kind of completed and put into place and things that are still kind of in front of you over the next couple of years?

Kevin Hammond, President and Interim CEO, Community Health: All of the technology implementation is complete. Really effective one:one, we got all the technology in. The company is running on the full integrated platform now. So what we’re working on this year, and we’re already starting to extract value from it, as we’re turning off some of the duplicative software systems that we’ve replaced. Some of those are turned off already.

Some of them, their expiration of their contract will come up throughout the year, and they’ll effectively all be turned off by the end of the year. But that is just incremental value to us as we turn off those excess costs. The insight we are getting into the supply chain now that we have our entire enterprise on a single integrated system and a single item master from a supply chain perspective is giving us more insight in terms of how we contract. So it kind of ramps up over time as we renegotiate some of these contracts. We have better visibility into our spending.

We are able to do more bulk buying and leverage our scale in a different way than we have to in the past. So we will extract benefit this year, but I think it will continue to grow probably over the next two years, getting value increasing value out of that.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Got it. And then obviously, you have targets to delever the company and a combination of that is happening through actions you’re currently taking on the balance sheet and lot of that will come through delivery of these EBITDA margin targets that you set for yourself. Just kind of walk us through the key pieces of like how you think you get from where leverage is today to where the targets are a couple of

Kevin Hammond, President and Interim CEO, Community Health: years It’s a balance. Some additional divestitures will take place where we’ll be able to use proceeds to pay down some further debt. And as long as we’re selling or completing those transactions at favorable valuation multiples, that should be delevering. And then growing the core business, and we see some good growth in our core business. And the balance between those two, we’ve brought, again, over the last eight quarters, our leverage from around 8% to now it’s around 6.8%, and that should be able to we should be able to take another term plus out of that and get us to our midterm targets of 5.5% or below.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Okay, great. And then just in terms of maybe just the last couple of questions would just be sort of CapEx priorities and how those have evolved over the past couple of years? I know that as you’re evaluating assets for potential sale, maybe there’s like changes in how you approach CapEx as you maybe have more of a set of assets that you seem like reasonably sure will be with the company for the next couple of years. Like where do you need to spend CapEx to deliver on that core growth over the next few years?

Kevin Hammond, President and Interim CEO, Community Health: Over the last few years, we’ve made a couple of large CapEx expenditures or projects more on the construction side. We’ve added patient towers in Knoxville, a large patient tower in Foley, Alabama. So those were assets that were at capacity from an inpatient perspective that we wanted to build out additional capacity for growth. Those are both completed. So currently, we don’t have any large construction replacement hospitals being constructed.

So we’ll be able to focus a lot more of our capital on outpatient access points. Those are less expensive, quicker to market type projects, probably pivoting some of those dollars to maybe even acquiring some clinics. We acquired some urgent care centers in the fourth quarter in the Tucson market is an additional access point. Is some ASC development going on. We’ve got three ASCs that we’ll be bringing on board between now and the end of the year.

We’ve got a couple freestanding emergency departments that are in flight. Those are kind of de novo builds, but they’re relatively quick to stand up and lower cost point to build a freestanding ED. So we will continue to pursue those type of investments around our networks of care.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: I guess how different is like the return profile, like dollar CapEx on outpatient versus dollar CapEx on like inpatient?

Kevin Hammond, President and Interim CEO, Community Health: It depends on the market. It’s really largely dependent on the market around the payer profile. And a lot of these access points really you have a return on the outpatient side, but you are also as an access point, it becomes a referral source as well in terms of bringing in additional inpatient business. So if you are picking up additional patients in an urgent care or freestanding ED, oftentimes are coming in with higher acuity needs, but then that patient gets transferred to the hospital. And so you are picking up the higher acuity services there as well.

Steve Baxter, Healthcare Services Analyst, Wells Fargo: Okay. I think that’s about all that we have time for today. Thank you very much for Thanks, Stephen. Thank you. It’s good to see you.

Kevin Hammond, President and Interim CEO, Community Health: Thanks, for joining us.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.