Community Health Systems at Oppenheimer Conference: Strategic Momentum for 2025

Community Health Systems (NYSE: CYH) presented a cautiously optimistic outlook for 2025 during the Oppenheimer 35th Annual Health Care MedTech and Services Conference on Tuesday, 18 March 2025. Led by CFO Kevin Hammonds, the company emphasized growth in volume and managed care contracting while addressing challenges such as rising physician fees and denial rates. The company is also focusing on strategic divestitures to improve its financial leverage.

Key Takeaways

• Community Health Systems projects a volume growth of 2% to 3% for 2025.
• Managed care rate increases are expected to be between 4% and 6%.
• The company is working to reduce its leverage ratio to below 5.5x by 2027.
• AI is being deployed across various business functions to enhance efficiency.
• Ongoing efforts in strategic divestitures are expected to continue.

Financial Results

Volume and Admissions:

• Strong inpatient admissions carried over from Q4 into 2025.
• Expansion included adding 58 beds in Knoxville, Tennessee, and 30 beds in Foley, Alabama, in 2024.

Managed Care Contracting:

• Anticipates managed care rate increases of 4% to 6% for 2025.
• Current rates are 100 basis points higher than historical averages.

Denials:

• Expects an additional $20 million impact due to increased denial rates year-over-year.
• Anticipates Q1 and Q2 denial rates to mirror those of Q4 2024.

Cost Management:

• Labor inflation is projected at 3.5% to 4% for 2025, with improved nurse turnover rates.
• Physician fees rose by 11% last year, with an 8% to 12% increase budgeted for 2025.

Divestitures:

• Recently closed a $260 million deal in Florida.
• A deal in North Carolina is expected to close by the end of the quarter.

Operational Updates

Efficiency and Technology:

• Centralized recruiting and insourcing of ED doctors have been effective.
• AI is being integrated to improve various functions including patient care and revenue management.

Payer Mix:

• Shift from traditional fee-for-service to Medicare Advantage continues.
• Medicaid volume is decreasing, offset by growth in exchange business.

Regulatory Environment:

• Minimal impact anticipated from regulatory changes in Medicare and Medicaid.
• Directed payment programs are expected in New Mexico and Tennessee.

Future Outlook

Strategic Priorities:

• Focus on volume growth, cost management, and deleveraging.
• Investments in high-acuity service lines and technology are ongoing.

Challenges and Risks:

• Managing increases in physician fees, particularly in anesthesiology and radiology.
• Addressing elevated denial rates and potential regulatory changes.

Q&A Highlights

AI Implementation:

• AI is being deployed in areas such as patient registration, clinical care, and employee productivity.

Divestitures:

• Strong multiples in divestitures, ranging from 10 to 12 times earnings.

Acquisitions:

• The company is nearing a position to consider future acquisitions.

Community Health Systems is optimistic about achieving its financial and operational goals for 2025. For more details, please refer to the full transcript below.

Full transcript - Oppenheimer 35th Annual Health Care MedTech and Services Conference:

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: Morning. Welcome to Oppenheimer’s thirty fifth Annual Healthcare Conference. I’m Mike Wedenhorn, the Healthcare Services Analyst. It’s my pleasure to introduce Community Health Systems and Chief Financial Officer, Kevin Hammonds. So today’s gonna be a, fireside.

We’ll start, you know, jump right into it. Guys, first of all, appreciate you taking your time out today to, you know, spend the day with us. Always appreciate, you know, discussing the hospital industry with you guys. So we’ll start with a broad question. Can you just provide us an update on the business?

How you’re feeling coming out of Q4 into the new year? And your current guide and kind of where you’re relative to your guide?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Absolutely. And and Michael, thank you for hosting us today. Appreciate you putting this together and giving us the opportunity to present. So as we come out of Q4, really feeling pretty good. We developed some momentum coming out of the year, going into the current year.

Generally speaking, I would suggest that we have more wins at our back coming into ’25 than than we’ve had, in some time. So, you know, pretty pretty good feeling about the year, you know, as I think about our guide for the year, and some of the specifics about, you know, where we are, certainly some prospects of some additional DPP funding coming in, although that’s being delayed a little bit with some of the goings on in Washington, but still feel good about but about that, and that should be meaningfully helpful to us, as well as some divestitures and, the prospects of us being able to materially delever, in 2025, I think is certainly exciting for us.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: Can you talk about mission trends going forward in ’25? And what are some of the puts and takes as far as your growth targets on that side?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Yeah. So we put in our guide 2% to 3% volume growth. Certainly our admissions, if we think about some of the inpatient admissions, we had strong inpatient admissions in Q4. I think we’ll still see some strength on the inpatient side in 2025. We’ve added over the past few years about 600 beds, inpatient beds.

More recently in 2024, we added patient tower, with approximately 58 beds in Knoxville, Tennessee, and another 30 beds in Foley, Alabama. So markets where we had been having some capacity constraints, still adding inpatient capacity, and those are growing markets. So I feel pretty good about, the inpatient side, as well as the overall volume and adjusted admissions. Again, as I said in the 2% to 3% range. I think maybe if I could just add on to that as I think about the flu, but we did have a late flu season, this year, at least compared to some of the other years.

So flu really did not hit until Q1. And we did see a fairly, you know, heavy flu season. So I do think, you know, we, although we benefited from some, volume from the flu, that also is a little bit of a disruptor from some of the higher acuity services. But as we sit here today and as we exit Q1, the flu is now behind us and and, you know, I think we should see some of the higher acuity business begin to come back here late this quarter and into Q2.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: Perfect. Yeah. So on contracting, what are you seeing in terms of managed care contracting and has rates been impacted by inflation in the system? Kind of your role thoughts to kind of the rate environment is looking?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Yeah, I think the rates have been influenced certainly on a lagging basis with inflation. You know, inflation hit first. We saw some pretty big price increases over the past couple years. We’ve seen our managed care rates up about a hundred basis points higher than they have been historically. And I would hope we’ve got a little bit of a tail on that for another year or two.

Certainly, I think for ’25, we’re looking at probably four to 6% average rate increase. You know, individually, we’re seeing some rates, or some contracts higher than that. But that’s kind of an average with several of our contracts, you know, kind of rolling over, you know, from prior year negotiations. And then, you know, in 2026, as we start working on negotiating there, our expectation is somewhere in the similar ballpark.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: What are you seeing in terms of mix shift, acuity trends? And how should we view those items going forward?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Acuity has been relatively flat, at least it was from ’23 to ’24. We are making capital investments and some higher acuity service lines. And you know, as some of the elective business continues to come back and I say elective business primarily from commercial insured patients that I think has lagged coming back post COVID. And as we continue to get more of that back in the system, I think there’s some opportunity there for some higher acuity services. Plus with our investment, we’re certainly look looking to increase our acuity, going forward.

Relative to payer mix, we’re still continuing to see a shift from traditional fee for service into Medicare Advantage. That’s kind of leading the change. But in terms of overall kind of Medicare age population, Medicaid population, commercial mix, relatively flat. We did see a little bit of decline in Medicaid volume this past year, brought on by redetermination, but we’re not seeing an increase in uninsured. We probably saw a little bit of that increase come back in the exchange business.

And as I think about, you know, kind of the commercial book of business, I think the exchange business is probably leading leading the way in in that in that respect.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: You had experienced some issues, I think, with denial during 2024. How should we think about that as a headwind or a tailwind for 2025?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Yeah, we did. Particularly in the third quarter, we saw a spike in in denials. That really moderated or at least sequentially in the fourth quarter did not get any worse. So I think we’re kind of at the peak, at least I would hope so. But it was fourth quarter worse year over year still, but but a similar levels we experienced in the third quarter.

As I think about 2025, probably two more quarters before we anniversary that jump up that we saw in Q3. So I would expect Q1 and Q2 to look a lot like Q4 in terms of relative numbers of denials, which will be worse than they were relative to Q1 and Q2 of twenty four. But then anniversarying that in Q3, from a quantification perspective, it’s about 10,000,000 quarter, 10,000,000 per quarter drag. So, you know, we baked into our guidance about a $20,000,000 overall incremental hit year over year relative to that increase in denials.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: You know, continuing, I guess, with the payers, are you seeing any changes in your relationships with insurers, given the challenging regulatory environment? And especially if are you seeing any change in the, you know, also due to the perception of the change in the media as well?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: We’ve not really experienced any changes in the payer behavior. I I think our relationships, you know, are are about the same. You know, we continue to negotiate with them and and, you know, try to partner with them when we can. But in terms of their behavior and even in the environment where I know there’s been a lot of pressure, both from a media perspective, pressure on them from, even the administration, the government, pressure at maybe more of a spotlight being shown on the payers and some of their behavior. We really have not experienced any change.

Denials are still coming in. They’re still at an elevated rate. Claims are still being downgraded. Pre authorization, you know, rates haven’t really changed. And and we’re still seeing, you know, requirements for pre authorization for procedures that, traditional Medicare doesn’t require.

So, all that said, that’s why I don’t think we’re gonna see any real change in denials, although as I said, they’ve moderated, but they’re not getting any better.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: Let’s move on to caution initiatives and on the cost side. Labor, can you talk about the labor trends and what you’re seeing here, your outlook and also relative versus inflation going forward?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Yeah. Happy to. Last year, we saw labor kind of inflation rate increase about 4% of net revenue. It’s and and that was down from 2023. I think in ’25, we’ll continue to see, you know, maybe a little more softening of that.

We’re currently predicting what we’ve included in our guidance is about 3.5% to 4% labor inflation, just from a wage increase standpoint. So maybe a little bit better than last year, but not significantly and nowhere near kind of that historical 2.5% to three percent. I don’t think we’re back there yet. But that being said, we’re we’re making very good progress in terms of our recruiting. Our nurse turnover, actually our turnover of all positions, but specifically nurse turnover rates are in the high teens, which is the best it’s been in several years.

You know, our recruiting function that we’ve moved into a centralized environment, it has worked for us extremely well. We’re adding a lot of nurses and able to, to, you know, take out contract labor. Although I think we’re getting down to the levels that are pretty close to pre pandemic. At this point. So I don’t see a big decrease in overall contract labor, but we’re able to support that with, you know, full time labor as necessary.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: Okay. Let’s move to physician fees. You know, what what’s the latest on physician specialty fees? How are you viewing this line item going forward? And, you know, how have the insourcing, you know, efforts gone?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Yeah. Medical specialist fees or physician fees continue to be a pain point for us. They were up, you know, roughly 11% last year. We’re budgeting for an 8% to 12% increase in 2025. Still seeing, you know, some outsized increases in certain markets, particularly in anesthesiology, which is the biggest pain point at this point.

We’re still looking at opportunities and continuing to in source some of our ED doctors and hospitalist programs, which we’ve experienced really good success, where we’ve been able to do that. More recently, we’ve in sourced a fairly large market on the anesthesiology side. Led to a little bit of a medical specialist fee hit in Q4, but that’s behind us now. And we’ve got the doctors hired and are running that program, you know, from an in source model. Looking at some other markets where we can in source anesthesiologist.

But, you know, generally, I think that’s that’ll be slower, getting those kind of programs in source, but we do have some expertise internally now that that can support an in source program there. Radiology is kind of the the next, pain point. We’re starting to see, some of the radiologists, where we use independent radiologists looking for higher payments and more fees on that end. I think that’s an area where technology can be utilized more, whether that’s, you know, reviewing images remotely, using some AI. I think there’s more technology that can help offset some of the radiology headwinds.

It’s hard to do anesthesiology remotely. So, but but radiology, I think we have a few more levers we can pull that mitigate some of those risks.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: Perfect. Well, let’s let’s move over to Washington, the regulatory environment. A lot of questions that’s obviously in the news every, you know, every hour. So, you know, kind of broadly speaking, you know, if we think about Medicaid, you know, potentially either being restricted, you know, budgets being cut, state budgets, how do you how how are you thinking about it? How are you thinking it could impact you and potential offsets from your side?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Yes, there’s certainly a lot of moving parts. And there’s been a lot of noise coming out of Washington around the regulatory environment and cuts and so forth. You know, go back, anchor a little bit on some of the messaging that came out of the administration initially, which was they were not gonna touch Medicaid and Medicare. I think despite a lot of the noise, at the end of the day, I really don’t expect there to be any major benefit cuts in Medicare or Medicaid. I do think, you know, on the margins, we could see some changes, particularly around maybe some work requirements on Medicaid.

I think you could see the enhanced subsidies potentially sunset for the health exchanges. But all in all, I think anything we see coming out you know, of the this next round of, you know, budgets out of the administration is going to be something that that we can manage through. Again, I’ll go back to I just don’t think there’s going to be major benefit changes. I know there was a lot of concern particularly around Medicaid with redetermination, that the roles were being cut. A lot of people would fall off the Medicaid roles and that’s gonna be a big headwind for providers.

And at the end of the day that occurred last year and although we have seen some decline in Medicaid volume, a lot of the individuals that came out of Medicaid ended up at least, you know, a certain percentage of them ended up with commercial insurance, and were probably net net better off. And we did not see an increase in the uninsured that everyone was so concerned about. I think, you know, just using that as an analogy, I think we’ll see a little bit of the same, this go around where you can see some changes. But at the end of the day, I don’t know that it’s gonna be that material, to the providers.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: That’s great. So, you know, you mentioned supplemental payments. Obviously, this continues to be highlighted here, you know, these programs. So how should we be thinking about this in the context of, you know, the administration? You know, do you think these programs will continue to be approved?

You know, and then kind of you can give us all some kind of progress into some other states that have been looking into it as well.

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Yeah. I mean, there there’s certainly risk. We’re we’re not naive to to that. But the directed payment programs really became in vogue during President Trump’s first term in office. There’s been generally bipartisan support for these programs And we have every expectation that at least the couple that are in flight right now, which would be New Mexico and Tennessee, will get approved.

CMS has put out a freeze in communication, you know, with the change in administration until the leadership there is confirmed by the Senate. I know Doctor Oz had his confirmation hearing just this past Friday, and all indications are that he’s going to get confirmed. The senate, I think is on recess this week and and back in next week. And what we’re hearing, at least to the grapevine is is that that confirmation vote, will come up for a a thumbs up, thumbs down in early April. What we’re hearing out of CMS is, you know, once they get, confirmation, then they’ll start releasing, information.

But but right now, it’s communication freeze. We’re just not hearing about the DPP programs. I think in the background, all the work’s still being done, and and we’ll expect to get those approved, here, you know, potentially, in in sometime in April. I don’t know how quickly they’ll start getting communications out. But I would hope that, by, you know, by the April, you know, all that information has been been made public.

You know, other states, Indiana is is working on a program. It’s going through their state legislature right now. Don’t have a don’t know exactly where that is or what form, that program will take. I know it’s passed the state, the state house. I think it’s with with the state senate right now.

But there’s still some negotiations in terms of the structure of that plan. But they are looking to add some sort of directed payment program in Indiana. A couple other states, Alabama’s in some early stages, as is Arkansas. So I think they’re all, again, earlier stages and and probably not a 2025 item, but maybe setting themselves up for a program to go into effect in 2026 in those states.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: Okay. The two issues that continue to, you know, kind of we hear in the news, the site neutrality and, price transparency. You know, if you wanna, you know, kinda touch on both, kinda your thoughts, kinda where that where those stand right now, how you think those affect you, you know, competitively?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Yeah. I still think, on-site neutrality, still not complete agreement, on what the definition of that is. So still some work in Washington to be to be done on that. But generally at least how we see site neutrality and maybe the more common definitions of that, you know, would suggest that, you know, your off campus procedures would not be paid at the HOPD rates. And as we think about our business, I don’t think that has a real material impact on us, Maybe you know slight impact but generally our surgery centers and our off campus locations are on their own rate structure.

We don’t operate the majority of those we don’t operate as HOPDs. So I think given that site neutrality would have a limited impact on us. Yes. On price transparency, you know, we haven’t seen much of an impact thus far on price transparency. It’s still very complicated.

I’m not sure it’s accomplished maybe, you know, what some thought it would and and still doesn’t give complete, you know, visibility into to all the different myriad pricing structures and contracts, that that are in effect out there. So, I don’t know that it’s the the tool for selecting, you know, for consumers selecting, you know, procedures on where to get, get their healthcare as it was intended to be. But generally, I don’t see it as being having a much of a negative, if any negative impact. And in some cases, it’s probably been a little bit of a positive for us because generally in our markets, we are not the ones with the highest charges. And so I think the price transparency for us, if nothing else, might be a little bit of a positive.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: Okay. Let’s move away from Washington over to the capital environment balance sheet. Maybe kind of give us update on your divestiture efforts. What type of deals are you focused on? What valuations are you seeing?

At this point in

Kevin Hammonds, Chief Financial Officer, Community Health Systems: time? Yeah. I I have happy to. So we closed one deal earlier than in March here, March 1, in Florida. Got two sixty million dollars of cash proceeds in hand.

We have one additional deal that we’re anticipating closing here by the end of the quarter, getting those proceeds in hand, that would be North Carolina. Still working on a couple additional transactions. And we’re in kind of enhanced stages of discussions on those. Don’t have timing as to when we may get asset purchase agreements signed, but hopeful that those are continuing to move along. You know, Mark, multiples continue to be very strong, if not even a little bit stronger, on the more recent deals than we’ve experienced.

So, you know, in that 10 to 12, multiple range, is is what we’re looking at. Obviously, you know, we try to push that up as high as possible and and looking at, you know, you know, potentially being at the higher end of that, on some deals. But think we can get a little bit more done this year, in terms of divestitures. I do think we’re getting closer to the end, although we’ll always consent always consider, you know, when the circumstances present themselves, whether it’s through inbound interest or changing environment in a particular market, you know, whether or not we would wanna sell, and and kind of put those proceeds to use either through deleveraging or, through other investments. I think, you know, our our ultimate goal here is to delever the company, and we’ve been making some really good progress.

I think we’re positioning ourselves here in 2025, to further, make progress on that deleveraging.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: Yeah. So I guess, Paul, what do you see as your comfortable leverage position? And how do you view the potential for M and A versus debt pay down at this point?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Yeah. I mean, we we have a goal that we stated by 2027 to get below five and a half times levered. You know, at the end of the day, maybe more philosophically, I’d like to see our capital structure more balanced. And if you think about us trading in the eight to eight and a half times, TV to EBITDA range, you know, something even below five and a half certainly would be a longer term target. But that’s, that’s our, our 2027 target.

I think we’re well on our way to achieving that. In terms of investment versus pay down, you know, there’s two ways to lower, lower your leverage and it’s either to grow EBITDA or pay down debt. And I just think, you know, when we have proceeds in hand, we kind of weigh, the opportunities out there and what makes most sense. I do think we’re getting closer as we do make progress on our leverage. We’re getting closer to, being in a position where we can think about acquisition and maybe growing through some acquisition or other investments.

Certainly dipped our toe in a little bit, but the acquisition of Carbon Health, which is emergent care centers in Tucson. But I think in terms of an actual acute care acquisition, still maybe a little ways out, but getting closer to that, Tim and I have been looking at some, and we have been over maybe the past eighteen months or so. Nothing’s come to kind of come in front of us or come to our attention that was all that interesting at this point. We’re still probably a little bit early as I think about our balance sheet and to go do something. But again, getting closer and if we wait till we till our balance sheet’s in the right position, we’re gonna be too late to the game.

So we’ll continue to look. And if a divestiture and acquisition timing happened to work out, might be something really interesting for us. But I do think growing EBITDA is a quicker deleveraging tool than just paying down debt. But we’ll be disciplined about how we think about the two and kind of take it one step at a time.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: We got time for one last question. That’s a question I’m asking everyone of the companies today. Yeah. What are you what are you seeing as the role of AI in your business model and the opportunity there?

Kevin Hammonds, Chief Financial Officer, Community Health Systems: There is a lot of opportunity in AI. We’re certainly deploying AI in a number of areas. We’ve got a team, internal team, the data science team that’s been doing some development of AI. We look at opportunities and use cases for either development versus purchasing. But it’s across across the business from, patient registration.

There’s some opportunities there. There’s some AI use in our patient access centers, which is where patients call in and schedule appointments and using AI to schedule those appointments. In the clinical care areas, there’s a number of areas that we’re either implementing or exploring implementation of use of AI to support physicians and in their delivery of care in bed management, in the management of employee productivity and staffing. And then even post discharge, there’s some AI use cases in the revenue cycle, with denial, management, and so forth. So, you know, I think it’s gonna be very important.

It’s kind of a force multiplier, if you will. And and we’re certainly looking and making some investments in in that across our business.

Mike Wedenhorn, Healthcare Services Analyst, Oppenheimer: Perfect. Well, we’re out of time. Appreciate your time today. Appreciate your participation as always. And, I look forward to talking to you guys in the future and keep up the good work.

Thank you.

Kevin Hammonds, Chief Financial Officer, Community Health Systems: Appreciate it, Michael. Thank you. Take care. Bye.

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