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On Wednesday, 21 May 2025, Community Health Systems (NYSE:CYH) participated in the RBC Capital Markets Global Healthcare Conference 2025. The company discussed its financial performance and strategic outlook, revealing both challenges and opportunities. While facing headwinds from the flu season and decreased elective surgeries, Community Health Systems is making strides in operational efficiency and strategic development.
Key Takeaways
- Community Health Systems faced challenges in Q1 due to a decline in elective surgeries and the flu season.
- The company is managing labor costs effectively, with productivity gains offsetting wage increases.
- Strategic focus is on outpatient development and reducing leverage through debt refinancing and divestitures.
- Potential DPP program approvals could boost EBITDA by $100-$125 million annually.
- Community Health Systems is expanding its footprint with acquisitions and development in urgent care and ASCs.
Financial Results
- Q1 Performance:
- Community Health Systems experienced a decline in elective surgeries due to economic factors, but inpatient volume remained strong.
- Medical and surgical acuity increased, though the overall acuity mix was diluted.
- Labor Costs:
- Average hourly wages rose by 3.5%, within the company’s guided range, with productivity gains maintaining salary levels as a percentage of net revenue.
- Professional Fees:
- Increased by 9% in Q1, driven by anesthesia and radiology fees.
- Capital Structure:
- The company exited the year with a leverage of 7.4x, reduced to 7.1x after Q1.
- Successfully refinanced $700 million of 2027 bonds to 2033, with a target leverage in the mid-6x range by year-end.
Operational Updates
- Volume Trends:
- A decline in elective surgeries was noted, while medical and surgical acuity rose.
- Labor Performance:
- Efficiency gains from ERP system implementation improved nurse retention rates, now in the high teens.
- Centralized recruiting efforts are underway to attract nurses from Sunbelt States.
- Development Activity:
- The company acquired 10 urgent care centers in Tucson and plans to expand 5-8 new ASCs this year.
- Investments are focused on oncology, cardiology, and neurology for inpatient capabilities.
Future Outlook
- Consumer Sentiment:
- Anticipated changes in consumer behavior, with a potential increase in activity in the second half of the year.
- Capital Allocation:
- Focus on outpatient development and service line expansion, with hospital plans expected to be fully ramped in 12 to 18 months.
- Leverage Reduction:
- Plans to reduce leverage to the mid-6x range through divestitures and potential DPP program approvals.
Q&A Highlights
- DPP Programs:
- DPP programs are expected to continue as they are, with potential growth limitations.
- Work Requirements:
- Viewed as neutral to slightly positive due to the labor component.
- Tariff Concerns:
- No significant impact from tariffs due to GPO contracting and price protections.
For a comprehensive understanding, readers are encouraged to refer to the full conference call transcript below.
Full transcript - RBC Capital Markets Global Healthcare Conference 2025:
Ben, Host: We’re hosting Kevin Hammonds, president and chief financial officer. And in the room here, we also have Anton Hai, vice president in I’m sorry. Vice president, investor relations. So thank you guys very much for being here today.
Kevin Hammonds, President and Chief Financial Officer: Ben, thank you for hosting us. Really appreciate it.
Ben, Host: Absolutely. And let’s maybe talk with the or we could start with the obligatory policy discussion. Obviously, lots of movement this past week, you know, with the house’s bill, and maybe you can kind of talk about what you’re seeing that’s changed. Sounds like there’s a lot of motion on work requirements, but just wanted to get your overall view and how it’s impacting your thoughts on DPP programs and the like.
Kevin Hammonds, President and Chief Financial Officer: Yeah. You know, overall, I think the bill came out at least where it stands right now. There’s still still, you know, some a lot more work to do before it gets through the house and and over to the senate. But but coming out more in line with where we expected it to be, which was not near as bad as as maybe some had predicted. I think the it appears that there’s gonna be the the DPP programs, at least the ones that are currently in place, as well as there’s probably gonna be a a deadline set in the future for some new ones to come in, that those will continue to to operate as they, you know, are today.
So we don’t see any real pullback in those. And and then maybe going forward, some limitation on growth, but we don’t see any of them, you know, being pulled back. And then with the work requirements, as you mentioned, it appears that maybe something that that goes through. But I think net net, our our view is that would probably be, you know, it worse neutral to us, potentially even slightly positive. Gotcha.
Would that
Ben, Host: be just be because of the labor component to it with it coming coming back and helping you staff on on the hospital
Kevin Hammonds, President and Chief Financial Officer: Yeah. Absolutely. And and the potential for some folks to actually end up with employed coverage on the insurance.
Ben, Host: Gotcha. And then when we think about the DPP programs and the kind of the realm of possibilities through renewals, what do you what do you expect the rate updates on those renewals to look like? It seems like that’s an open question. And do you think you’ll get commensurate, you know, inflation adjusted rates, you know, as as those get renewed year to year?
Kevin Hammonds, President and Chief Financial Officer: You know, I still think that to your point, I think it is an open question, and we don’t have clear line of sight into that yet. But I do think, you know, generally speaking, we’ll probably see inflationary, you know, build on that and and keeping in line.
Ben, Host: Gotcha. Anything else in the bill that’s kinda giving you keeping you up at night? Or Not not at this point. Still waiting to
Kevin Hammonds, President and Chief Financial Officer: see where where it ultimately ends up, you know, as it still moves around a little bit. I’d our view is still by the time it gets through the senate, it gets no worse than it is today. Mhmm. I think that’s very favorable for the providers, and and there’s a potential that, you know, it it moderates even a little bit more before a bill actually goes to the president’s desk for signature.
Ben, Host: Great. And then we can move on to operations a little bit, just kind of recap a little bit of the volume trends that you’re seeing. I mean, obviously, 1Q is interrupted or disrupted a little bit by the flu, so we saw a little bit of noise in there. But but maybe kind of what have you seen since?
Kevin Hammonds, President and Chief Financial Officer: So a couple things happened in q one. Certainly, flu was a little bit of a disruptor. But even after the flu season ended, which was kind of February, we continued to see some headwinds, and it was really driven by a decline in elective surgeries from commercially insured patients. And, you know, our read through on that is that it’s more of an economic decision by your patients because it was that group of patients with high copays and deductibles electing not to have care versus the government insured patients who continue to come in and have elective procedures. So overall, our inpatient volume was very strong, Not much of a decision.
People needed care or coming into the hospital. And but your surgery our surgeries are down. Our adjusted admissions were right in line with expectations, but surgeries were negative. And I think not only for us, but pretty much across the industry. And that negative was driven by the the commercially insured and decline in elective procedures.
So as we think about what consumer sentiment, you know, means, and I don’t think consumer sentiment has really kind of improved much since the first quarter. I do think that that continues to be a little bit of a headwind. But as we think about the full year, I think what that really does, you may see a little more pullback in the first half with people with commercial insurance. But as they meet their co pays and deductibles through the year, they’ll rush to get come back, get all the procedures in before it resets again next year. So I do think that it it has the the effect of, you know, maybe, you know, a little more pullback than normal early in the year, a little heavier business in the end of the year.
Ben, Host: And is there anything to call out that’s different with this year’s commercial and co pay reset, maybe given that we’re getting past redetermination and maybe that’s height is it that could that
Kevin Hammonds, President and Chief Financial Officer: be
Ben, Host: heightening the you know, that that dynamic this year?
Kevin Hammonds, President and Chief Financial Officer: I I don’t think redetermination we haven’t seen much of an impact as a result of redetermination last year. I really do believe that it it’s more of a consumer sentiment that’s driving some of the behavior.
Ben, Host: And then just on the rate side, you know, kind of any anything in terms of of acuity mix on your inpatient surgeries or other other dynamics to call out that’s kind of impacting you there?
Kevin Hammonds, President and Chief Financial Officer: Sure. Acuity, you know, medical acuity is actually up or was in q one. Surgical acuity was also up in q one. But with the decline in surgeries and the increase in inpatient medical procedures, proportional between the two ended up diluting our overall acuity mix because your medical acuity is typically lower. Whereas historically, we’ve run about a third surgeries and two thirds medical cases.
In q one, it was more like a quarter surgeries and three quarters medical. So there was an overall dilution to acuity, but individually, each of them improved. Gotcha. And then
Ben, Host: if we could maybe move over to labor performance. Still looks like you are having really strong cost controls on the labor side. Wage rates appear to be progressing in line with your expectations. Maybe you can give us a kind of an overview there.
Kevin Hammonds, President and Chief Financial Officer: Sure can. So average hourly wages increased about three and a half percent in q one. We guided to three and a half to 4%, and then we were able to offset that really through productivity gains Mhmm. In a number of different areas. So our overall salaries and wages as a percentage of net revenue did not increase in the quarter, and I think we managed through that very well.
So, again, in line with expectations, I think with the average hourly rate being at the low end of our guide range to start off the year, that puts us in a pretty good pretty good spot. You know, as we see some additional increases come throughout the year, we’ll be able to to maintain that well within our guidance.
Ben, Host: Gotcha. And then and then some of these efficiency gains on the labor side, are are these resulting from any specific initiatives, project and power or any of those types of things?
Kevin Hammonds, President and Chief Financial Officer: They they absolutely are. So there’s a couple initiatives that we’ve put in relative to our new ERP. One, we’ve moved all of our back office functions into a shared service environment, which is much more efficient in in pulling those positions out of the hospitals, you know, doing those all centrally. And we we’ve been able to gain some leverage on the labor force to do that. We’ve also put in as part of the ERP a new scheduling system that comes it it it functions integrated with the HR component of the ERP.
It allows the nurses to do scheduling on their mobile devices, clocking in, clocking out, planning their schedules, allows nurses to do schedule partial shifts, which has been both a big kind of satisfier to the nurse staff, makes it easier on them, and gives us better insight because you don’t have hospitals doing scheduling or departments doing scheduling on paper where no one else can see it. Now we have much better insight. We can begin to align the schedules with, you know, patient schedules and surgical schedules to become more efficient in how we’re staffing. Is this kind of flowing through to benefits and retention at all? Our retention rates have continued to improve.
We’re probably, with the nurses RN retentions, in the high teens Mhmm. Right now, but that significantly improved over where it was a couple years ago. And I would say we’re probably slightly below or slightly better than industry average in terms of retention. So or turnover rates in high teens, not not retention high teens, but turn turnover rates in the high teens.
Ben, Host: Gotcha. And then is there any indication that you’re seeing yet, you know, this consumer sentiment sentiment or fears over future economic headwinds,
Kevin Hammonds, President and Chief Financial Officer: you know, bolstering the nursing labor pool at all yet? Haven’t seen it really, you know, impact the the nurse labor pool, and we’ve had a shortage in of nurses, you know, for twenty five plus years. Right. But but, you know, continuing to see improvement, the work we’ve done with Jersey College and I think our recruiting efforts, we’ve also moved all of our recruiting into a centralized function as opposed to doing recruiting locally at each hospital. So it’s allowing us to cast a wider net and take advantage of, you know, our footprint being across many of the Sunbelt States where people are moving to.
You know, Arizona, Texas, Florida, Tennessee had been pretty favorable over the past few years. People moving from the East Coast and West Coast, leaving some of the higher tax jurisdictions for lower tax jurisdictions and and recruiting kind of with that in mind. I think we’ve benefited from that taking advantage to be able to recruit nurses from other areas of the country. Mhmm.
Ben, Host: And then moving to other operating expenses, your professional fees, I just wanted to kinda get get get the thoughts there. Some of your peers have talked about a little bit of an acceleration in the first quarter. Just wanted to see what you’re seeing there.
Kevin Hammonds, President and Chief Financial Officer: Continues to be a pain point for us. Over half of our medical specialist fees are anesthesia. Mhmm. But we’re also seeing an uptick in radiology fees. We guided to an increase between 812% for the year.
First quarter, our professional fees were up 9%. So in line with kind of our expectations, but we expect it continue to to to be a pain point. I think there’s a, you know, a shortage of of, you know, physicians out there in those those specialties. Now we did in the fourth quarter in source a large market with anesthesiology. That’s gone very well for us.
It took us a quarter to kind of really get get up and running, but that’s gone very well for us. Looking at some other markets that we can in source and and hire, employ some of those anesthesiologists. And then on the radiology side, we’re really looking at some technology solutions, which there there’s more opportunity for technology solutions in the radiology space, either using remote, you know, readings, using AI, and and we’re looking at some opportunities to to use some of that to help mitigate some of the
Ben, Host: cost increases. And then on the anesthesiology side, is the decision to insource more kind of locally driven market by market, or is that just a broader initiative that you’re pursuing piecemeal, or how do we think about that?
Kevin Hammonds, President and Chief Financial Officer: It is somewhat of a broader initiative in the sense that we have, hired some expertise in that area to be able to run anesthesiology practices and manage that locally. But in terms of decisions about where we employ that strategy, it’s a market by market decision.
Ben, Host: And then just wanted to talk about, you know, supply cost. Obviously, you know, tariffs have been a topic of discussion lately. You’ve mentioned that, you know, you’ve had some pretty good visibility consistent with your other members of the health trust UPO, and maybe kind of refresh us on what you’re seeing there, and if anything has really changed in your outlook since we’ve seen kind of a little little bit of a pullback in the in the tariff concerns.
Kevin Hammonds, President and Chief Financial Officer: Yeah. We we feel really good about where we’re at. We’ve we’ve not seen any increases relative to tariffs at this point. We have price protections out there through our GPO contracting. The majority of those contracts are three year contracts.
Now thinking about probably a third of those expire each year, you know, a year from now, you know, you you could potentially see, you know, some vendors looking for price increases if tariffs are in effect. But but in the near term, we we feel good about the protections we have in place. We also had the the leverage of the GPO. So as they do think about price increasing, you know, how much of that actually flows through to us, I think will be a little more limited. Maybe an unintended benefit of having put in our ERP is it will make it a much easier for us to move market share.
Mhmm. And so if we do run into situations where a vendor is trying to increase pricing now that we have complete visibility over the entire enterprise of what’s being purchased, how much is being purchased, and we’re actually making those purchases centrally as opposed to each hospital doing their own purchasing, we can move market share much more quickly. And and in many of these, you know, supply areas, it’s a pretty competitive environment, so we think we could probably find someone and be able to mitigate any any cost increases. And then as we, you know, as time passes, I think we’re also seeing maybe a little less pressure on the tariff side as as some of the deals get struck, and and we’re saying it’s not gonna be as bad as maybe some had anticipated.
Ben, Host: Got you. And I’m going move along to some of the development activity you guys have done, particularly with the physician practice expansions and some other outpatient care sites that you’ve put in place.
Kevin Hammonds, President and Chief Financial Officer: How is that development going, and how are you thinking about capital allocation to those types of initiatives? Going very well for us. So maybe most recently, I’ll speak to a couple. We acquired 10 urgent care centers in the Tucson market in the fourth quarter, adding on to the seven that we already had in that market, but expanding that footprint through an acquisition of of Carbon Health. Those have gotten up and running and contributing probably quicker than we expected.
So that’s been been very helpful as another access point for us. We continue to invest in some expanding some of our ASC footprint Mhmm. With a couple ASCs this year already that that we’ve opened, and probably we’ll target, you know, five to eight new ASCs this year. We’ve got a couple additional freestanding emergency departments that are in flight, and we’ll be opening up this year. So continuing to invest probably half of our capital will be kind of growth capital, and and we don’t have any large inpatient projects ongoing right now.
Mhmm. So the majority of that growth capital will be kind of service line oriented or access point oriented Mhmm. Versus over this past year in 2024, we had two pretty large inpatient projects. We had the patient tower in Knoxville, Tennessee that we opened up at the end of q one, and then a patient tower in Foley, Alabama that we opened up in q four. Both of those fully open now, up and running, beginning to get filled up.
Mhmm. But but those are were more expensive, kinda inpatient where we had capacity constraints in those markets, so we’re adding beds. Now we’re focused on some more outpatient.
Ben, Host: And then what’s the remind me of the timeline on that fully hospital plan in terms of getting them fully ramped and occupied?
Kevin Hammonds, President and Chief Financial Officer: Yeah. You know, they probably have fully ramped twelve to eighteen months. Okay.
Ben, Host: Gotcha. And then just on continuing on the investment front, in terms of inpatient capabilities, I we’ve seen this outpatient migration, we seem to backfill with higher acuity, capabilities. Any, kind of investments in particular that you’re targeting for, your, inpatient surgical or otherwise oncology or any other capabilities that you’re focused on? Absolutely.
Kevin Hammonds, President and Chief Financial Officer: Oncology, cardiology probably being a big one, neurology in in a couple markets, oncology. We’ve built out some oncology departments. So some but all of those being a little higher acuity Mhmm. And those are areas of focus. In some markets, it’s orthopedics, but we we’re we’re pretty well covered in orthopedics in most of our markets.
But I would say cardiology and neurology would probably be the top two. Mhmm.
Ben, Host: And then I wanna spend make sure we spend some time on capital structure, a lot of movement in the capital structure with some with some refinancing transactions and call on some some bonds. Maybe you can kind of recap kind of what what what the outlook is and kind of where you think leverage could shake out kind of long term as we as we get through some of these some of these transactions.
Kevin Hammonds, President and Chief Financial Officer: Sure. So we we exited the year at a 7.4 times levered. In the first quarter, just to recap, we refinanced $700,000,000 of 2027 bonds, pushed them out to twenty twenty thirty three, and then we used our asset sale proceeds and called our 2028 unsecureds. That captured some discount on those. Exiting q one, really, before we got those transactions completed, our leverage was down to 7.1 times with capturing some discount on paying down the unsecureds.
That should help, you know, lower the leverage slightly Mhmm. Further. And then we announced the divestiture of another hospital in Texas, which we should close at the end of second quarter, early third quarter, which, you know, if we use those proceeds, which we intend to do to further pay down debt, should should take us take the leverage down a little bit further. So I think, you know, we’re we’re looking, you know, it’s something easily with a a six handle, kind of mid sixes, kind of by the end of the year. Then, you know, if we think about the DPP programs, we talked about earlier, we had not yet included Tennessee and New Mexico in our guidance, but we fully expect those programs to get approved.
And if they get approved on a annual run rate basis, that’s about another hundred to hundred and $25,000,000 of EBITDA, which will further kinda boost EBITDA and and lower our leverage. Mhmm.
Ben, Host: That’s interesting point you bring up with the Tennessee DPP. Any any overall thoughts on kind of the holdup on the eleven fifteen waiver to this point? It sounds like the the funds are approved, but the mechanism still is kind of in question. We’ve heard there’s a lot of activity in Washington over that. Just wanted to get your thoughts on on on anything structurally in Tennessee that’s different that could be kind of the the hanging point
Kevin Hammonds, President and Chief Financial Officer: there. Yeah. I mean, we we fully expect it to be approved. I don’t think CMS would approve would have approved of the preprint and and the structure of the plan had they not intended to to continue on with the remainder remaining approvals. The holdup, you know, we knew all along with the change in administration and having an interim director at CMS that they were not going to issue any approvals until you had, you know, a permanent director.
Doctor Oz was sworn in, you know, over the past month. And since that time, a number of approvals just started to flow through, and we’ve seen another a number of other states and other programs be approved. We saw a couple weeks ago, at least the preprint for Tennessee got approved. Mhmm. So in our view, it’s just a matter of time and for this to kinda work its way through the system Mhmm.
And the approval will come.
Ben, Host: Good deal. And just maybe you can, you know, just get back we just get back to the divestitures. Any other you know, know, as you kinda look at your report remaining portfolio, you know, kinda where are we in the in kinda determining what the kind of the going run rate portfolio looks like versus other potential, acquisitions? Is it more kind of valuation that’s kind of driving the decision? It sounds like you guys have gotten some good double digit multiples on some of
Kevin Hammonds, President and Chief Financial Officer: the sales, which is great to hear, but kind of what’s driving from here, kind of how you think about the going forward platform? I think we’re in the later stages of the private divestiture program. But that being said, we’ll continue to evaluate markets. Markets change. Market dynamics change from time to time.
I think the, you know, most recent one that that we announced was a good example where a couple years ago, we had some inbound interest. We’re not interested in selling it, but because of some of the changing market dynamics today and the fact that we had actually improved operations in that market, we maximize the value by waiting. And I think if we look ahead five years from now, the the the current operations will be harder to hold on to. So I think that that turned out to be a very, very good deal for us. And we’ll continue to evaluate markets in with a similar fashion, really extending our horizon out further.
And I think the company’s really improved in how we do those evaluations and and not just looking at current performance, but looking at where what performance could be down the road in in making those decisions. So, you know, is there anything currently, you know, kind of on our mind about, hey. We need to, you know, move quickly and sell. Probably not, but but things could change as we get in and and look to where we wanna optimize, where we want to make investments. Because similarly, opportunities in some of those markets improve as well, and we may want to pivot and invest more in certain markets.
Ben, Host: Got you. Well, think that brings us right to time, unless there’s any questions from the audience. Thank you very much.
Kevin Hammonds, President and Chief Financial Officer: Thank you. Appreciate it, man.
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