Community Health Systems Q1 2025 Earnings Report

Community Health Systems EPS Results

• Actual EPS: -$0.03
• Consensus EPS: -$0.10
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: -$0.14

Community Health Systems Revenue Results

• Actual Revenue: $3.16 billion
• Expected Revenue: $3.10 billion
• Beat/Miss: Beat by +$57.00 million
• YoY Revenue Growth: +0.60%

Community Health Systems Announcement Details

• Quarter: Q1 2025
• Date: 4/23/2025
• Time: After Market Closes
• Conference Call Date: Thursday, April 24, 2025
• Conference Call Time: 11:00AM ET

Community Health Systems (NYSE:CYH) owns, leases, and operates general acute care hospitals in the United States. It offers general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic, psychiatric, and rehabilitation services, as well as skilled nursing and home care services. The company also provides outpatient services at primary care practices, urgent care centers, free-standing emergency departments, ambulatory surgery centers, imaging and diagnostic centers, and direct-to-consumer virtual health visits. The company was incorporated in 1996 and is headquartered in Franklin, Tennessee.

Community Health Systems Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong volume growth with same-store admissions up 4%, adjusted admissions up 2.6% and net operating revenues up 3.1% in Q1, driven by a heavier flu season, targeted capital investments and operational initiatives.
• Divestiture progress includes completed sales of ShorePoint, Lake Norman and Merit Health Biloxi plus an announced Cedar Park sale, putting the company on track for over $1 billion in proceeds to reduce debt and de‐leverage.
• Debt refinancing executed via $700 million of 10.75% senior secured notes and a tender offer for $626 million of unsecured notes, lowering net leverage to 7.1x EBITDA and enhancing the maturity profile.
• Q1 adjusted EBITDA was $376 million (11.9% margin), with net revenue per admission up 0.5%, stable payer downgrades, disciplined labor and supply cost control, and medical specialist fees rising 9%.
• Strategic focus on delivering high-quality care, operational rigor and financial discipline, while expanding ambulatory services (urgent care centers, ASCs, freestanding EDs) and investing in AI and emerging technologies.

Presentation

[Operator]

Good day, and welcome to the Community Health Systems First Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded.

[Operator]

I would now like to turn the conference over to Anton Hai, Vice President, Investor Relations. Please go ahead.

[Anton Hie, VP Investor Relations at Community Health Systems]

Thank you, Rocco. Good morning, everyone, and

[Anton Hie, VP Investor Relations at Community Health Systems]

welcome to Community Health Systems' first quarter twenty twenty five conference call. Joining

[Anton Hie, VP Investor Relations at Community Health Systems]

me

[Anton Hie, VP Investor Relations at Community Health Systems]

on today's call are Tim Henschen, Chief Executive Officer and Kevin Hammonds, President and Chief Financial Officer. Before we begin, I must remind everyone this conference call may contain certain forward looking statements, including all statements that do not relate solely to historical or current facts. These forward looking statements are subject to a number of known and unknown risks, which are described in headings such as Risk Factors in our annual report on Form 10 ks and other reports filed with or furnished to the SEC. Actual results may differ significantly from those expressed in any forward looking statements in today's discussion. We do not intend to update any of these forward looking statements.

[Anton Hie, VP Investor Relations at Community Health Systems]

Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We've also posted a supplemental slide presentation on our website. All calculations we will discuss today exclude impairment, gains or losses on the sale of businesses and expense from business transformation costs. With that said, I will turn the call over to Tim Hinchin, Chief Executive Officer.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Thanks, Anton. Good morning, everyone, and thank you for joining our first quarter twenty twenty five conference call. We ended last year with very strong volume growth, and we were pleased to carry that momentum forward into 2025. For the first quarter, same store admissions increased 4%, same store adjusted admissions increased 2.6% and on a same store basis, net operating revenues increased 3.1%. We have been pleased with the demand for health care services across our core portfolio markets.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

The first quarter growth was driven by an outsized impact from a heavier flu season than the prior year quarter. Additionally, we continue to realize returns on targeted capital investments and expansions and the benefits of our strategic and operational initiatives, including capacity management, transfer center operations, service line development and growth in our physician practices and other outpatient sites of care. We are especially pleased with our progress towards our target of $1,000,000,000 plus in divestiture proceeds, which we plan to use to reduce debt and improve the company's leverage. Since our last quarterly earnings call in February, CHS completed the previously announced divestitures of ShorePoint Health System in Florida and Lake Norman Regional Medical Center in North Carolina, as well as the unannounced sale of our 50% ownership interest in Merit Health Biloxi. Last week, we announced plans to sell our 80% interest in Cedar Park Regional Medical Center in Texas to the current joint venture partner, which we expect to close in late second quarter or early third quarter.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

While divestitures are not yet complete, we expect that activity to slow down substantially as the year goes on, enabling us to fully focus on further growth opportunities across our core markets. Yesterday, we announced debt refinancing and buyback transactions that will further reduce leverage and improve our maturity profile. Kevin will cover that in more detail in a few minutes. Now I'd like to touch on some of our strategic objectives moving forward into 2025. This year, we are highly focused on three foundational areas essential for every healthcare provider.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

First, delivering high quality care and exceptional patient outcomes. Next, ensuring operational expertise and rigor in every market. And finally, demonstrating financial discipline and performance. We are making progress in each area and have very specific activities underway to advance in these critically important functions. Next, we have been strategically developing both acute care and ambulatory services, including our acquisition of 10 urgent care centers in Tucson late last year, as well as incremental investments in ASC, and we have added new freestanding EDs to the portfolio too.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

In each CHS affiliated health system, our ability to balance acute care hospital services with ambulatory sites of care leverages the unique benefits of each care setting to create comprehensive service options for our patients. We believe this approach, which we have been pursuing for nearly a decade now, further positions us well for the future of healthcare delivery. And we continue to invest in innovation, including AI, emerging technologies and partnerships that advance patient care, support our workforce and relieve administrative burden. As the year goes on, we will highlight some of these areas more specifically and share the progress we are seeing. Before turning the call over to Kevin, I want to acknowledge the fact that healthcare providers are currently facing a number of uncertainties.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Navigating any potential changes that may come out of Washington in the weeks and months ahead makes planning more challenging, but our team is closely following these developments and advocating for policies that maintain and strengthen our health systems and all health care delivery systems to ensure Americans will have needed access to essential health services. As we complete the first quarter, I want to express my appreciation to our team. Leaders across our organization, our physicians, nurses, clinicians and caregivers and all of our support teams sharing the commitment to help people get better and live healthier. And for that, I am grateful. Now let me turn the call over to Kevin Hammond, who will offer more information about the first quarter and the year ahead.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Kevin?

[Kevin Hammons, President & CFO at Community Health Systems]

Thank you, Tim, and good morning, everyone. As Tim mentioned, we've made progress across many fronts. So before walking you through operating results for the quarter that were generally in line with expectations, I would like to provide a brief update on the progress we made in continuing to position the company for future success, particularly through opportunistic divestitures and management of our debt. In early March, we completed the divestiture of ShorePoint Health System in Florida. And on April 1, closed on the sale of Lake Norman Regional Health System in North Carolina.

[Kevin Hammons, President & CFO at Community Health Systems]

Total gross proceeds for these two transactions of $544,000,000 was received and recorded in the first quarter. Last week, we announced an agreement to divest 80% ownership in Cedar Park Regional Medical Center to the minority partner Ascension Health for $460,000,000 which we expect to close late in the second quarter or early in the third quarter of twenty twenty five. Completion of the Cedar Park transaction will bring the total in year proceeds to just over $1,000,000,000 consistent with our commentary last quarter. And along with an additional potential divestiture now in advanced discussions, we could exceed this target materially. Each of these transactions reflects attractive double digit multiples on trailing EBITDA, leading to meaningful deleveraging and increased shareholder value.

[Kevin Hammons, President & CFO at Community Health Systems]

Last night, concurrently with earnings results, we announced the issuance of $700,000,000 in new 10.75% senior secured notes due 02/1933, with the proceeds to be used to redeem all 700,000,000 of our outstanding 8% senior secured notes due 2027 at par. Additionally, we've commenced a cash tender offer for all of the $626,000,000 outstanding 6.875% senior unsecured notes due 2028 at a price of $75 utilizing cash on hand and availability under our revolver to retire these notes. These transactions will further reduce the company's net leverage, improve our maturity profile and enhance shareholder value, while not meaningfully affecting free cash flow. Furthermore, we're getting all of this done despite the recent dislocation in the capital markets. At quarter end, net debt to trailing adjusted EBITDA was 7.1 times, improved from 7.4 times at year end '20 '20 '4 and seven 0.9 times at year end '20 '20 '3.

[Kevin Hammons, President & CFO at Community Health Systems]

Now turning back to operating results. In the first quarter of twenty twenty five, we saw continued momentum with strong overall volume trends and cost controls across most categories, leading to financial results that were generally in line with our expectations and representing a solid start to the year. The continued strong demand in our markets led to same store admissions growth of 4% year over year, adjusted admissions up 2.6% and ED visits up 2.4%, while same store surgeries were down 3%. Same store net revenue per adjusted admission was up 0.5% year over year, as rate growth from commercial plans and the Medicare fee for service annual update were partly offset by unfavorable shifts in payer and acuity mix as well as declining Medicaid rates. Adjusted EBITDA for the first quarter was $376,000,000 compared with $378,000,000 in the prior year period and margin was 11.9% versus 12% in the prior year period.

[Kevin Hammons, President & CFO at Community Health Systems]

The impact of payer downgrades and denials remained stable in the first quarter of twenty twenty five relative to the prior quarter, reflecting our ongoing utilization management efforts and physician advisor program. Our advocacy efforts regarding this troubling trend that is affecting all healthcare providers will continue, but we expect the year over year headwind that we called out in the third quarter of twenty twenty four to persist until we anniversary it in the second half of this year. Turning to expense management, our performance on labor costs remained solid with average hourly wage rate up approximately 3.5 year over year, including an increase in the number of employed physicians, which was consistent with our expectations. Contract labor spend was $40,000,000 in the first quarter, down $8,000,000 year over year on a consolidated basis, reflecting our ongoing success with recruitment and retention. We held the line on supplies expense, which was flat year over year and flat sequentially at 15.5% of consolidated net revenues in the first quarter.

[Kevin Hammons, President & CFO at Community Health Systems]

This demonstrates some of the benefit we are achieving as we have effectively offset the impact of inflation over these periods. Medical specialist fees were $163,000,000 in the first quarter, increasing approximately 9% year over year on a consolidated basis, representing 5.1% of net revenues versus 4.8% in the prior year period. This increase was in line with what we anticipated. While we remain encouraged with the progress through our in sourcing initiatives, we continue to anticipate further pressure in med spec fees. With these costs growing in excess of typical inflationary trends in 2025, but still well below the spikes that we saw from twenty twenty two to twenty twenty three.

[Kevin Hammons, President & CFO at Community Health Systems]

Cash flows from operations were $120,000,000 for the first quarter, up from $96,000,000 in the first quarter of twenty twenty four. And free cash flow was still slightly negative, yet improved over the prior year quarter. This improvement relative to our typical first quarter when we often experience a more significant outflow due to the timing of interest and incentive comp payments and patient co pays and deductible resets, partly reflects the long awaited receipt of $80,000,000 in income tax refunds. However, that benefit was erased by the delays in payments under certain state supplemental programs. Money is now flowing from these programs, so we believe we are on track to meet our annual cash flow guidance.

[Kevin Hammons, President & CFO at Community Health Systems]

With our enterprise modernization initiative, Project Empower, we continue to implement new workflows, generate savings opportunities and gain new insights into our business as the Oracle environment further hardens. I believe our stabilization is on track and I'm confident in the value this project will produce for the company. As it relates to the 2025 financial guidance, we are maintaining the outlook that we provided in February. Consistent with prior practice, we have not considered in our guidance any additional divestitures beyond those that have already been announced. And we've also not included directed payment program reimbursement for New Mexico or Tennessee as those programs have not yet been approved by CMS for 2025.

[Kevin Hammons, President & CFO at Community Health Systems]

We do not have any update relative to either of those programs, but still expect their eventual approval. Recall, we believe if those programs are approved, they would add an incremental 100,000,000 to $125,000,000 to our annual guided run rate of EBITDA. This concludes our prepared remarks. So at this time, we'll turn the call back over to our operator, Rocco, for Q and A.

[Operator]

Thank you. And And today's first question comes from Brian Tanquilut with Jefferies. Please go ahead.

[Brian Tanquilut, Equity Research Analyst - Healthcare Services at Jefferies & Company Inc]

Hey, good morning guys and congrats on the quarter. Maybe Tim, as I think about just the volume performance here and balancing it obviously with the revenue per adjusted admission, I think that's mostly flu and the margins. I mean, curious how you're thinking about where the business can go going forward, both from a volume perspective and your ability to manage or flex through the cost structure? And also any thoughts you can share with us on how you're thinking about tariffs potentially impacting your supplies and other input costs that you have to deal with?

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Sure, Brian. I will kick that off and I'll turn over to Kevin to touch on the tariff question. In terms of the quarter and the flu impact, we did see an outsized impact in the flu, as I commented on earlier. It did have, I think, some squeeze effect on some of our lower acuity surgery volumes in the quarter, largely on the outpatient side, due to either provider illness, staff illness or perhaps patient illness. We also are tracking to see if there's any consumer changes in terms of the reset of co pays and deductibles and their willingness to take or receive care with the reset of those deductibles.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

We're tracking that very closely. But in general, in terms of how the core book of business performed, excluding the flu impact, we're really pleased to see so many strong signs of success across the portfolio. We had really strong EMS volumes with gains in trauma. So it wasn't all related just to basic influenza related illness volumes. We also saw strong physician practice visits, in both primary care, but also in our surgical and procedural specialists.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Good growth in our cardiac service line as it relates to procedures in our cath labs, particularly higher acuity cardiac service lines as we continue to invest. And then we also saw an outsized growth in our robotic surgery caseloads, again, reflecting our investments into, some new advanced platforms across various robotics platforms out there. So again, in terms of the durability and the investability in our markets to attract and grow new lines in higher levels of business, we still see that line of sight straight and narrow through the portfolio. The other thing I would point out is Transfer Center continues to perform really, really well and provide basically daily insights as to where we can go next to continue to invest, whether that be in service lines or technology or new capacity. We still see growing opportunities throughout the portfolio, which lets us build into future quarters and future years.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

And then the last thing I would point out is just in the AFC space. Despite the drop in some of our lower acuity cases, primarily GI, we did have another strong growth quarter in our ASC environment as we continue to incrementally add one to two ASCs per quarter. So we still see durability for the long run as we diversify the mix of surgeries happening in various sites of care across our markets.

[Kevin Hammons, President & CFO at Community Health Systems]

Brian, I'll touch on just a couple other points of your question. In terms of expenses, we feel that even with some of the softness resulting from the flu, we still had very strong inpatient admissions, and we were able to control our expenses with the added load of inpatients. And we believe that we'll be able to continue to maintain and control expenses throughout the year. We also think that there's some tailwinds for us as we continue to stabilize our new ERP and gain insights into the business, and see there some tailwinds on being able to take out some additional costs. Relative to tariffs, just a reminder, we are a member of HPG, our group purchasing organization.

[Kevin Hammons, President & CFO at Community Health Systems]

Approximately or in excess of 70% of our supplies are purchased through the GPO. With that, we have fixed pricing. Typically, contracts are three years, through the GPO. So we have some price protection there. Approximately half of our purchasing, through the GPO, is domestic purchasing, in which is so would not be subject to tariffs.

[Kevin Hammons, President & CFO at Community Health Systems]

And then beyond that, it's a mix of countries. Less than 5% of our purchases are from China, which would have the most risk, I think in the current environment relative to tariffs. So it's a very small part. And again, the other purchasing is spread out across a number of different countries, and I think it's yet to be determined what the risk is there.

[Brian Tanquilut, Equity Research Analyst - Healthcare Services at Jefferies & Company Inc]

I appreciate that. Then maybe my follow-up, Kevin, as I think about the balance sheet and obviously you have a refi that was announced yesterday. So just curious how we should be thinking about, number one, you called out the potential upcoming divestiture and then maybe curious about free cash flow guidance and what's embedded and what's not in the guidance? And also just proceeds from the recent divestiture announcements, Lake Norman, I know was came in on April 1. So just anything you can share with us as we try to think about modeling the balance sheet and cash flows for the next one to two years?

[Brian Tanquilut, Equity Research Analyst - Healthcare Services at Jefferies & Company Inc]

Thanks.

[Kevin Hammons, President & CFO at Community Health Systems]

Sure. So the proceeds from Lake Norman that closed on April 1, those proceeds were actually received on threethirty one. So they were on our balance sheet sitting in the cash balance as was the proceeds from ShorePoint, which were received earlier in March. A portion of that was still sitting in cash. A portion of it had been used to pay down some on the ABL.

[Kevin Hammons, President & CFO at Community Health Systems]

Those proceeds will largely be used to do the tender of the unsecured notes that we released yesterday or announced yesterday. In terms of the remainder of the year, I think we're on track in terms of our cash flow guidance. Even with the additional divestiture of Cedar Park Regional Medical Center that we announced and that taking place or anticipating closing kind of late in the second quarter, early third quarter. I don't think it's going to have a material impact on the cash flow equation for the remainder of the year. So that's part of why we've not made any adjustments to that.

[Kevin Hammons, President & CFO at Community Health Systems]

And with the refinancing, although we are paying a higher interest rate on the 700,000,000 that we are refinancing, net of the impact of the tender offer for the unsecureds, we'll have a slight benefit in reducing interest expense for the year, but still within our guidance range.

[Brian Tanquilut, Equity Research Analyst - Healthcare Services at Jefferies & Company Inc]

Thank you.

[Operator]

Thank you. And our next question today comes from AJ Rice at UBS. Please go ahead.

[A.J. Rice, Managing Director at UBS Group]

Thanks. Hi, everybody. I understand the comment on the Tennessee and New Mexico DPP programs. Are you hearing anything about whether that's business as usual or those been put on hold for any particular reason? And I know in your case, you had three states, Alabama, Arkansas, and Indiana, that had some level of discussion about potentially expanding or adding a program.

[A.J. Rice, Managing Director at UBS Group]

Any updates on what's happening with those?

[Kevin Hammons, President & CFO at Community Health Systems]

Thanks, AJ. So it's really been kind of quiet. We haven't heard anything specific about Tennessee or New Mexico, nor have we expected to hear, anything. Best we can tell, things are moving forward. We do know that, in the recent past couple weeks under this current administration, there have been a couple DPP programs approved in other states.

[Kevin Hammons, President & CFO at Community Health Systems]

I believe New Hampshire and Arizona, were the states that programs have been approved. So it does appear that things are moving and that there's not a complete moratorium on these plans that I would tend to believe is a positive, absent hearing anything else. But we're just still in a wait and see. As we sit here today, we know of no reason that they will not be approved, going forward. In terms of the other states, Indiana has been discussing a program.

[Kevin Hammons, President & CFO at Community Health Systems]

It has passed the state house. I believe a bill has also passed the state senate, maybe with some revisions. The state legislature is still in session, for another week or two, so nothing final has come out, but it is looking positive that they may, pass a program in Indiana. I'm sorry, Alabama is still early on in their discussions, and I don't expect to hear anything at this point. It's just too early to know.

[A.J. Rice, Managing Director at UBS Group]

Okay. my follow-up question, I'll just ask you a little bit about the public exchanges. Do you have an update as to how much of your volume and what kind of year to year growth you're seeing on the public exchanges this year? And any, updated thoughts on or advocacy that you

[A.J. Rice, Managing Director at UBS Group]

and then Yeah. So traction?

[Kevin Hammons, President & CFO at Community Health Systems]

I'm sorry, you broke up a little bit, but, I believe our net revenue from the exchanges is less than 6% of our total net revenue. We are seeing growth in that business, but it's still a relatively small portion of our total net revenue.

[Kevin Hammons, President & CFO at Community Health Systems]

And then in terms of advocacy for the extension of the enhanced premium tax credits for the exchange volume, I think reading the current headlines, we're very active in the advocacy efforts there. I think it's too soon to tell as to whether those will be extended beyond their current cycle.

[A.J. Rice, Managing Director at UBS Group]

Okay, thanks so much. Thanks

[Operator]

again. Thank you. Our next question today comes from Josh Raskin with Nephron Research. Please go ahead.

[Joshua Raskin, Partner - Managed Care & Providers at Nephron Research LLC]

Hi, thanks. Good morning. You guys hear us okay?

[Kevin Hammons, President & CFO at Community Health Systems]

We can.

[Joshua Raskin, Partner - Managed Care & Providers at Nephron Research LLC]

Sounds like you guys are breaking up. Hopefully you hear this. So just in response first question in response to an answer you gave before, can you speak more to the strong primary care and surgical specialist visits? Do you have a good sense of how much of that is sort of overall market versus your specific initiatives? And are you seeing follow through care, you know, after and procedures after those visits?

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Sure, Josh. Can you hear me okay? I just wanna do a mic check here.

[Joshua Raskin, Partner - Managed Care & Providers at Nephron Research LLC]

Yeah. A little a little in and out, but I think you're okay now.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Okay. Sorry about that. In terms of our clinic visits, and again, I'll speak to our employed provider base, although we have some anecdotal information from independent providers across our health systems as well. But in terms of our employed affiliated provider base, we saw strong growth in both primary care, which you could argue is related to the spike in influenza. So again, not using that as our canary in the coal mine, we focused more intently in terms of how our specialist volumes were pulling through the quarter.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

We did see good gains in same store and in non same store specialists throughout the first quarter. Again, we've sequentially been adding on to those volumes for the last several quarters. So we see it as a good read through for long term prospects in our markets. In terms of the procedural pull through, I mean, some specialties like cardiology, the growth in new patient visits, we do believe, did improve our cath lab pull through within the quarter. I also mentioned some strengthening of higher acuity cardiac services.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

So we believe there's some attribution to the growth of those employee cardiology practices, for instance. We did see some slowdown in GI. Even though we had good practice visits, saw a slowdown in GI procedures throughout the quarter. Again, that's the one that we somewhat attribute to perhaps timing with co pays and deductibles resetting and some apprehension by patients to take that elective care, so early in the year until their co pays and deductibles have been met. So we'll track that one throughout the year.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

That was the one area of softness that we did not expect in the quarter.

[Joshua Raskin, Partner - Managed Care & Providers at Nephron Research LLC]

All right. Perfect. And then my big question is just in terms of payer behavior, I heard you talk about of stability there, but just specifically around denials and pre authorizations. Are there variations on a geographic basis, on a line of business basis, on a specific plan basis that you're seeing?

[Kevin Hammons, President & CFO at Community Health Systems]

Higher basis, pretty broad

[Operator]

here. Please stand by. And we have reconnected the speaker location. Please proceed.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Alright. Can you hear us better now?

[Joshua Raskin, Partner - Managed Care & Providers at Nephron Research LLC]

I I do hear you. We we didn't hear much of the answer though. So I don't know if if you don't mind starting over.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Which one, Josh, was it for both the clinic visits and the denials and downgrades?

[Joshua Raskin, Partner - Managed Care & Providers at Nephron Research LLC]

No, we heard all the procedural pull through commentary. You sort of cut out after the plan behavior and plan specific geography.

[Kevin Hammons, President & CFO at Community Health Systems]

So to your question for denials and downgrades, we're really seeing it across all regions, and across all service lines. So it's nothing that I would call out as being very specific to a payer or a service line or a region, but more general in nature.

[Joshua Raskin, Partner - Managed Care & Providers at Nephron Research LLC]

All right, perfect. Thank you.

[Operator]

Thank you. And our next question today comes from Andrew Mock at Barclays. Please go ahead.

[Andrew Mok, Director at Barclays]

Hi, good morning. You reiterated the guidance despite absorbing additional headwinds around divestitures, the claims denials and medical specialist fees. I guess based on that, should we be thinking about the lower half of guidance or is there anything coming in stronger to offset those incremental headwinds?

[Kevin Hammons, President & CFO at Community Health Systems]

So the headwinds related to downgrades and denials were baked into our original guidance. We had indicated we started to see those an increase in the third quarter of last year. They really stabilized, in the fourth quarter and remain consistent. We will anniversary that or anticipate anniversarying that in the back half of this year. And so we did build that in to our original guidance.

[Kevin Hammons, President & CFO at Community Health Systems]

So I don't think that that would be an incremental headwind, as we think about where we're at relative to our full year guidance. We are absorbing the additional divestiture, as you indicated, for the back half of the year, but it's still early. It's only after one quarter. And I think that we're within the guidance range. And we do obviously reserve the right as we think about any future divestitures, if we get anything else across the finish line and with potentially DPPs being approved, those could all further change how we think about guidance and we would think about updating at that point.

[Kevin Hammons, President & CFO at Community Health Systems]

But as we sit here right now, I don't think the one divestiture was material enough to make a change to our guidance.

[Andrew Mok, Director at Barclays]

Got it. And maybe just a follow-up. So it sounds like you've guided for elevated medical specialist fees, but it still sounds like it's maybe outpacing those early expectations. Can you comment on the categories where you're seeing incremental specialist fee pressure? Thanks.

[Kevin Hammons, President & CFO at Community Health Systems]

Yes. So we guided to an 8% to 12% increase in medical specialist fees, so that's what we baked in to our guidance for the full year. We were at 9%. So call that within the range of where we were expecting. It is a pain point and continues to be a pain point.

[Kevin Hammons, President & CFO at Community Health Systems]

The majority of that is in anesthesiology, probably over 50% of the increase, is in anesthesiology or 50% of our medical specialist fees. We are seeing a little bit in radiology starting to pick up, but the primary pain point at this point is still anesthesiology.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Yeah, I agree. If I could just add on to that, in terms of our mitigation tactics for that, as you know, we've built out a platform to in source, hospital based provider services successfully managing the transition of APP to the ED and Hospice side over the last, I'll say almost two years. We've since added anesthesia in sourcing to the mix. We called out last quarter on one of our major markets moving that to an in source platform. When the cost increase or the ask from the outsource provider we believe is unreasonable and we can in source at a lower cost and drive better quality and value, we are doing so.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

We have a couple more programs that are being sourced already on the docket for this year, but we're trying to leave some cap space, if you will, for us to be able to pivot really quickly in other markets should we get, further demand that we don't believe are reasonable for outsized services. We also have just begun the in sourcing process in our first radiology program, leveraging again our internal expertise and skills to try to mitigate any future cost pressures or extraordinary cost pressures across that hospital base specialty as well.

[Andrew Mok, Director at Barclays]

Great, thank you.

[Operator]

Thank you. Our next question comes from Steve Baxter at Wells Fargo. Please go ahead.

[Stephen Baxter, Senior Equity Research Analyst at Wells Fargo]

Hi, thanks. Just wanted to follow-up on AJ's question about PPP programs. I know that there's something in your guidance for the 2025 components of the Tennessee or New Mexico program, but I believe there were retroactive portions of that related to 2024. They were approved, I think towards the end of the year. Could you remind us, do you recognize those in the first quarter or if not, what would you expect recognition to occur?

[Kevin Hammons, President & CFO at Community Health Systems]

Steven, I'm sorry. Could you speak up just a little bit? We're we're having a little hard time

[Kevin Hammons, President & CFO at Community Health Systems]

hearing you. Just a little soft.

[Stephen Baxter, Senior Equity Research Analyst at Wells Fargo]

Yeah. Sorry about that. Hope this is better. Just asking about the the Tennessee and New Mexico supplemental payment programs. I know that the 2025 components are not in your guidance yet, but to the extent that I believe there is retroactivity related to 2024 that was approved.

[Stephen Baxter, Senior Equity Research Analyst at Wells Fargo]

Just wondering if that was recognized in the first quarter or that would be recognized later in the year. Just looking for an update on factor first.

[Kevin Hammons, President & CFO at Community Health Systems]

Sure. So, you're correct. There is a retro piece of Tennessee, back to 07/01/2024. That actually has not received full approval yet. So we have not recognized that component either.

[Kevin Hammons, President & CFO at Community Health Systems]

So that is still out there. And that would be in addition to the 100,000,000 to $125,000,000 run rate that we've talked about on an annual basis. Okay. So it wasn't approved like something on the approval of that.

[Stephen Baxter, Senior Equity Research Analyst at Wells Fargo]

Okay. Okay. And then just to expand a little bit on, you know, the payer mix dynamics that you discussed. You know, I think I understand some of the, you know, discussion around acuity, but I guess specifically on, you know, the lower year over year commercial mix. I mean, is that lapping the, the denials and downgrade impact or is there something else to kind of consider there?

[Stephen Baxter, Senior Equity Research Analyst at Wells Fargo]

And then just hoping you could expand a little bit on that you mentioned Medicaid rate decreases. I was hoping you could potentially flush that out a little bit.

[Kevin Hammons, President & CFO at Community Health Systems]

Sure. Let me start off and Tim feel free to jump in. So the flu certainly we believe had an impact on care in the first quarter, not only on acuity, but also some disruption. We also, have seen a reduction in elective procedures, and we're seeing more of that reduction in commercial business. And I think it's a combination of potentially the flu, but also, some of the disruption in the economy, some of the discussion of recession and fear of tariffs or potential impacts of tariffs and what that may have.

[Kevin Hammons, President & CFO at Community Health Systems]

And when you think about your patient population, those with higher deductible co pays high deductible plans are probably the most at financial risk in the first quarter, before their co pays and deductibles have been met. And that's where we saw the biggest declines, in elective procedures, particularly outpatient and in the elective surgeries was in that commercial space.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Yes, I agree. And the other item that's impacting the net revenue per adjusted admission, we did because of the outsized impact of flu, I think have some of the highest levels of medical volumes relative to surgical volumes than we've had in some time. Roughly, again, 75% of our case volumes in the quarter were medical, and typically, we'd be running two thirds. So I think there was just some dilution impact there. We did see our case mix index increase for both medical and surgical in the quarter.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

But overall, it came in a little bit lower than prior year quarter because of that dilution impact of the higher medical, which typically runs a lower acuity index.

[Operator]

Thank you. And ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Tim Henschin for any closing remarks.

[Tim Hingtgen, Chief Executive Officer at Community Health Systems]

Great. Thank you, Rocco, and thanks to all of you for joining our call today. As always, if you have additional questions, you can reach us at (615) 465-7000. Thanks again, and have a great day.

[Operator]

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Participants

Executives

• Anton Hie, VP Investor Relations
• Tim Hingtgen, Chief Executive Officer
• Kevin Hammons, President & CFO

Analysts

• Brian Tanquilut, Equity Research Analyst - Healthcare Services at Jefferies & Company Inc
• A.J. Rice, Managing Director at UBS Group
• Joshua Raskin, Partner - Managed Care & Providers at Nephron Research LLC
• Andrew Mok, Director at Barclays
• Stephen Baxter, Senior Equity Research Analyst at Wells Fargo