Community Health Systems NYSE: CYH reported second-quarter 2026 results below its internal expectations and reduced its full-year outlook, citing higher uninsured volumes, weaker elective surgical demand among commercially insured patients and unfavorable payer and service mix trends.
Chief Executive Officer Kevin Hammons said the company continued to make progress on quality, physician experience, patient experience and employee satisfaction, but acknowledged that the operating environment remained challenging. Hammons said second-quarter Adjusted EBITDA was $330 million, down from $380 million in the prior-year period, while net revenue declined 9.8%, primarily reflecting a smaller prior-period benefit from newly approved state-directed payment programs and the impact of divestitures completed over the past 12 months.
Same-store net revenue increased 2.4% from a year earlier, and same-store adjusted admissions rose 2.9%. However, Hammons said approximately half of the volume growth came from uninsured visits with minimal related net revenue. That mix shift, along with a lower surgical versus medical mix, offset rate gains from new state-directed payment programs and resulted in a 0.5% decline in net revenue per adjusted admission.
“We continue to believe that the non-ACA related payer mix and service mix challenges that we experienced in the first half reflect a temporary disruption in demand for healthcare services in our markets,” Hammons said. He added that the company was encouraged by improving volume and surgical trends exiting the quarter.
Guidance Reduced on Mix Pressure and Elective Surgery Softness
Executive Vice President and Chief Financial Officer Jason Johnson said second-quarter results fell below expectations despite “strong cost controls” and sequential improvement in overall volume trends. The company updated its 2026 guidance and now expects net revenue of $11.4 billion to $11.6 billion and Adjusted EBITDA of $1.3 billion to $1.375 billion.
Johnson said the revised outlook includes benefits from new Medicaid state-directed payment programs in Georgia, Indiana and Florida, but those are more than offset by macroeconomic headwinds and disenrollment from Affordable Care Act plans following the loss of enhanced premium tax credits.
When the company set its initial 2026 guidance in February, Johnson said it assumed a net revenue impact from health insurance exchange disenrollment of $90 million to $110 million and an Adjusted EBITDA impact of $20 million to $30 million. Through the first quarter, results tracked in line with those assumptions, but the second quarter saw a more significant decline in exchange volumes and a corresponding increase in self-pay.
Johnson estimated a negative EBITDA impact of about $20 million in the second quarter and about $25 million for the first half. He said the company now expects an annual impact of $50 million to $75 million.
“We do think the back half of the year looks like the second quarter,” Johnson said.
Uninsured Volumes and Surgery Trends Weigh on Margins
Hammons said the company’s uncompensated or self-pay visits increased to just over 6% of visits, up from just under 5% in the prior year, representing roughly a 20% increase in self-pay visits. He said the increase was greater in the second quarter than in the first quarter.
The company also reported continued softness in elective surgical procedures. Same-store surgeries declined 0.1%, including a 3.8% decline in inpatient surgeries. Hammons said the weakness was most notable in more elective procedures, including orthopedics such as hip, knee and shoulder replacements. He also noted softness in cardiac surgeries, which he said can be deferred when patients delay cardiology visits or screenings.
Hammons said outpatient surgery increased, and surgery centers were improving, but the growth was in lower-acuity procedures rather than the orthopedic and cardiac procedures the company had expected. He said clinic visits and orthopedic MRIs continued to increase at a significant rate, suggesting patients still need procedures but are delaying follow-on care.
In response to an analyst question, Hammons said June was the company’s best month of the second quarter for surgeries, with positive year-over-year improvement in that month despite slightly negative surgery volumes for the full quarter.
Costs Controlled, but Specialist Fees Rise
Johnson said same-store operating expense per adjusted admission increased 0.3%. Labor costs were “well managed,” with same-store average hourly rates up approximately 1.1% year over year and same-store contract labor spending down 5.6%.
Salaries and benefits expense as a percentage of net revenue increased 100 basis points on a same-store basis, primarily due to increased physician employment. Supplies expense declined 70 basis points to 14.2% of net revenue on a same-store basis, reflecting lower elective surgical volumes and procurement improvements under the company’s ERP system.
Medical specialist fees increased approximately 19% year over year on a same-store basis and represented 5.6% of net revenue, up from 4.8% in the prior-year period. Johnson said the increase exceeded the company’s forecast for 5% to 8% growth, with anesthesiology and radiology the largest pressure points.
Johnson said anesthesia costs were affected by lower surgical volumes because anesthesiologists generate less revenue when volumes fall but are guaranteed minimum payments under contracts, requiring subsidies from the company. Radiology fees increased primarily because of higher imaging volumes.
Cash Flow Improves From First Quarter
Cash flow from operations was $87 million in the second quarter, or $143 million excluding cash taxes paid out of divestiture proceeds. Johnson said that was a significant improvement from the $297 million use of cash in the first quarter, as several first-quarter items improved or reversed, including Medicaid state-directed payment cash flows, lower interest paid and the absence of an annual performance bonus payment.
During the quarter, Community Health Systems completed a tender offer using proceeds from recent divestitures to repurchase approximately $368 million of its 4.75% senior secured notes due 2031 and $231 million of its 10.875% senior secured notes due 2032. The company’s leverage at quarter-end was 6.7 times, compared with 6.6 times at year-end 2025. Johnson said the company had no amounts drawn on its ABL facility, and its next significant maturity is in 2029.
The company also completed the previously announced divestiture of four hospitals in Arkansas for $110 million in cash. It acquired majority ownership stakes in Surgical Institute of Alabama in Birmingham and South Anchorage Surgery Center in Anchorage, Alaska. Johnson said those acquisitions are strengthening positions in core markets and are meeting operating and financial expectations so far.
Management Cites Consumer Pressure and Payer Delays
Hammons attributed some elective procedure weakness to consumer insecurity tied to inflationary pressure, gas prices and geopolitical instability. He said Community Health Systems’ markets have a median household income of about $64,000, below the national average of $81,000, making higher costs for gas, groceries and other necessities more impactful on healthcare decisions.
Hammons also said payers have slowed payments by auditing more claims and requesting additional records before payment, rather than after payment as in the past. He said that is increasing accounts receivable days but characterized it as a timing issue rather than a collection problem.
“We don’t believe it’s necessarily a collection issue. It’s just a timing issue,” Hammons said.
Despite the revised outlook, Hammons said the company’s quality initiatives remain a priority. He cited improved Leapfrog safety grades and CMS star ratings discussed on the prior quarter’s call, including 12 hospitals achieving a Leapfrog A grade and approximately 70% receiving A or B grades. He also highlighted Lutheran Hospital in Fort Wayne, Indiana, receiving the American College of Cardiology’s HeartCARE Center National Distinction of Excellence.
About Community Health Systems (NYSE:CYH)
Community Health Systems, Inc NYSE: CYH is one of the largest publicly traded hospital operators in the United States. Headquartered in Franklin, Tennessee, the company owns, leases and manages general acute care hospitals and outpatient facilities, primarily in non-urban and mid-market communities. CHS is focused on delivering locally accessible healthcare services through its network of affiliated hospitals, clinics and post-acute providers.
The company's core offerings include inpatient medical and surgical care, emergency services, critical care, diagnostic imaging and laboratory testing.
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