After closing its "strongest volume performance of the year," Community Health Systems executives said recent investments and ongoing recovery from COVID are projected to further increase the for-profit's volumes and fuel "about half" of its revenue growth during the coming year.
"We finished the fourth quarter with our strongest volume performance of the year, and that was true across all key volume categories," CEO Tim Hingtgen told investors Thursday morning. "... Strategic capital investments in access points, outpatient services and inpatient capacity are enabling near-term volume gains and increasing our potential for long-term growth."
The 79-hospital, for-profit system reported $3.14 billion in net operating revenues for the quarter, down 2.8% from last year’s $3.23 billion and a slight miss on Wall Street’s consensus estimates. Same-store net operating revenues for the quarter declined by 1.3% year over year.
Net income landed at $414 million ($3.18 per diluted share), up from the fourth quarter of 2021’s $178 million ($1.34 per diluted share).
After excluding adjusting items such as transaction gains and roughly $378 million in early debt extinguishment, net income attributable to stockholders landed at $1.50 per share, well above the $0.32 market estimate reported by Seeking Alpha.
Results for the full year included net operating revenues of $12.21 billion, a 1.3% decrease year over year that translated to a 0.2% decrease on a same-store basis.
Full-year net income attributable to stockholders was $46 million ($0.35 a share), down from the prior year’s $230 million ($1.76 per share). After excluding adjusting items, the net loss attributable to stockholders for the year was $1.38 per diluted share, down from $2.45 in 2021.
Thursday's earnings call was also investors' first look at full-year guidance for 2023.
Per CHS President and Chief Financial Officer Kevin Hammons, the system is anticipating $12.2 billion to $12.6 billion in net operating revenues, representing 4% to 6% growth in same-store net revenues. Adjusted EBITA is expected to land between $1.475 billion and $1.625 billion, he said, while net loss per diluted share is expected to fall between $0.65 to $0.05.
Of note, "about half" of the net revenue growth projection will come from increasing volumes, Hammons told investors.
The system thinks it still has opportunities to pump up its admissions even further, executives said, with a combination of incremental bed additions and continued workforce recruitment. To highlight progress on the latter, Hingtgen highlighted an 18% increase in nurse hiring during 2022 and "our best [provider] recruitment year of the past five years."
The executives also highlighted CHS' "very significant progress" in mitigating expenses that hamstrung performance during 2022. Expenses in the fourth quarter saw "a moderate" 3% increase over the prior year as non-labor expenses "continued to trend below inflation ... due to the commitment and discipline of our employees to execute on our margin improvement program," Himmons said.
Contract labor expenses in the fourth quarter were $80 million, down $140 million in the fourth quarter of 2021 and $100 million in the third quarter of 2022, which the executives attributed to CHS' centralized recruiting efforts that are expected to keep bearing fruit in the coming year.
"In summary, we are optimistic about 2023," Hammons said. "We expect to accelerate our growth initiatives strengthen our workforce and advance safety and quality while leveraging expense management to drive positive financial results and free cash flow. We remain committed to our objectives, which are designed to position the company for long-term and sustainable success, and are focused on the opportunities which lie ahead for us."
The performance and commentary were well received by the market. CHS' stock price has jumped roughly 50% since the market opened and the company hosted its investor call.
In the fourth quarter, CHS pointed to a 1.9% year-over-year increase in admissions and a 5.2% increase in adjusted admissions. Same-store admissions and adjusted admissions increased 4.4% and 8.2%, respectively.
Hingtgen stressed that the company's outpatient business has captured many of the low-acuity volumes that are leaving hospitals for outpatient sites nationwide.
Lower inpatient acuity, unfavorable payer mix changes, fewer pandemic relief funds and wage inflation had a negative impact on CHS’ adjusted EBITDA for the quarter, the system said.
Other events during the quarter included approximately $8 million in expenses tied to Hurricane Ian, two facility closures and one hospital divestiture.
Across the full year, CHS saw a 1.7% decrease in admissions, a 2.6% increase in adjusted admissions, a 0.5% increase in same-store admissions and a 5% increase in same-store adjusted admissions.
The system pointed to its higher labor costs and reduced operating revenues tied to lower overall acuity, payer mix changes and reduced inpatient admissions as major drivers of its difficult full-year performance.
The system’s results for the final quarter put it somewhat at odds with its major for-profit contemporaries.
HCA Healthcare, for instance, reported both year-over-year revenue and net income gains for the quarter despite persistent capacity constraints. It also saw an increase in revenues for the full year, though net income attributable to the company somewhat slipped.
Tenet Health, meanwhile, reported a slight increase in quarterly net operating revenues alongside a decline in annual operating revenues. Quarterly and annual net income were both down by more than half.