CHS executives saw a turnaround opportunity in HMA. “The business case for the acquisition was relatively straightforward,” said Whit Mayo, an analyst and managing director for Robert W. Baird & Co. “HMA was highly distracted and lost focus of their operations, and is a high-quality portfolio of assets that arguably had been mismanaged for a number of years.”
But now it appears CHS executives may have underestimated the challenges at HMA. “We'll get there,” Larry Cash, chief financial officer and president of financial services for Community Health Systems, said during an investor conference in March. “It's just taking longer than we thought it would.”
That has added stress to CHS financials during a period of global market turmoil that has battered the company's stock. CHS spokeswoman Tomi Galen said the company could not comment during the quiet period ahead of a planned spinoff.
HMA did not recruit doctors or invest in capital projects during the year before the acquisition, Cash told analysts. Management turnover added to the challenge, as did employee satisfaction below that of CHS' workforce. Competitors sought to capitalize on HMA's disarray. “It's hard to hit the ground running where people had really not focused on the day-to-day business,” Cash said.
Recruitment and morale have both improved since the acquisition, he said. CHS continues to see potential benefits from the deal, and HMA hospitals have bolstered CHS markets in Mississippi, Oklahoma and Tennessee. “We think they're good assets,” he said.
National health system Catholic Health Initiatives has seen financial stress from rapid growth as well. Now the system will seek to slash expenses as operating losses erode its cash reserves.
Deals in Texas and elsewhere have doubled CHI's revenue in five years. “It's very difficult to double in size for any organization and maintain the efficiency and effectiveness,” Dean Swindle, the system's chief financial officer and president of enterprise business lines, said during a March conference call.
“So that's an opportunity we have by now pausing, with growth slowing, that we can now go get some of the integration opportunities there,” Swindle said. He was not available for an interview, a spokesman said.
The Englewood, Colo.-based system reported an operating loss for the three months that ended Dec. 31 of $125.9 million.
By the end of last year, CHI could operate for 151 days using cash reserves, compared with 178 days of reserves six months earlier.
Poor performance in Texas contributed to the system's losses. CHI entered Texas in 2013 with the $1.2 billion acquisition of St. Luke's Episcopal Health System in Houston. CHI added four more Texas hospitals the following year with a deal for Memorial Health System of East Texas.