Community Health Systems' share price falls 17%

Community Health Systems' stock price fell 17% Wednesday following the previous day's release of results for 2017, including a $2 billion net loss in the fourth quarter.

The company's executives chalked up the net loss to non-cash accounting changes that won't affect its future earnings or cash flows, though investors apparently weren't convinced. The Franklin, Tenn.-based hospital chain's stock price plunged after its investor call and finished the trading session down 17% at $5.12.

The massive net loss, amounting to about $18 per share, was significantly wider than the $220 million net loss CHS reported in the fourth quarter of 2016.

Most of the loss was from nearly $1.8 billion in impairments and reduced assets related to the company's hospitals, including those it sold or plans to sell.

Tom Aaron, the company's chief financial officer, said that includes a $1.42 billion write-down primarily due to a decline in CHS' market capitalization, the value of its long-term debt and a lower than expected earnings performance.

CHS also reported a roughly $400 million increase in its provision for bad debt and an increase of about $200 million in contractual allowances, both of which it said are due to switching to a new Financial Accounting Standards Board principle that narrows what hospitals can categorize as revenue.

Under previous accounting rules—which still apply to private companies and not-for-profits—bills initially recorded as revenue could be written off as bad debt when it is determined they won't be paid.

Under the new standard, however, hospitals can't categorize as revenue bills that, based on historical experience, they don't expect payment on, according to an analysis by the accounting firm Moss Adams.

In preparing for the change, CHS had to analyze previous patient revenue and receivables to create a new method for extracting data to meet the standard, Aaron said.

In addition, CHS' revenue took a nearly 32% hit in the fourth quarter of 2017, dropping to about $3 billion from about $4.5 billion for the same period in 2016. Overall in 2017, CHS' operating revenue totaled $15.4 billion, a nearly 17% drop from 2016, when its operating revenue was $18.4 billion.

CHS' adjusted earnings before interest, tax, depreciation and amortization was $409 million in the fourth quarter of 2017, down from $564 million at the same time in 2016.

CHS' total admissions dropped by 19% in the fourth quarter of 2017 compared with the same point in 2016. Viewed on a same-store basis, however, admissions dropped only 1.7% in that time.

Despite the lower admissions, net revenue per adjusted admission increased 2.7% in the fourth quarter of 2017 compared with the same time in 2016, Aaron told investors. CHS' same-store net operating revenue also increased approximately 1.8% during that time, which Aaron said was slightly ahead of the system's internal forecast.

CHS divested 30 hospitals in 2017, bringing its long-term debt to $13.9 billion at the end of the year, down from $14.8 billion at the end of 2016. Aaron said divestitures announced in 2017 that will close this year are expected to contribute about $1 billion in revenue in 2018.

"We want to reiterate that anticipated divestitures are in our guidance," he said, "because Wall Street models did not appear to contemplate divestitures."