(Updated on Oct. 30)
Community Health Systems' share value plummeted by more than 12% Tuesday on news that the company's revenue dropped in the third quarter as it works to sell off hospitals.
The Franklin, Tenn.-based for-profit system's net operating revenue for the third quarter, which ended Sept. 30, totaled $3.45 billion, a nearly 6% decline from $3.67 billion in the same period last year. The net loss attributable to CHS shareholders grew to $325 million during the quarter, compared with $110 million for the prior-year period.
CHS' adjusted earnings before interest, taxes, depreciation and amortization totaled $372 million during this year's third quarter, up 12.4% compared with $331 million during the same period in 2017. CHS' EBITDA surpassed analysts' expectations for the quarter, as did the company's revenue.
As in previous quarters, CHS' earnings were significantly affected by its ongoing stated goal to sell underperforming hospitals. The company had 118 hospitals in this year's third quarter, compared with 133 during the same period last year. Viewed on a same-facility basis, the company's net operating revenue rose 3.2% year over year.
The company said it has completed nine hospital divestitures so far in 2018 and has entered into definitive agreements to sell five more. Those hospitals, together with potential deals that haven't yet been announced, represented at least $2 billion in net operating revenue last year, according to CHS' earnings report.
"Our portfolio rationalization strategy is allowing us to focus on sustainable markets and shift more of our resources to hospitals and networks with improved market position, higher growth potential and better profitability," Wayne Smith, the health system's CEO, said on the company's earnings call Tuesday.
While CHS has mostly focused on shedding hospitals through divestitures, it plans to close two of its East Tennessee hospitals in December: Physicians Regional Medical Center in Knoxville and Lakeway Regional Hospital in Morristown. Tim Hingtgen, the system's COO, said on Tuesday's earnings call that both hospitals have been a drag on its Knoxville market. CHS owns the hospitals through its subsidiary, Tennova Healthcare.
"It does strengthen us overall," he said. "It strengthens our underlying volume trends in the market. It strengthens the EBITDA profile, cash flows from the market. So we feel real good about that consolidation decision."
CHS is working to expand capacity in its remaining Tennessee facilities in areas like orthopedics, obstetrics and cardiac care in order to treat patients who would have visited the hospitals that are closing, Hingtgen said.
Smith said the hospitals' closure has no reflection on the employees or physicians that work there.
"They're a good group of people," he said. "They're well qualified. They do excellent work. It's a market share issue for us, and how we can best consolidate in the market."
CHS' consolidated earnings for the quarter reflect a 12.4% decrease in total admissions year over year and a 12.2% decrease in total adjusted admissions. On a same-store basis, however, admissions declined by only 2.3% year over year, while adjusted admissions declined 0.8%.
On a same-facility basis, patient days declined 1.5% year over year to about 660,000 in this year's third quarter.