Community Health System's share price got a boost Tuesday on updated guidance that now anticipates hitting the high end of the company's previously announced revenue and earnings predictions for 2021.
Although Franklin, Tenn.-based CHS hasn't yet shared the date for its 2021 earnings release, the company offered a preview of its better-than-expected results for the year. The investor-owned hospital chain now expects revenue in the range of $12.355 billion and $12.375 billion, up from a projection released in October of between $12.15 billion to $12.35 billion.
Investors rewarded the company for the positive update, sending shares up almost 5% as of Tuesday's close.
It's possible that despite the challenges of the ongoing COVID-19 pandemic, CHS is benefiting from its program of selling underperforming hospitals that wrapped up in 2020. A CHS spokesperson declined to comment beyond the disclosure.
"Community Health's 2021 performance and initial 2022 guidance reflect improved financial performance with a smaller, more focused hospital portfolio," Mike Holland, senior credit analyst with Bloomberg Intelligence, wrote in an email. "Yet it seems early to get overly excited about 2022 guidance given uncertainty around COVID-19."
In the company's third quarter earnings call in October, executives said CHS' remaining 83 hospitals are concentrated in high-growth markets in states like Arizona, Texas, Alabama and Florida.
"Our portfolio is strong, and it is situated across parts of the country with attractive population trends and favorable economic conditions, which provide a solid foundation for growth over the next several years," Tim Hingtgen, CHS' CEO, said on the company's third quarter earnings call.
CHS now expects its adjusted earnings for 2021—reflected as earnings before interest, taxes, depreciation and amortization—will come in at the high end of its previous announced guidance, which was $1.82 billion.
One thing that's probably helping CHS' finances is Medicare's add-on payments to hospitals for treating patients who test positive for COVID-19, even if it's not their primary diagnosis, said A.J. Rice, healthcare services analyst with Credit Suisse. The company also urged patients in the fourth quarter of 2021 to return for care they had postponed earlier in the pandemic, which may have helped the bottom line as well, he said.
CHS said it has recognized about $145 million in pandemic relief funds in 2021. That's compared with about $600 million in 2020.
In 2022, CHS expects its operating revenue to fall between $12.6 billion and $13.1 billion. The company projects adjusted EBITDA to be between $1.825 billion and $1.975 billion.
Holland said the real test for CHS—and any hospital operator with a lot of debt—is cash flow.
"Looking into 2022, the focus is on the company's ability to generate positive cash flow," he said.
CHS generated $400 million in cash flow from operations in the first 9 months of 2021, down significantly from $2.1 billion in the prior-year period. But CHS cautioned it's not a apples-to-apples comparison, because the 2020 period included almost $1.2 billion in accelerated Medicare payments plus another $715 million in pandemic relief funds.
CHS did not share a business update at last week's J.P. Morgan Healthcare Conference, despite having done so in prior years, but fellow for-profit hospital operators highlighted trends that may also ring true for CHS. For example, Universal Health Services' finance chief said the impact of COVID-19 was "largely positive" in the third quarter. Patients infected with the delta variant, the dominant strain at the time, were very sick and hospitalized longer than UHS' average patient.
"This high acuity was resulting in more revenue and higher profitability despite the fact that those COVID patients, were incurring significantly higher costs, especially on the salary side," Steve Filton, UHS' chief financial officer, told the conference audience.
Another contributor to longer hospitalizations: Difficulty finding post-acute providers that can take patients, as nursing homes and rehabilitation facilities are struggling to maintain adequate staffing just like hospitals, Filton said.
In 2020, CHS posted operating revenue of $11.8 billion, which was down almost 11% from the prior year due in part to its aggressive hospital sell-off program that ended that year. CHS posted $511 million in net income that year, compared with a $675 million net loss in 2019.