Community Health Systems has been involved in a lot of hospital deals, and its role in recent years has been as the seller, not the buyer.
Late last year, President and Chief Financial Official Kevin Hammons said the for-profit system would like to get back to acquisitions, but since then, it has sold three hospitals in Florida and announced the sale of one in Tennessee. The health system continues efforts to cut costs and make its sprawling operations more efficient — the results of which may be quantified when it reports first-quarter earnings Wednesday.
Related: Community Health Systems considers selling $1B of facilities
"It doesn't feel like anything is imminent," said Brian Tanquilut, managing director of healthcare services equity research at investment banking firm Jefferies. "The reality of it is that the balance sheet has to prove a little bit more in order for them to be able to do the deals."
Here's a look at why Community Health Systems is changing its hospital footprint and what it means for the system's larger strategy.
Where does CHS operate?
Community Health Systems, headquartered in Franklin, Tennessee, operates 71 hospitals and more than 1,000 care sites, including physician practices, urgent care centers, freestanding emergency departments, imaging centers and ambulatory surgery centers.
Its footprint spans 40 markets across 15 states.
Why is CHS adjusting its footprint?
Community Health Systems has been selling facilities in recent years to strengthen its balance sheet. The for-profit system reported a $133 million net loss, or $1.02 per share, in 2023. It struggled with higher specialist fees, increased medical malpractice expenses and a less favorable payer mix, in addition to being strapped with high debt levels.
Last year, executives launched Project Empower, a cost-cutting plan to streamline workflows, standardize finance and supply chain operations, reduce administrative tasks and integrate enterprise resource planning software.
Where does it stand on acquisitions?
Community Health Systems has not acquired a hospital in eight years, though it has added beds to existing facilities. A spokesperson said the health system does consider potential acquisitions if offers arise.
Hammons said last year the health system doesn’t want to wait too long on growth opportunities.
"Could it happen in the next six months? Probably not," said Jason Cassorla, healthcare services analyst at Citi Research. "I don't see them as an acquirer until their priority around shoring up the balance sheet and operations come[s] into effect."
What about divestitures?
Last year, Community Health Systems sold eight hospitals, including facilities in Florida and West Virginia, and a majority interest in another one. The health system sold one hospital in 2022 and five hospitals in 2021.
The system said in February it plans to sell more than $1 billion of facilities over the next few years. Proceeds from deals can go toward core market investments, debt management and even other acquisitions, CEO Tim Hingtgen said on the company’s fourth-quarter earnings call.
Community Health Systems said last week it plans to sell a Tennova Healthcare hospital in Cleveland, Tennessee, to Hamilton Health Care System in a $160 million cash transaction. The deal is expected to close in the third quarter, pending regulatory review.
The health system is embroiled in a lawsuit between the Federal Trade Commission and Novant Health over two North Carolina hospitals. Community Health Systems is looking to exit the state by selling the Charlotte-area hospitals to Novant for $320 million. However, the FTC sued Novant in January to block the transaction due to anticompetitive concerns.
Is CHS investing in non-hospital care?
Yes. Community Health Systems is adding multiple ambulatory surgery centers and free-standing emergency departments each year, tapping into an industrywide push for care outside of the hospital.
Community Health Systems acquired an existing free-standing emergency department and opened a new one last year, in addition to acquiring two ambulatory surgery centers. It added another two surgery centers in the first quarter of 2024.
In 2023, the health system paid about $38 million to acquire physician practices, clinics, ambulatory surgery centers and other ancillary businesses, according to a Securities and Exchange Commission filing.
What are other large for-profit systems doing?
Community Health Systems isn’t the only one adjusting its hospital footprint.
Dallas-based Tenet Healthcare has sold six California hospitals and their related operations this year, including four to UCI Health and two to Adventist Health. Tenet also closed a $2.4 billion deal to sell three hospitals, 27 physician clinics, an outpatient center and a free-standing emergency department in South Carolina to Novant Health.
HCA Healthcare, on the other hand, has detailed aggressive plans to take market share, including buying land for new hospitals, acquiring urgent care centers and bringing more than $2 billion of capital projects online this year.