Community Health Systems, Inc. Announces Third Quarter 2021 Results

·20 min read

FRANKLIN, Tenn., October 27, 2021--(BUSINESS WIRE)--Community Health Systems, Inc. (NYSE: CYH) (the "Company") today announced financial and operating results for the three and nine months ended September 30, 2021.

The following highlights the financial and operating results for the three months ended September 30, 2021.

  • Net operating revenues totaled $3.115 billion.

  • Net income attributable to Community Health Systems, Inc. common stockholders was $111 million, or $0.85 per share (diluted), compared with $112 million, or $0.97 per share (diluted), for the same period in 2020. Excluding the adjusting items as presented in the table in footnote (e) on page 17, net income attributable to Community Health Systems, Inc. common stockholders was $0.69 per share (diluted), compared to $0.18 per share (diluted) for the same period in 2020.

  • Adjusted EBITDA was $482 million.

  • Net cash provided by operating activities was $121 million, which included repayments of Medicare accelerated payments in the amount of approximately $133 million. Net cash provided by operating activities was $393 million for the same period in 2020.

  • On a same-store basis, admissions increased 2.8 percent and adjusted admissions increased 4.7 percent, compared with the same period in 2020.

Net operating revenues for the three months ended September 30, 2021, totaled $3.115 billion, a 0.4 percent decrease compared with $3.126 billion for the same period in 2020.

Net income attributable to Community Health Systems, Inc. common stockholders was $111 million, or $0.85 per share (diluted), for the three months ended September 30, 2021, compared with $112 million, or $0.97 per share (diluted), for the same period in 2020. Excluding the adjusting items as presented in the table in footnote (e) on page 17, net income attributable to Community Health Systems, Inc. common stockholders was $0.69 per share (diluted) for the three months ended September 30, 2021, compared to $0.18 per share (diluted) for the same period in 2020. Payments received by the Company through the Public Health and Social Services Emergency Fund (the "PHSSEF" or "Provider Relief Fund") and state and local pandemic relief programs, collectively referred to as "pandemic relief funds," and as more specifically described below, had a positive impact on net income attributable to Community Health Systems, Inc. common stockholders (both on a consolidated and adjusted basis) of approximately $14 million, or $0.11 on a per share (diluted) basis, for the three months ended September 30, 2021. No pandemic relief funds were recognized for the three months ended September 30, 2020. Weighted-average shares outstanding (diluted) were 131 million and 116 million for the three months ended September 30, 2021 and 2020, respectively.

Adjusted EBITDA for the three months ended September 30, 2021, was $482 million compared with $431 million for the same period in 2020. Pandemic relief funds had a positive impact on Adjusted EBITDA of approximately $19 million for the three months ended September 30, 2021. No pandemic relief funds were recognized for the three months ended September 30, 2020.

The consolidated operating results for the three months ended September 30, 2021, reflect a 5.5 percent decrease in admissions and a 3.4 percent decrease in adjusted admissions, compared with the same period in 2020. On a same-store basis, admissions increased 2.8 percent and adjusted admissions increased 4.7 percent for the three months ended September 30, 2021, compared with the same period in 2020. On a same-store basis, net operating revenues increased 7.1 percent for the three months ended September 30, 2021, compared with the same period in 2020.

Net operating revenues for the nine months ended September 30, 2021, totaled $9.135 billion, a 5.4 percent increase compared with $8.670 billion for the same period in 2020.

Net income attributable to Community Health Systems, Inc. common stockholders was $52 million, or $0.40 per share (diluted), for the nine months ended September 30, 2021, compared with $200 million, or $1.74 per share (diluted), for the same period in 2020. Excluding the adjusting items as presented in the table in footnote (e) on page 17, net income attributable to Community Health Systems, Inc. common stockholders was $1.29 per share (diluted) for the nine months ended September 30, 2021, compared to net loss of $(0.55) per share (diluted) for the same period in 2020. Pandemic relief funds had a positive impact on net income attributable to Community Health Systems, Inc. common stockholders (both on a consolidated and adjusted basis) of approximately $77 million, or $0.59 on a per share (diluted) basis, and approximately $337 million, or $2.93 on a per share (diluted) basis, for the nine months ended September 30, 2021 and 2020, respectively. Weighted-average shares outstanding (diluted) were 130 million and 115 million for the nine months ended September 30, 2021 and 2020, respectively.

Adjusted EBITDA for the nine months ended September 30, 2021, was $1.429 billion compared with $1.194 billion for the same period in 2020. Pandemic relief funds had a positive impact on Adjusted EBITDA of approximately $102 million and $448 million for the nine months ended September 30, 2021 and 2020, respectively.

The consolidated operating results for the nine months ended September 30, 2021, reflect a 5.5 percent decrease in admissions and a 2.4 percent decrease in adjusted admissions, compared with the same period in 2020. On a same-store basis, admissions increased 4.3 percent and adjusted admissions increased 7.3 percent for the nine months ended September 30, 2021, compared with the same period in 2020. On a same-store basis, net operating revenues increased 14.8 percent for the nine months ended September 30, 2021, compared with the same period in 2020.

Commenting on the results, Tim L. Hingtgen, chief executive officer of Community Health Systems, Inc., said, "During the third quarter, we experienced the largest number of COVID-19 cases to date. We are grateful to our medical staffs, clinical support teams and hospital leaders who again ensured exceptional care for their patients during this latest surge. We are also pleased with our results this quarter, especially as we balanced the demands of caring for COVID-19 patients while remaining focused on our growth strategies, key investments and operational improvement plans, which we believe will continue to drive positive results in the future."

COVID–19 Pandemic:

Federal and state governments have passed legislation, promulgated regulations and taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health emergency. Sources of relief include the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which was enacted on March 27, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the "PPPHCE Act"), which was enacted on April 24, 2020, the Consolidated Appropriations Act, 2021 (the "CAA"), which was enacted on December 27, 2020, and the American Rescue Plan Act of 2021 (the "ARPA"), which was enacted on March 11, 2021. Together, these stimulus laws authorize over $178 billion in funding to be distributed to hospitals and other healthcare providers through the PHSSEF. In addition to the relief funding, the CARES Act provided for an expansion of the Medicare Accelerated and Advance Payment Program. Various state and local programs also exist to provide relief, either independently or through distribution of monies received via the CARES Act and other enacted federal legislation. The Company has been a beneficiary of these stimulus monies.

Through September 30, 2021, net of amounts that have been repaid to the respective federal, state or local agency, the Company received approximately $709 million in payments through the PHSSEF and various state and local programs on a cumulative basis since their enactment. Of the net amount received to-date, approximately $705 million was received during the year ended December 31, 2020, and the remainder was received during the nine months ended September 30, 2021. PHSSEF payments are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic and are not required to be repaid provided that recipients attest to and comply with certain terms and conditions, including limitations on balance billing, not using funds received from the PHSSEF to reimburse eligible expenses or lost revenues that other sources have or may be obligated to reimburse, and audit and reporting requirements.

The Company recognized approximately $19 million and $102 million of the PHSSEF and various state and local program payments eligible to be claimed as a reduction in operating costs and expenses during the three and nine months ended September 30, 2021, respectively. Amounts recognized are denoted by the caption "pandemic relief funds" in the condensed consolidated statements of income. During the nine months ended September 30, 2021, the Company’s estimate of the amount of payments received through the PHSSEF or state and local programs for which the Company is reasonably assured of meeting the underlying terms and conditions was updated based on, among other things, expenses incurred in the period that are attributable to the coronavirus, the Company’s results of operations during such period as compared to the Company’s 2020 budget for the same period and the allocation of targeted distribution payments to various subsidiaries. Amounts received through the PHSSEF or state and local programs that have not been recognized and otherwise have not been refunded to the U.S. Department of Health and Human Services ("HHS") or the various state and local agencies as of September 30, 2021, are reflected within accrued liabilities-other in the condensed consolidated balance sheet. Such unrecognized amounts may either be returned to HHS or the respective state or local agency, as applicable, or may be recognized in future periods if the underlying conditions for recognition are reasonably assured of having been met.

HHS’ interpretation of the underlying terms and conditions of such PHSSEF payments, including auditing and reporting requirements, continues to evolve. In June 2021, HHS issued guidance that set forth deadlines for using and reporting on the use of PHSSEF funds, depending on the dates on which the funds were received. Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such PHSSEF payments may result in the Company’s inability to recognize certain PHSSEF payments, changes in the estimate of amounts recognized, or the derecognition of amounts previously recognized, which (in any such case) may be material.

In October 2021, the Company submitted a combined application for Phase 4 of the Provider Relief Fund ("PRF Stage 4") and amounts appropriated by the ARPA for providers serving rural healthcare patients ("ARP Rural"). No amounts have been received by the Company for the PRF Stage 4 or ARP Rural programs as of the date of this press release, and the Company is not able to predict the extent to which it may receive amounts pursuant to such programs, if any.

Medicare accelerated payments of approximately $1.2 billion were received during April 2020. No additional Medicare accelerated payments have been received by the Company since such time, including during the three and nine months ended September 30, 2021. Payments under the Medicare Accelerated and Advance Payment Program are advances that must be repaid. Providers are required to repay accelerated payments beginning one year after the payment was issued. After such one-year period, Medicare payments owed to providers will be recouped according to the repayment terms. The repayment terms specify that for the first 11 months after repayment begins, repayment will occur through an automatic recoupment of 25% of Medicare payments otherwise owed to the provider during such time. At the end of the eleven-month period, recoupment will increase to 50% for six months. At the end of the six months (or 29 months from the receipt of the initial accelerated payment), Medicare will issue a letter for full repayment of any remaining balance, as applicable. In such event, if payment is not received within 30 days, interest will accrue at the rate of 4% per annum from the date the letter was issued and will be assessed for each full 30-day period that the balance remains unpaid.

In April 2021, Centers for Medicare & Medicaid Services ("CMS") began recouping Medicare accelerated payments previously received by the Company. As of September 30, 2021, approximately $249 million has been recouped from the Company by CMS subject to the aforementioned payment terms. Additionally, approximately $18 million and $77 million of amounts previously received were repaid by the Company to CMS or assumed by buyers related to hospitals the Company divested during the nine months ended September 30, 2021, and year ended December 31, 2020, respectively. As of September 30, 2021, approximately $814 million of Medicare accelerated payments are reflected within accrued liabilities-other in the condensed consolidated balance sheet. The outstanding balance of Medicare accelerated payments of $814 million as of September 30, 2021 was repaid in full to CMS in October 2021, prior to the date of this press release, through a combination of recoupments via Medicare remittances and lump-sum payments.

The PHSSEF payments received to date as noted above and payments which the Company may receive in the future under the CARES Act and other stimulus legislation have been and may continue to be beneficial in partially mitigating the impact of the COVID-19 pandemic on the Company’s results of operations and financial position. Additionally, the federal government may consider additional stimulus and relief efforts, but the Company is unable to predict whether additional stimulus measures will be enacted or their impact, if any. The Company is unable to assess the extent to which potential ongoing negative impacts on the Company arising from the COVID-19 pandemic will be offset by benefits or amounts which the Company may recognize or receive in the future under the CARES Act and other enacted stimulus legislation or any future stimulus measures.

Sale of Investments in Unconsolidated Affiliates:

On July 30, 2021, the Company sold its unconsolidated minority equity interests in Macon Healthcare, LLC, a joint venture with certain subsidiaries of HCA Healthcare, Inc. representing two hospitals in Macon, Georgia, in which the Company held a 38% interest. The Company received $110 million in cash in connection with the sale of its equity interests and, as a result, recognized a pre-tax gain of approximately $26 million on the sale of investments in unconsolidated affiliates during the three and nine months ended September 30, 2021.

Financial and statistical data for 2020 and 2021 presented in this press release includes the operating results of divested or closed hospitals for the periods prior to the consummation of the respective divestiture or hospital closing. Same-store operating results exclude the results of a hospital opened in 2020 and the hospitals divested or closed in 2020 and 2021.

Information About Non-GAAP Financial Measures

This press release presents Adjusted EBITDA, a non-GAAP financial measure, which is EBITDA adjusted to add back net income attributable to noncontrolling interests and to exclude loss (gain) from early extinguishment of debt, impairment and (gain) loss on sale of businesses, gain on sale of investments in unconsolidated affiliates, (income) expense related to government and other legal settlements and related costs, expense incurred in the fourth quarter of 2020 related to the settlement of certain professional liability claims for which the third-party insurers’ obligation to insure the Company against the underlying loss is being litigated, expense related to employee termination benefits and other restructuring charges, expense from settlement and fair value adjustments on the CVR agreement liability related to the Health Management Associates, Inc. ("HMA") legal proceedings and related legal expenses, the impact of changes in estimate to increase the professional liability claims accrual recorded during the second quarter of 2019 (which estimate was further revised in the third quarter of 2019 based on updated actuarial analysis) with respect to claims incurred in 2016 and prior years, and expense related to the valuation allowance recorded in the second quarter of 2019 to reserve the outstanding balance of a promissory note received from the buyer in connection with the sale of two of the Company’s hospitals in 2017, as well as income from a reduction of the valuation allowance on the outstanding balance of a promissory note from the buyer of another hospital. For information regarding why the Company believes Adjusted EBITDA provides useful information to investors, and for a reconciliation of Adjusted EBITDA to net income attributable to Community Health Systems, Inc. stockholders, see footnote (c) to the Financial Highlights, Financial Statements and Selected Operating Data below.

Additionally, this press release presents adjusted net income (loss) attributable to Community Health Systems, Inc. common stockholders per share (diluted), a non-GAAP financial measure, to reflect the impact on net income attributable to Community Health Systems, Inc. common stockholders per share (diluted) from the selected items used in the calculation of Adjusted EBITDA. For information regarding why the Company believes this non-GAAP financial measure provides useful information to investors, and for a reconciliation of this non-GAAP financial measure to net income attributable to Community Health Systems, Inc. common stockholders per share (diluted), see footnote (e) to the Financial Highlights, Financial Statements and Selected Operating Data below.

The non-GAAP financial measures set forth above are not measurements of financial performance under U.S. GAAP, and should not be considered in isolation or as a substitute for any financial measure calculated in accordance with U.S. GAAP. Additionally, the calculation of these non-GAAP financial measures may not be comparable to similarly titled measures presented by other companies.

Included on pages 18, 19, 20 and 21 of this press release are tables setting forth the Company’s 2021 updated annual earnings guidance. The 2021 guidance is based on the Company’s historical operating performance, current trends and other assumptions that the Company believes are reasonable at this time as more specifically discussed below.

Community Health Systems, Inc. is one of the largest publicly traded hospital companies in the United States and a leading operator of general acute care hospitals in communities across the country. On October 1, 2021, Tyler Memorial Hospital in Tunkhannock, Pennsylvania, which previously offered inpatient care and surgical services as a stand-alone acute care hospital, began operating as a campus of Regional Hospital of Scranton, in Scranton, Pennsylvania, offering emergency room and outpatient services such as primary care, laboratory and imaging. After giving effect to this change, the Company, through its subsidiaries, owns or leases 83 affiliated hospitals in 16 states with an aggregate of approximately 13,000 licensed beds.

The Company’s headquarters are located in Franklin, Tennessee, a suburb south of Nashville. Shares in Community Health Systems, Inc. are traded on the New York Stock Exchange under the symbol "CYH." More information about the Company can be found on its website at www.chs.net.

Community Health Systems, Inc. will hold a conference call on Thursday, October 28, 2021, at 10:00 a.m. Central, 11:00 a.m. Eastern, to review financial and operating results for the third quarter ended September 30, 2021. Investors will have the opportunity to listen to a live internet broadcast of the conference call by clicking on the Investor Relations link of the Company’s website at www.chs.net. To listen to the live call, please go to the website at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call and will continue to be available for approximately 30 days. Copies of this press release and conference call slide show, as well as the Company’s Current Report on Form 8-K (including this press release), will be available on the Company’s website at www.chs.net.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Financial Highlights (a)(b)

(In millions, except per share amounts)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Net operating revenues

$

3,115

$

3,126

$

9,135

$

8,670

Net income (f), (g)

144

128

146

254

Net income attributable to Community Health

Systems, Inc. stockholders

111

112

52

200

Adjusted EBITDA (c)

482

431

1,429

1,194

Net cash provided by operating activities

121

393

400

2,102

Earnings per share attributable to Community

Health Systems, Inc. common stockholders:

Basic (f), (g)

$

0.87

$

0.98

$

0.41

$

1.74

Diluted (e), (f), (g)

0.85

0.97

0.40

1.74

Weighted-average number of shares outstanding (d):

Basic

127

115

127

115

Diluted

131

116

130

115

____

For footnotes, see pages 15, 16 and 17.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (a)(b)

(In millions, except per share amounts)

(Unaudited)

Three Months Ended September 30,

2021

2020

% of Net

% of Net

Operating

Operating

Amount

Revenues

Amount

Revenues

Net operating revenues

$

3,115

100.0

%

$

3,126

100.0

%

Operating costs and expenses:

Salaries and benefits

1,336

42.9

%

1,365

43.7

%

Supplies

529

17.0

%

523

16.7

%

Other operating expenses

716

23.0

%

736

23.6

%

Government and other legal settlements and related costs (g)

-

-

%

-

-

%

Lease cost and rent

75

2.4

%

85

2.7

%

Pandemic relief funds

(19

)

(0.6

)%

-

-

%

Depreciation and amortization

137

4.4

%

139

4.4

%

Impairment and (gain) loss on sale of businesses, net (f)

1

0.0

%

(7

)

(0.2

)%

Total operating costs and expenses

2,775

89.1

%

2,841

90.9

%

Income from operations (f), (g)

340

10.9

%

285

9.1

%

Interest expense, net

216

6.9

%

257

8.2

%

Gain from early extinguishment of debt

-

-

%

(115

)

(3.7

)%

Gain on sale of investments in unconsolidated affiliates (i)

(26

)

(0.8

)%

-

-

%

Equity in earnings of unconsolidated affiliates

(4

)

(0.1

)%

(5

)

(0.1

)%

Income before income taxes

154

4.9

%

148

4.7

%

Provision for income taxes

10

0.3

%

20

0.6

%

Net income (f), (g)

144

4.6

%

128

4.1

%

Less: Net income attributable to noncontrolling interests

33

1.0

%

16

0.5

%

Net income attributable to Community Health Systems,

Inc. stockholders

$

111

3.6

%

$

112

3.6

%

Earnings per share attributable to Community

Health Systems, Inc. common stockholders:

Basic (f), (g)

$

0.87

$

0.98

Diluted (e), (f), (g)

$

0.85

$

0.97

Weighted-average number of shares outstanding (d):

Basic

127

115

Diluted

131

116

____

For footnotes, see pages 15, 16 and 17.

COMMUNITY HEALTH SYSTEMS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (a)(b)

(In millions, except per share amounts)

(Unaudited)

Nine Months Ended September 30,

2021

2020

% of Net

% of Net

Operating

Operating

Amount

Revenues

Amount

Revenues

Net operating revenues

$

9,135

100.0

%

$

8,670

100.0

%

Operating costs and expenses:

Salaries and benefits

3,905

42.7

%

4,054

46.8

%

Supplies

1,521

16.7

%

1,439

16.6

%

Other operating expenses

2,170

23.7

%

2,211

25.4

%

Government and other legal settlements and related costs (g)

-

-

%

4

0.0

%

Lease cost and rent

231

2.5

%

248

2.9

%

Pandemic relief funds

(102

)

(1.1

)%

(448

)

(5.2

)%

Depreciation and amortization

408

4.5

%

424

4.9

%

Impairment and (gain) loss on sale of businesses, net (f)

24

0.3

%

48

0.6

%

Total operating costs and expenses

8,157

89.3

%

7,980

92.0

%

Income from operations (f), (g)

978

10.7

%

690

8.0

%

Interest expense, net

666

7.3

%

779

9.0

%

Loss (gain) from early extinguishment of debt

79

0.9

%

(111

)

(1.3

)%

Gain on sale of investments in unconsolidated affiliates (i)

(26

)

(0.3

)%

-

-

%

Equity in earnings of unconsolidated affiliates

(19

)

(0.2

)%

(11

)

(0.1

)%

Income before income taxes

278

3.0

%

33

...

%

Provision for (benefit from) income taxes

132

1.4

%

(221

)

(2.5

)%

Net income (f), (g)

146

1.6

%

254

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