A “challenging macro environment” serving up more uninsured patients and fewer commercial elective procedures dragged Community Health Systems below internal and analyst operating forecasts for the third quarter.
The 59-hospital system reported $2.76 billion in third-quarter net operating revenue, down about 10.7% year over year due to several divestments but up 3.8% on a same-store basis. Net loss was $86 million, -$0.63 per diluted share or -$0.48 after adjustment, compared to the prior year’s $1.27 per share net income.
The consensus estimates for revenue and earnings were $2.78 billion and -$0.22 per diluted share, per Zach’s Investment Research. The company’s shares were trading over 10% below the open late Thursday afternoon.
“While overall financial results fell below our internal forecast, due to the same factors that many peers are experiencing—namely elevated uninsured volumes and temporary softness in commercial elective procedures—we delivered sequential volume gains and solid cash flow performance,” CEO Kevin Hammons summarized Thursday morning on the company’s earnings call. “Importantly, our leading indicators clearly demonstrate that care is being deferred rather than lost to competitors.”
CHS has reduced its 2026 guidance ranges for net operating revenues, adjusted EBITDA and cash ranges.
Same-store admissions rose 2.2% while adjusted admissions increased 3.6% year over year. However, about half of the adjusted admissions growth was among uninsured patients, Chief Financial Officer Jason Johnson explained, and a 2% overall increase in same-store surgeries masked low numbers for commercial electives. These factors held same-store net revenue per adjusted admission to just 0.2% year-over-year growth.
Executives, in response to analyst questions, noted that the 2% increase is a clear improvement from recent quarters’ declines.
“We saw more cardiac procedures and more GI procedures this quarter,” Hammons explained. “The cardiac procedures, though, … are low margin because of the high cost of the devices. What we were short on were the elective orthopedic and elective general surgery-type procedures that are higher-margin business, and those are more elective type procedures. […] Again, kind of fits back into the story of we believe this is a patient decision around care, and being influenced by financial decisions.”
In the meantime, Hammons said the company is “proactively managing our cost structure,” yielding more than $100 million in projected annual savings so far “without compromising our clinical capacity or operational readiness for tomorrow” when those electives return.
Looking to the tea leaves in 2027, executives suggested there would be a “modest” headwind from Medicaid work requirements. While more than half of the company’s Medicaid volumes are in expansion states, “we think it’s likely that the very large majority will qualify for continued coverage under the various exemptions like age, caregiver status or medical frailty, but we really just don’t know exactly what the impact will be until the data starts coming in,” Johnson said during the call.
Exchange volume reductions due to coverage drop-offs could see “some potential future degradation” based on how open enrollment goes, he said, although “we think there will be a modest headwind there.” Provider tax cuts will also likely bring another “modest” hit, while medical specialty fees expected to grow “well above inflation” are “the big question mark on cost,” Johnson added.
On the other hand, executives counted payment rate updates, investments in outpatient and ambulatory locations, expense management and $25 million to $30 million in year-one funds from the Rural Health Transformation Program as positive factors for 2027 earnings.
Further, they suggested that this year’s “uncharacteristic” dearth in elective procedures could come to an end as cost-conscious patients—who are still captured in CHS’ care networks—eventually book their deferred care.
“There’s pent-up demand,” Hammons said. “Ultimately, we think that it comes back into the system because when you need a joint replacement, it’s not going to heal on its own.”
“Our initial expectations [were that when] we got into the back half of this year, we would see that seasonality growth. We did not see as much of that in the third quarter as we had previously expected,” he explained. “As you get to October, if people have not met their co-pay and deductible, it’s likely they could push that off until next year, get their procedures in the first half of the year and have a longer period of time to have other medical procedures done without having to pay a co-pay and deductible again. So we’ve adjusted our guidance accordingly to reflect our outlook on that.”
CHS is hardly alone in navigating surgery and payer mix challenges. Fellow for-profits HCA Healthcare, Universal Health Services and Tenet Healthcare each described varying levels of impact during earnings calls held this week. Each held off from detailing concrete estimates for the coming year, noting a need to monitor year-end trends and the exchanges’ open enrollment period, but acknowledged that Medicaid coverage will likely continue to be a sore spot.