Becker's Hospital Review

11 CFO / FINANCE CHS sheds 18 hospitals, swings to $511M profit By Ayla Ellison C ommunity Health Systems, which operates 85 hospitals in 16 states, saw revenues decline in 2020 but ended the period in the black. In financial documents released Feb. 17, Franklin, Tenn.-based CHS said revenues and admissions dropped last year. Admis- sions decreased 15.7 percent year over year, and operating revenues dipped 10.8 percent. On a same-hospital basis, admissions were down 8 percent compared to 2019. e decline in patient volume and revenues was attributable to the COVID-19 pandemic. While volumes for 2021 have not returned to pre-pandemic levels, CHS said they have improved from their lows in March and April of 2020. On a same-hospital basis, operating revenues were up 4.5 percent year over year in the fourth quarter of 2020. CHS said the pandemic also caused certain expenses, including those related to supply chain, to increase. However, CHS' total oper- ating costs and expenses were down in 2020 compared to a year earlier. CHS ended the fourth quarter of last year with net income of $311 million on reve- nues of $3.1 billion, compared to a net loss of $373 million on revenues of $3.3 billion in the same period a year earlier. Looking at full-year 2020 results, the company posted net income of $511 million on revenues of $11.8 billion, compared to a net loss of $675 million on revenues of $13.2 billion in 2019. "roughout the COVID-19 pandemic, I have been incredibly proud of everyone across our entire organization. Our caregivers and medical staffs have ensured that their com- munities have access to essential, high-quali- ty health services," CHS CEO Tim Hingtgen said in an earnings release. "Our management teams have adapted to constantly changing dynamics and effectively executed our cost management efforts. As a result, we ended the year with strong financial results, momentum around our key strategic initiatives, and opti- mism about the future of our company." During 2020, CHS received $705 million in payments through the Provider Relief Fund established under the Coronavirus, Aid, Re- lief and Economic Security Act and various state and local programs. e company also received $1.2 billion in accelerated Medicare payments in April, and, as of Dec. 31, about $77 million had been repaid to CMS or as- sumed by buyers of hospitals the company divested, CHS said. e company embarked on a hospital dives- titure plan in 2017 and has almost completed its sell-off spree. In 2020, the company sold 13 hospitals and closed one. CHS has divest- ed four hospitals this year and entered into a definitive agreement to sell another. ough the company concluded its portfo- lio rationalization program at the end of last year, CHS said it continues to receive interest from potential acquirers of certain hospitals and may consider selling more hospitals in the future. CHS carried nearly $13.9 billion in long-term debt when it announced its divestiture plan at the end of 2017. e company's long-term debt totaled $12.1 billion as of Dec. 31. n A PE firm wants to sell its stake in a hospital chain, but Rhode Island is standing in its way By Alia Paavola P rivate equity firm Leonard Green & Partners is looking to sell its controlling stake in Los Angeles-based Pros- pect Medical Holdings, leaving it with $1.3 billion in financial obligations, according to ProPublica. While four states have approved the deal, Rhode Island has not. Leonard Green, which owns about 60 percent of Prospect Medical, announced plans in October 2019 to sell its stake to Prospect Medical's CEO and a longtime business part- ner for $12 million plus the assumption of $1.3 billion in lease obligations. When the deal was announced, Prospect Medical said it expected the sale to close in the spring of 2020. Although the transaction easily passed in the four states where Prospect owns 15 hospitals, it has faced pushback in Rhode Island, where the hospital chain owns two hospitals. The deal requires Rhode Island's attorney general and health department's approval, but officials in the state have subjected the deal to a high level of scrutiny. According to ProPublica, there have been multiple rounds of public hearings on the deal and interviews sought with company officials. Rhode Island officials delayed their decision in Novem- ber, citing missing documents and unanswered questions. Then the decision deadline was slated to be the end of January, but it has been pushed back again. Rhode Island officials said that "as of this date, we do not have a new deadline for completing the review," according to the ProPublica article published Feb. 4. A bill introduced by Rhode Island Senate President Dom- inick Ruggerio, a Democrat, threatens to derail the trans- action. His proposal would impose a one-year moratorium on the transfer of hospital ownership that involves for-prof- it entities as the acquiree or acquirer, according to the report. In proposing the bill, Mr. Ruggerio cited the pro- posed Prospect Medical deal. ProPublica previously reported in September that Leon- ard Green and its investors extracted $645 million in div- idends and fees for itself from Prospect Medical. Accord- ing to the report, the private equity firm extracted the dividends by loading Prospect Medical with debt, rather than from profits. n

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