On Wednesday, Community Health Sys (NYSE:CYH) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Community Health Sys reported a 17.8% decline in adjusted EBITDA for Q1 2026 due to strategic divestitures and macroeconomic disruptions, alongside a 3.1% increase in same-store net revenue driven by a growth in net revenue per adjusted admission.
The company announced significant investments in ambulatory surgery centers, including a majority ownership in the Surgical Institute of Alabama, to enhance outpatient surgical care and drive future growth.
Community Health Sys maintained its 2026 financial guidance despite the challenges, expecting volume and payer mix to recover as economic and geopolitical conditions stabilize, with a focus on improving patient and physician experiences.
Operational highlights include improvements in quality metrics, with expectations of higher Leapfrog safety grades and CMS ratings for their hospitals, and continued efforts to reduce debt and leverage through strategic divestitures.
Management discussed macroeconomic pressures affecting patient volumes, particularly in commercial and health exchange coverage, and initiatives to address labor costs and improve cash flow impacted by timing issues and receivables backlog.
Full Transcript
OPERATOR
Good day and welcome to the Community Health System’s first quarter 2026 earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Anton High,, Vice President of Investor Relations. Please go ahead.
Anton High (Vice President of Investor Relations)
Thank you Bailey. Good morning everyone and welcome to Community Health System’s first quarter 2026 earnings conference call. Joining me on today’s call are Kevin Hammons, Chief Executive Officer and Jason Johnson, Executive Vice President and Chief Financial Officer. Before we begin, I’ll remind everyone that this earnings conference call may contain certain forward looking statements, including all statements that do not relate solely to historical or current facts. These forward looking statements are subject to a number of known and unknown risks which are described in headings such as Risk factors in our Annual report on Form 10-K and other reports filed with or furnished to the SEC. Actual results may differ significantly from those expressed in any forward looking statements. In today’s discussion, we do not intend to update any of these forward looking statements. Yesterday afternoon we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We’ve also posted a supplemental site with a slide presentation on our website. All calculations we discuss today will exclude gains or losses from early extinguishment of debt, impairment gains or losses on the sale of businesses and expense from business transformation costs. With that said, I will turn the call over to Kevin Hammons, Chief Executive Officer.
Kevin Hammons (Chief Executive Officer)
Thank you Anton Good morning, everyone and thank you for joining our first quarter twenty twenty-six conference call and for your continued interest in Community Health System’s. Before we begin, I want to acknowledge our employees, physicians and all of our teammates who have embraced our vision to make the healthcare experience exceptional for our patients, our communities and each other. As people across our organization share in this commitment, I am confident we will see the benefits of making that healthcare experience exceptional. And as we do, more patients will choose our health systems and we’ll create an even stronger company. Earlier this week, we announced some significant investments in ambulatory surgery centers in our core markets, including the pending acquisition of a majority ownership interest in the Surgical Institute of Alabama, our largest acquisition since 2016. The surgery center performs more than eight thousand cases annually and is the largest multi specialty surgery center in Alabama. We expect to close this transaction during the second quarter. During the first quarter, we also purchased a majority interest in South Anchorage Surgery center in Alaska and opened two de novo ambulatory surgery centers in Birmingham and Foley, Alabama. These targeted investments extend Community Health System’s’s ability to provide outpatient surgical care in the most advantageous way for our patients while delivering excellent outcomes, optimizing the surgical experience for our physician partners and driving future growth for our health systems. Turning to our operating performance, for the first quarter of twenty twenty-six, adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) was on the low end of our internal expectations, declining 17.8% from the prior year period, reflecting our strategic transactions to reduce our debt, macroeconomic disruptions across the country, as well as the investments Community Health System’s is making in our future. The quarter’s results include an approximate $50 million year over year Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) drag from recently completed divestitures that went from being positive contributors in the prior year period to negative in the first quarter of twenty twenty-six. Closing these divestitures will remove the negative Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) drag from future quarters. Additionally, while we benefited from some out of period revenue related to the Georgia State Directed Payment Program, this tailwind was partially offset by out of period provider tax increases related to the Indiana program. Same store net revenue increased three point one percent year over year, driven by three point seven percent growth in net revenue per adjusted admission, partly offset by a zero point five percent decline in same store adjusted admissions. We believe volume and payer mix challenges in the first quarter reflect a temporary disruption in demand for healthcare services in our markets, largely driven by consumer fears related to geopolitical instability and increased cost of living, as well as ongoing aggressive practices used by the managed care companies that drive inefficiency, unnecessarily delay payment and interfere with the delivery of medical care. I’d like to spend just a minute on our top priorities this year as we work to enhance quality, patient experience, physician experience and employee satisfaction. We are realizing operational improvements at an accelerating pace and our ability to advance in each of these areas will also ultimately drive enhanced financial performance and long term value creation for our organization and shareholders. For example, in the area of quality, when the spring twenty twenty-six Leapfrog safety grades are released next month, we expect as many as 80% of Community Health System’s hospitals to receive a leapfrog A or B grade, up significantly from just 48% this time a year ago. We also expect 56% of our hospitals to receive a Centers for Medicare & Medicaid Services (CMS) rating of three or more stars when those metrics are published next month, up from 45% in the 2025 ratings these achievements demonstrate our commitment to continuous improvement and our ability to drive stronger performance in this area. We are hyper focused on improving the experiences of the people working in our organization, especially our physicians and employees, and we have numerous initiatives underway to increase patient satisfaction as well. On the physician experience front, we are currently deploying an ambient listening technology in our clinics and hospitals which will help reduce administrative burdens and optimize the time physicians and other providers spend face to face with their patients. Investments Community Health System’s has made to expand service lines, add new access points, recruit physicians to our markets and improve our quality and experience have us better positioned and prepared to accommodate demand as soon as it returns to normal levels. Before I pass the call over to Jason, I’d also like to discuss the policy backdrop. Similar to our hospital peers and others in the healthcare industry, we continue to monitor developments related to Medicaid supplemental payment programs and the Rural Health Transformation Fund, as well as ACA enhanced premium tax credit expirations and Medicaid work requirements and redeterminations, among other changes. It is still very early to gauge the impact of these external factors. While there are a lot of moving pieces, unknown variables and potential consequences given Community Health System’s’s historical and current presence in many rural and underserved markets, we remain actively engaged with policymakers across each of our states to help ensure that programs under the Rural Health Fund are directed towards hospitals and other providers delivering care in these communities, which we believe was the original intent of the fund. We’ve set up a formal structure with dedicated internal and external resources working to evaluate each state’s various programs as …
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