Community Health Systems, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. The company operates acute-care hospitals and related outpatient services; at year-end, it owned or leased 80 hospitals and operated more than 1,000 other care sites across 16 states.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Net operating revenues | $12.211 billion | $12.368 billion |
| Income from operations | $821 million; 6.7% margin | $1.402 billion; 11.3% margin |
| Net income | $179 million | $368 million |
| Net income attributable to CHS stockholders | $46 million; $0.35 diluted EPS | $230 million; $1.76 diluted EPS |
| Adjusted EBITDA (non-GAAP) | $1.466 billion; 12.0% margin | $1.969 billion; 15.9% margin |
| Cash from operating activities | $300 million | $(131) million |
| Cash and cash equivalents at year-end | $118 million | $507 million |
| Total debt, including finance lease and financing obligations | $11.635 billion | $12.140 billion |
Net income attributable to CHS stockholders fell 80%. The company paid $835 million of interest in 2022. Net working capital was approximately $896 million, down from $1.1 billion. Under its $1.0 billion asset-based revolving facility, CHS had $53 million drawn and approximately $852 million of additional borrowing capacity after letters of credit. About $21 million of debt was due within 12 months; scheduled maturities include approximately $2.163 billion in 2026 and $2.609 billion in 2027. Management reported that approximately 100% of debt had fixed interest rates.
Changes versus 2021
- Revenue declined 1.3%; same-store revenue was down 0.2%. Consolidated inpatient admissions fell 1.7%, while adjusted admissions rose 2.6%. Same-store admissions increased 0.5% and adjusted admissions increased 5.0%.
- Despite higher same-store adjusted admissions, same-store revenue per adjusted admission declined 5.0%. Management cited fewer inpatient admissions and lower acuity, partly offset by outpatient growth and improved reimbursement.
- Operating costs excluding depreciation and impairment increased to 88.3% of revenue from 84.1%. Salaries and benefits rose to 43.6% of revenue from 42.4%, and other operating expenses rose to 27.3% from 23.9%, reflecting wage inflation, contract labor, professional liability insurance and medical specialist fees.
- Adjusted EBITDA decreased about 25.5%. Operating cash flow improved from a use of $131 million to a source of $300 million, primarily because Medicare accelerated-payment repayments affected 2021.
- Medicare and Medicaid represented 35.7% of revenue; the filing separately reports 63.6% from commercial payors. Outpatient revenue rose to 53.2% of total from 51.7%.
Unusual items, outlook and risks
- 2022 results included a $253 million pretax gain on early debt extinguishment, a $119 million gain from HealthTrust’s CoreTrust transaction, $71 million of impairment and disposal charges, and a $15 million increase in professional liability claims estimates for divested locations. These items make reported earnings less indicative of underlying operating trends.
- Pandemic relief funds reduced operating expenses by $173 million in 2022, versus $148 million in 2021. The company said it did not expect significant relief-fund benefits in future periods.
- Hurricane Ian reduced revenue and added costs by an estimated $18 million pretax in 2022, net of $2 million of insurance proceeds received to date.
- Management forecast 2023 capital expenditures of approximately $450 million to $500 million. It stated that available cash, borrowing capacity, expected operating cash flows and capital-market access should fund needs for the next 12 months and foreseeable future; this is not a specific earnings or revenue forecast.
- Key risks include inflation and labor shortages, patient volume and acuity, reimbursement and payor mix, high leverage and refinancing needs, regulatory and legal exposure, and potential impairment of goodwill. CHS reported $4.2 billion of goodwill; its 2022 annual test found no impairment, but management said macroeconomic conditions and operating results increased future impairment risk.
- A third-party file-transfer vendor breach exposed patient health and personal information. CHS estimated approximately one million individuals may have been affected; investigation and cost estimates were ongoing. The company did not then expect a material adverse effect, but noted possible legal, regulatory, reputational and financial exposure.
- Management did not expect pending legal matters to materially affect consolidated financial position or liquidity, but acknowledged an adverse outcome could materially affect results or cash flows in a particular period. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Reconcile the decline in operating performance with the substantial non-operating gains, pandemic relief, and management’s non-GAAP Adjusted EBITDA adjustments.
- Review debt maturities, refinancing options, covenant headroom and the sustainability of cash flow relative to interest and capital spending.
- Track labor and contract staffing costs, inpatient volumes and acuity, outpatient growth, and revenue per adjusted admission.
- Assess the effect of Medicaid and Medicare policy, payor negotiations and the No Surprises Act on reimbursement and collections.
- Follow the vendor data-breach investigation, potential claims and remediation costs, as well as material legal proceedings and professional liability reserves.
- Check whether planned 2023 capital expenditures and hospital divestitures proceed as expected, and monitor goodwill impairment indicators.