Skip to main content
Publish date:

Community Health Hammered

Investors send the stock plunging to a 52-week low.

Community Health Systems'

(CYH) - Get Community Health Systems, Inc. Report

tough immune system finally gave out.

The rural hospital operator now suffers from the same bad-debt problems that have hurt its competitors for years. The company saw uninsured admissions surge and collection efforts falter in the latest quarter.

As a result, Community took a big charge to boost its reserves and saw its third-quarter earnings spiral by 81% to just $8.2 million in the process. Excluding the charge, the company reported third-quarter profits that met Wall Street expectations of 51 cents a share. However, fearing ongoing challenges, the company issued new guidance that fell well short of analyst forecasts.

Specifically, Community now expects to earn between $1.78 and $1.80 a share this year and between $2.30 and $2.38 a share next. Analysts were instead looking for profits of $2.21 a share and $2.55 a share for those periods, respectively.

Community's stock fell 5% Thursday to $32.79 after earlier hitting a 52-week low at $31.

On a bright note, Community continues to buck the industry's weak-admission trend. The company saw volumes climb 17% in the latest quarter, boosted primarily by recent acquisitions but helped as well by solid 2.6% growth in same-hospital admissions.

TheStreet Recommends

Revenue, in turn, jumped 21% to $1.12 billion in the latest quarter, easily surpassing the $1.08 billion consensus estimate. Still, some of that revenue will never materialize, as bills for uninsured cases -- and even co-payments and deductibles -- continue to go unpaid.

Community blamed broad economic trends for the development and promised to change its reserve methodology in response.

"The company believes that the increase in self-pay accounts is a result of current economic trends, including an increase in the number of uninsured patients, reduced enrollment under Medicaid programs such as Tenncare and higher deductibles and co-payments for patients with insurance," Community explained on Wednesday. "The company believes

its change in methodology provides a better approach to reflect changes in payor mix and historical collection patterns and to respond to changes in trends."

Most hospital companies adopted such changes long ago. Until now, however, Community seemed somewhat immune to the intensifying bad-debt problem.

Indeed, some analysts have been recommending Community alone as the only safe name in the hospital group.

But Cowen analyst Kemp Dolliver stopped doing so on Thursday. Before, Dolliver had assumed that Community's favorable geographic mix -- which lessens the company's exposure to uninsured patients -- would help keep bad-debt expenses under control. But the company has clearly run into familiar collection problems nonetheless.

Dolliver has cut his rating on the company's stock from outperform to neutral as a result.

"While enrollment cuts in Tennessee's Tenncare program are a significant factor here, similar trends have emerged in Laredo, Texas, and economies impacted by last year's hurricanes," explained Dolliver, whose firm seeks to do business with the companies it covers. "We cannot support an outperform rating in light of these developments. As we have seen with Community's peers, the problem likely will deteriorate."