Community Health Systems reports earnings loss from Medicare Advantage growth and higher fees

Tennessee-based Community Health Systems (CHS) reported earnings losses in Q1 2023 from treating more Medicare Advantage patients and paying higher specialist fees, the large hospital chain reported in its earnings call this week.

Same-facility admissions grew 4.8% and the number of surgeries increased 10.6% compared to Q1 2022, CHS CEO Tim Hingtgen said. About two-thirds of that growth, however, came from governmental payers, especially lower-paying Medicare Advantage, CHS President and CFO Kevin Hammons said.

“Challenging dynamics such as payer mix changes and increased medical specialist fees affected our earnings in the quarter, despite our ability to favorably manage other controllable expenses,” Hingtgen said.

The for-profit health system reported a net loss of $51 million this quarter, compared to a loss of $1 million during the same period in 2022, the company noted in a subsequent press release. The company’s fiscal year runs from Jan. 1 to Dec. 31.

Without taking into account Medicare Advantage’s narrower network, the program pays hospitals 8% less than traditional Medicare plans, according to a 2016 study published in Health Affairs.

In response to the increased volume of Medicare Advantage patients, CHS plans to put more pressure on higher-paying commercial insurance plans, including implementing some direct-to-employer models, Hingtgen said.

Medical specialist fees increased $14 million due to inflation as well as changes from the No Surprises Act, which went into effect last year, Hammons said. Under the act, out-of-network providers can’t charge patients more than what they would pay an in-network provider, so specialists are “looking to recoup some of their billable revenue from us and from the providers,” Hammons said.

CHS plans to renegotiate “some contracts and insource some of those doctors” to “mitigate some of that cost going forward,” Hammons added.

“We think the first quarter would be the peak of the medical specialist fee incremental increases. We've already had some new agreements put in place with alternative vendors at better pricing,” Hingtgen said. “All those things should start stabilizing as we head into the future quarters.”