Community Health Systems (CHS) isn't much of a city dweller. The hospital operator prefers small-town America, owning or leasing about 140 hospitals mostly in rural areas or small cities in about 30 states. Its hospitals (which house roughly 20,000 beds) typically act as the sole or primary acute health care provider in a service area and offer a variety of medical, surgical, and emergency services (though a handful are specialty centers). The hospitals generally have ancillary facilities including doctors' offices, surgery centers, and diagnostic imaging facilities, as well as home health and hospice agencies. CHS' Quorum Health Resources subsidiary provides management services to non-affiliated hospitals.
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CHS receives about 40% of its revenues from Medicare and Medicaid reimbursements for patient services. Another 50% comes from commercial insurance companies with which it has managed care contracts, and the rest is attributed to self-pay patients.
As it has expanded its network of facilities over the years, CHS' revenues have likewise risen. The company reported a 5% increase in sales in 2011 to some $13.6 billion. It attributes its financial health to its targeted acquisitions strategy (focusing on urban markets) and its successful cost-control and facility integration efforts, as well as improved returns from rate, reimbursement, and procurement programs. Profits have also steadily risen over the firm's history; however, CHS experienced a 28% decrease in net income in 2011 as the company restructured some of its debt obligations and took goodwill impairment charges on some divested assets.
You don't become one of the largest for-profit hospital operators in the nation without a pretty aggressive acquisition strategy, and CHS certainly has that. CHS' modus operandi is to target hospitals in non-urban locations poised for growth. Because such areas have fewer people, they generally have fewer hospitals, which means less competition (both for patients and for managed care contracts). CHS typically purchases a number of small community hospitals each year, though it also sometimes conducts larger acquisitions of hospital operating groups.
In addition to adding new hospitals and clinics, CHS looks to grow revenue and profitability at its existing facilities. Its strategy focuses on recruiting primary care doctors and specialists; expanding services; investing in technology and facility improvements; and controlling costs through, among other things, centralizing some business operations. For instance, CHS tries to trim supply costs through its membership in group purchasing organization HealthTrust, which negotiates price agreements with suppliers on behalf of its members. CHS also adds complex services to its line-up, including orthopedics, cardiovascular services, and urology, thereby making its facilities more attractive to potential physicians and patients.
The firm expects its earnings to increase in coming years thanks to an aging population. It also hopes to benefit from reform measures that aim to increase the number of insured patients in the US, which could cut down on self-pay patients and reduce the amount of bad debt its hospitals carry.
In addition, the company sometimes divests facilities it deems as not core to its strategy. For instance in 2011 it sold two Oklahoma facilities, SouthCrest Hospital and Claremore Regional Hospital, to Ardent Health Services' Hillcrest HealthCare System unit for an undisclosed price. It also sold a Texas hospital, Cleveland Regional Medical Center, that year to New Directions Health Systems.
Mergers & Acquisitions
While the company's efforts to acquire rival hospital operator Tenet backfired in 2011, CHS completed several smaller purchases that year, including the acquisition of the Mercy Health Partners Scranton operations in Pennsylvania from Catholic Health Partners. Several of the company's recent acquisitions have extended its small-community acquisition philosophy into the fringe or exurbs of attractive metropolitan markets, such as the 2012 purchase of MetroSouth Medical Center in the southwestern suburbs of Chicago. Also in 2012, CHS added community hospitals and other health centers in northeastern Pennsylvania (including Moses Taylor Hospital) and in southeastern Pennsylvania (including Memorial Hospital). – less