Growing Number of Denials Ding Community Health Systems’ Earnings, Outlook
Community Health Systems Inc. has become the latest to take a tumble during the never-ending tussle between payers and providers.
Shares of the Tennessee-based, investor-owned healthcare company lost nearly a third of their value on Oct. 24 and 25 after its leaders reported third-quarter earnings dented in the short term by damage from the Southeast’s recent hurricanes but more broadly by insurers denying a greater number of the company’s claims. That trend—which surfaced early this year after many patients in 2023 began seeking out treatments deferred during the pandemic—cost CHS about $10 million more than expected during the third quarter and have “continued to ramp up,” CFO Kevin Hammons told analysts Oct. 24.
“We’re expecting that to continue to be a problem somewhat going forward,” Hammons added. “I can’t say that there was one event during the quarter that would have pointed to, ‘Hey, this is changing’ but we just continue to see a slow ramp-up in denials as well as the time frame for the adjudication process.”
The rise in denials, Hammons and CEO Tim Hingtgen said, has been relatively broad-based among insurers. CHS, which runs 69 hospitals and more than 1,000 other sites of care in 15 states, has been successful in about a quarter of its appeals of denials related to new two-midnight-stay rules and has beefed up the support services needed to appeal more cases.
CHS posted a third-quarter net loss of $355 million—roughly seven times its loss from the prior-year quarter due in part to needing to reserve more money for past professional liability claims—on net operating revenues of nearly $3.1 billion. Same-story admissions rose 2.4 percent from the same period in 2023, suggesting that broader utilization trends are enduring.
The company’s leaders’ commentary on where things stand in the never-ending reimbursement dance between providers and payers came about a week after UnitedHealth Group Inc. delivered the view from the other side of the table. United executives cited “notably and persistently aggressive” claims submissions from some hospital operators as a reason their medical care ratio had risen year over year and contributed to a lower preliminary target for 2025 earnings growth.
Hingtgen and Hammons received some back-up Oct. 25 from their peers at industry leader HCA Healthcare Inc. Speaking after Nashville-based HCA reported earnings that, like CHS’, also were hurt by the recent hurricanes, CFO Mike Marks said HCA teams “have seen payers ramp up the intensity” of their denial work in recent years but added that the trend didn’t materially affect the company’s results in the third quarter.
Speaking more specifically about denials related to the two-midnight rule, Marks said 2024 has been a little better than past years.
“But we still have way too many denials,” he added. “And we have a few large Medicare Advantage payers that are significant outliers driving these denials.”
CHS executives said they expect an above-trend denials rate this quarter similar to the $10 million hit during Q3. But Hammons also said he’s hopeful, “with the full year ahead of us in ’25, that we can come to some agreement with the insurance companies and get that settled.”
Investors took a very wait-and-see attitude to how the trend will play out in coming quarters. CHS shares (Ticker: CYH) fell more than 20 percent on Oct. 24 and dipped another 5 percent to about $4 the next day. The move cut the company’s market capitalization to about $710 million.
