CHS: Q2 Profit Hurt by DOJ Subpoena, Deteriorating Volumes

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A new government subpoena regarding emergency department admissions and lagging volumes are expected to slam the second-quarter earnings of Community Health Systems.

CHSlogoCHS, the Franklin, Tenn.-based, for-profit hospital operator with 135 hospitals, released a preview of its second quarter, saying its revenue and profit are both expected to take a hit. CHS executives expect a 57 percent drop in net income to $65 million, and net revenue will drop $70 million, to a shade less than $3.24 billion.

Most notable among cited reasons for the drop, CHS announced the Department of Justice has issued a new subpoena regarding how CHS hospitals admit inpatients from EDs. The DOJ has already been investigating CHS for Medicare short-stay admissions from EDs, and CHS has met with the government twice so far this year "to review and discuss the status of the investigation, the potential theories and defenses and the results of its joint medical necessity review," according to a news release. The newest subpoena, issued July 9, is an extension of the previous subpoena and investigation, which began in April 2011. Naples, Fla.-based Health Management Associates has been facing similar investigations from the government.

The DOJ has requested interviews of an unnamed CHS division president, a senior vice president and two current employees related to the investigation.

The three months ended June 30 also don't bode well for CHS' operating results. CHS expects to report a 5.7 percent decrease in total same-hospital admissions and 2.6 percent drop in adjusted admissions. CHS also cited "higher-than-anticipated bad debts" and "deterioration in payer mix."

CHS' announcement is a sharp contrast from competitor Hospital Corp. of America. Earlier this week, Nashville, Tenn.-based HCA similarly released a preview of its most recent quarter, saying it expected net income to rise 15 percent. CHS will report its complete second-quarter financial results after the close of the bell July 29.

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