Community Health Systems’ second-quarter results are a warning to hospital leaders that rising self-pay volume is becoming a significant threat to margins.
During its second-quarter earnings call on July 22, Franklin, Tenn.-based CHS outlined how a rapid rise in uninsured and self-pay volume — much of it tied to ACA exchange churn and disenrollment — is eroding revenue even as demand in some settings holds up.
Uninsured and self-pay patients rose to just over 6% of visits from just under 5% a year earlier, a roughly 20% jump.
“In terms of collectability of self-pay, we only collect a few pennies on the dollar anyway, so there’s no real room to get much worse on that,” CEO Kevin Hammons said. “We’re effectively not recognizing any revenue on that self-pay business.”
Coverage loss did not mean patients stayed home
CHS’ experience with exchange churn is a cautionary tale for systems modeling coverage loss. Executive Vice President and CFO Jason Johnson said the company initially assumed patients losing subsidized coverage would simply use fewer services, projecting a net revenue hit of $90 million to $110 million and an adjusted EBITDA hit of $20 million to $30 million.
Those assumptions were too optimistic.
Patients kept coming — especially to the emergency department — but without coverage that converts visits into collectable revenue.
“We’re seeing that those folks who rely on those enhanced [premium] tax credits to afford exchange insurance are continuing to utilize the health system largely in a similar fashion and rate than they did before,” Mr. Johnson said. “These people were high ER utilizers. We’ve seen that trend [and] we underestimated how many people would continue to come to our health system.”
So utilization held and coverage worsened.
That combination sits at the core of CHS’ payer mix problem, and it carries a warning for health system peers: coverage loss does not instantly reduce demand. It often converts to uncompensated care.
A split between the ED and the OR
The pressure is uneven across service lines. CHS is seeing self-pay concentrate in emergency care, while softer elective surgical volume comes mostly from commercially insured patients deferring procedures.
“The increase in uninsured is primarily coming from the exchange business. You don’t have complete visibility into that, but it seems to be the most direct correlation,” Mr. Hammons said, adding that a decline in Medicaid volume may also be feeding self-pay.
Surgical softness is a different story.
“We think that is primarily commercially insured patients, and as a result of economic headwinds with copays and deductibles,” he said.
Both trends pressure margins from opposite ends. Emergency volume that generates almost no revenue, and high-margin elective cases — particularly orthopedics and cardiac — that are being delayed.
When gas prices reach the OR
Mr. Hammons tied the elective slowdown directly to household budgets in CHS’ largely lower-income markets, where median income runs about $64,000 against a national average of about $81,000.
“As gas prices go up, that has a pretty significant impact on disposable income for those households, and healthcare seems to be one of the first things that people will delay,” he said. “That’s probably one of the biggest drivers.”
“We were [also] expecting rate decreases throughout the year, and now we’re looking at the potential of a Fed rate increase,” he said “That’s probably having a little bit of a muted impact, and we’re seeing higher inflation. The price of groceries is not coming down like we had anticipated early in the year, putting pressure on household incomes.”
Mr. Hammons also noted the consumer confidence index sits at a 12-month low, near its COVID-era trough.
Payer and service mix swamped rate gains. Same-store net revenue per adjusted admission fell 0.5% even with new Medicaid state-directed payment programs, as roughly half of the quarter’s 2.9% growth in adjusted admissions came from uninsured patients.
CHS also flagged slower cash collection, with payers auditing more claims before paying and stretching cycles, pushing accounts receivable higher. Mr. Hammons framed it as timing rather than collectability: “We don’t believe it’s necessarily a collection issue. It’s just a timing issue.”
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