By KEVIN NEVERS

Lower collectability rates—resulting, among other things, from a rise in patients eligible for charity care—have prompted the owner of Porter hospital, Community Health Systems Inc. (CHS) of Franklin, Tenn., to increase its contractual reserves and doubtful-account allowances.

The impact of those changes, according to a statement released by CHS last month: a net loss of $88.3 million or 94 cents per diluted share for the fourth quarter of 2007, compared to a net income of $53.6 million or 57 cents per diluted share for the year-ago period.

CHS attributed the lower collectability rates to “an increase in the number of patients qualifying for charity care, reduced enrollment in certain state Medicaid programs, and an increase in the number of patients who are indigent non-resident aliens.”

The increase in contractual reserves and doubtful-account allowances led to the decrease of accounts receivable by $166.4 million and reduced net operating revenues by $96.3 million, CHS said.

For the fourth quarter—which includes consolidated results from the acquisition of Triad Hospitals Inc. on July 25—CHS reported net operating revenues of $2.528 billion, compared to $1.105 billion for the year-ago period, an increase of 129 percent. Meanwhile, loss from continuing operations for the fourth quarter was $70.6 million or 75 cents per diluted share, compared to an income from continuing operations of $54.9 million or 58 cents per diluted share for the year-ago period.

Discontinued operations in the fourth quarter consisted of an after-tax loss of around $17.6 million or 19 cents per share, related to the sale of three hospitals during the second half of 2007 and the holding of 12 hospitals for sale at Dec. 31, one of which was sold in February.

Consolidated results for the year included a $65 million increase in CHS’s allowance for doubtful accounts on its Dec. 31 balance sheet and a corresponding $65 million pre-tax increase to the provision for bad debts.

For the year CHS reported a net income of $30.289 million or 32 cents per diluted share, compared to a net income of $168.263 million or $1.75 per diluted share for 2006, a decrease of 82 percent.

Net operating revenues in 2007 were $7.127 billion, compared to $4.18 billion in 2006, an increase of 71 percent. Income from continuing operations in 2007 was $59.897 million, compared to $177.695 million in 2006, a decrease of 66 percent.

The consolidated results reflect a 50.4 percent increase in total admissions in 2007, an increase chiefly attributable to hospitals acquired last year. On a same-store basis, admissions decreased by 1.1 percent. Also on a same-store basis, net operating revenues increased 4.2 percent over those of 2006.

“Our fourth-quarter performance capped off a year of significant growth and progress for Community Health Systems,” said CHS Chair, President, and CEO Wayne Smith. “We reached an important milestone in 2007 with the completion of the Triad acquisition and we have continued to focus on the integration of the Triad facilities into our portfolio of hospitals. We intend to build on our past success as a proven operator and leverage these assets to further extend our record of growth.”

“We have continued to identify and execute on suitable acquisition opportunities,” Smith added. “With the Triad acquisition, we have greatly expanded our market reach, and, more importantly, created the opportunity to enhance the level of healthcare in communities throughout the country. Looking ahead, we will continue to pursue our strategy of recruiting qualified physicians, making suitable capital investments in our existing facilities, and adding essential healthcare services that meet the needs of each community.”

CHS issued the following guidance for 2008: net operating revenues of $11 billion to 11.3 billion; income from continuing operations per diluted share of $2.25 to $2.45; same-store annual admissions growth of 0.5 percent to 1.5 percent; and same-store annual revenue growth of 4.5 percent to 5.5 percent. That guidance reflect several assumptions: the previously announced acquisition of Empire Health Service of Spokane, Wash., but no further acquisitions; and the divestiture of one additional hospital, among other things.

Through its subsidiaries, CHS currently owns, leases, or operates 116 hospitals in 28 states. On Dec. 31, 2007, it held 115 hospitals with 16,971 licensed beds, compared to 70 hospitals with 8,406 licensed beds on Dec. 31, 2006.

On March 1 CHS sold nine of its hospitals to Capella Healthcare Inc., a privately held, for-profit hospital company also headquartered in Franklin, Tenn. The sale included hospitals in Alabama, Arkansas, Missouri, Oregon, and Tennessee, for an aggregate purchase price of $315 million.

Posted 3/7/2008