Several signs are pointing to serious financial concerns at Community Health Systems.
The Franklin, Tennessee-based parent company of Lutheran Health Network has struggled in recent weeks to refinance debt, has closed a Missouri hospital and has seen its stock close below $3 for the first time ever this week.
Meanwhile, local patients and providers are waiting to see whether CHS will fulfill its promises to invest $500 million in Lutheran's network and build a new downtown hospital.
Tomi Galin, CHS spokeswoman, provided a statement by email Wednesday.
“Our $500 million capital commitment in the Fort Wayne market is on track with significant investments completed over the past year and more projects underway and in the planning stage,” she said.
To entice investors who hold CHS notes to exchange them for notes due at a later date, company officials significantly increased the interest rate payable to the investor and offered junior-priority secured notes instead of senior unsecured notes.
On June 20, CHS announced final results of the offering, which raised $1.76 billion by selling notes paying 11 percent interest and due 2023 in exchange for 8 percent interest notes due 2019.
Those notes were originally offered at 9.875 percent interest, but the company had to increase it to attract at least 90 percent of the 2019 note holders to make the exchange.
On the same date, CHS announced it had raised $960 million by selling notes paying 8.125 percent interest and due 2024 in exchange for 7.125 percent interest notes due 2020.
One week later, CHS announced plans to sell more than $1 billion in senior secured notes at 8.625 percent interest and due 2024.
Moody's Investors Service has given the notes a B3 rating, which means they are “considered speculative and subject to high credit risk,” according to Moody's website.
Proceeds of all the CHS note sales are committed to repaying outstanding debt, company officials said.
Galin presented the situation in positive terms.
“We have just completed a very successful refinancing that gives us time before any material debt maturities come due,” she said. “This enables the company to continue making important investments in the communities we serve.”
CHS stock closed Wednesday at $2.90, a 7 cent decrease in trading compared with the previous day's close. A year ago today, the stock was trading for $9.79 a share. In June 2015, just three years ago, shares peaked at $52.04.
CHS has struggled financially even though it has been selling off hospitals to pay debt. Last month, the parent company closed on the sale of five hospitals, including four in Tennessee, with a total of 620 beds.
Galin sees promise in the sale of under-performing hospitals.
“Our divestiture program is robust, and we will emerge with a stronger portfolio as we complete additional divestitures this year,” she said.
Galin described the first-quarter earnings report as including “good improvements in ... operational results.”
On May 1, the company reported first-quarter net operation revenue of $3.69 billion, or an 18 percent decrease from the $4.49 billion posted for the previous year's first quarter.
After factoring in expenses, CHS posted a $25 million loss for the quarter, but it was only one-eighth the $199 million loss reported for the same three months of 2017.
Regarding the Missouri hospital that CHS closed in June, Galin said the decision was made because of a significant decline in inpatient use at Twin Rivers Regional Medical Center.
“Medical advances have made more health care services available on an outpatient basis, and approximately 95 percent of Kennett (Missouri) patients' medical needs were met on an outpatient basis in 2017,” she wrote. “Health services at Twin Rivers were consolidated with Poplar Bluff Regional Medical Center, a modern 460-bed CHS-affiliated hospital that provides a comprehensive range of inpatient, surgical and outpatient care.”
That decision was made after CHS closed the hospital's birthing center in May. CHS also decided to close St. Joseph Hospital in downtown Fort Wayne to non-emergency births in May.
St. Joe, which is scheduled to be replaced by a new downtown hospital in the next few years, also recently lost verification for its burn center from the American Burn Association.
CHS has made numerous investments in this market, however, including new imaging technology, surgical equipment, emergency department, pediatric intensive care and other units at Lutheran Hospital.
Galin added that CHS's local “investments have expanded access to health services for local residents, improved our hospital facilities, and enhanced the patient experience across Lutheran Health Network.”