Franklin, Tennessee-based hospital operator Community Health Systems (CHS) is selling its Tennova Healthcare-Cleveland facility to Hamilton Health Care System for approximately $160 million in cash. This divestiture comes after a difficult fiscal year 2023 for CHS, marked by a significant net loss and a credit rating downgrade.
CHS leadership attributed their $133 million net loss, a stark contrast to the $46 million net gain in 2022, to a challenging economic climate. During a February earnings call, they cited rising costs for supplemental reimbursement programs, outsourced medical specialists, and professional liability insurance as key factors impacting performance.
These financial struggles were further reflected in December when credit rating agency Fitch Ratings downgraded CHS’s issuer default rating. The agency pointed to CHS’s “elongated period of elevated leverage” and their failure to fully recover operating margins to pre-pandemic levels. Fitch anticipates only “modest” near-term margin improvements, suggesting divestitures as a potential solution.
The sale of Tennova Healthcare-Cleveland aligns with this divestiture strategy. CHS executives previously hinted at exploring inbound interest for sales in specific markets, with divestitures in 2024 potentially exceeding $1 billion.
CHS’s divestiture track record isn’t without its hurdles. Their proposed sale of two North Carolina hospitals to Novant Health faced opposition from the Federal Trade Commission (FTC) in January. The FTC argued the deal could stifle competition and inflate healthcare costs in the greater Charlotte region. Both CHS and Novant have contested these claims, arguing the regulators have a “distorted and artificially narrow view” of the local hospital market.
Last year, CHS successfully completed divestitures of eight hospitals and a majority stake in another. These transactions included the $294 million sale of three Florida hospitals to Tampa General Hospital, along with the sales of West Virginia-based Plateau Medical Center and Greenbrier Valley Medical Center for $92 million and an undisclosed amount, respectively.
The sale of Tennova Healthcare-Cleveland marks a continuation of CHS’s divestiture strategy as they navigate financial challenges and seek to improve their overall financial health. Whether further roadblocks similar to the North Carolina deal will emerge remains to be seen.
