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    CYH
    Earnings call· Jun 2026(Q2 FY26)

    COMMUNITY HEALTH SYSTEMS INC CYH

    Jul 23, 2026 Source

    Executive summary

    Community Health Systems Q2 FY26 — Adjusted Guidance Amid Payer Mix and Elective Procedure Headwinds

    Community Health Systems navigated a challenging Q2 FY26, marked by a decline in adjusted EBITDA and net revenue, primarily due to an unfavorable payer mix and softness in elective procedures. Despite strong cost controls and sequential volume improvements, macroeconomic headwinds and ACA disenrollment impacts necessitated a downward revision of full-year guidance. The company continues to focus on quality and operational efficiency to drive long-term value.

    Highlights

    5

    • Achieved 12 Leapfrog A grades and approximately 70% A or B grades for hospitals, demonstrating quality improvement.

    • Lutheran Hospital in Fort Wayne, Indiana, received the American College of Cardiology's Heart Care Center National Distinction of Excellence.

    • Same-store adjusted admissions increased 2.9% year-over-year in Q2 FY26.

    • Same-store contract labor spend decreased 5.6% in Q2 FY26, reflecting strong cost controls.

    • Cash flows from operations improved significantly to $143 million (adjusted) in Q2 FY26 from a use of $297 million in Q1 FY26.

    Concerns

    5

    • Adjusted EBITDA declined to $330 million in Q2 FY26 from $380 million in the prior year period.

    • Net revenue declined 9.8% year-over-year, primarily due to smaller prior period state payment benefits and divestitures.

    • Same-store net revenue per adjusted admission declined 0.5% in Q2 FY26 due to unfavorable payer and service mix.

    • Full-year 2026 adjusted EBITDA guidance was lowered to a range of $1.3 billion to $1.375 billion from a prior midpoint of $1.415 billion.

    • Uninsured visits increased by approximately 110 basis points, now representing over 6% of visits compared to just under 5% in the prior year.

    Guidance & targets

    5
    CategoryTargetConfidence
    Full-year 2026 Net Revenue
    $11.4 billion to $11.6 billion
    high materiality
    Medium
    Full-year 2026 Adjusted EBITDA
    $1.3 billion to $1.375 billion
    high materiality
    Medium
    Florida 2026 Medicaid State Directed Payment Program Recognition
    Not recognized by year-end
    medium materiality
    Low
    Florida 2026 Medicaid State Directed Payment Program Recognition
    Recognized by year-end
    medium materiality
    Medium
    ACA Disenrollment EBITDA Impact
    $50 million to $75 million
    high materiality
    Medium

    Operational metrics

    24
    Adjusted EBITDA
    $330 milliondown from $380 million in prior year
    Q2 FY26

    Compared with $380 million in the prior year period.

    Adjusted EBITDA margin
    11.7%vs 12.1% in prior year period
    Q2 FY26

    Compared to 12.1% in the prior year period.

    Net revenue
    -9.8%YoY decline
    Q2 FY26

    Primarily reflecting a smaller prior period benefit from newly approved state directed payment programs, as well as divestitures completed over the past 12 months.

    Same-store net revenue growth
    2.4%YoY increase
    Q2 FY26

    Increased over the prior year period.

    Same-store adjusted admissions growth
    2.9%YoY increase
    Q2 FY26

    Approximately half of this volume growth was driven by uninsured visits with minimal related net revenue.

    Same-store inpatient admissions growth
    1.9%YoY increase
    Q2 FY26

    Same-store inpatient admissions increased 1.9%.

    Same-store net revenue per adjusted admission
    -0.5%YoY decline
    Q2 FY26

    The rate benefit from new state directed payment programs was more than offset by unfavorable shifts in payer mix and service mix.

    Same-store operating expense per adjusted admission
    0.3%YoY increase
    Q2 FY26

    Performed well with a 0.3% increase.

    Same-store average hourly rate
    1.1%YoY increase
    Q2 FY26

    Labor cost was well managed once again.

    Same-store contract labor spend
    -5.6%YoY decrease
    Q2 FY26

    Contract labor spend down 5.6%.

    Salaries and benefits expense as % of net revenue
    increased 100 bpsYoY increase
    Q2 FY26

    Due primarily to increased physician employment.

    Supplies expense as % of net revenue
    14.2%down 70 bps YoY
    Q2 FY26

    Reflecting both the decline in elective surgical volumes and continued improved procurement under our ERP.

    Medical specialist fees as % of net revenue
    5.6%up from 4.8% in prior year
    Q2 FY26

    Increased approximately 19% year over year on the same store basis and outpaced forecast for 5% to 8% growth. Anesthesiology and radiology continue to be the largest pain points.

    Cash flows from operations
    $87 millionimproved from use of $297 million in Q1
    Q2 FY26

    Improved significantly from the use of $297 million in the first quarter.

    Leverage ratio
    6.7xvs 6.6x at year end 2025
    Q2 FY26 end

    The company's leverage at quarter end was 6.7 times versus 6.6 times at year end 2025.

    Debt repurchased
    $368 million
    Q2 FY26

    Completed a tender offer using proceeds from recent investors.

    Debt repurchased
    $231 million
    Q2 FY26

    Completed a tender offer using proceeds from recent investors.

    Uninsured visits
    ~6%up from ~5% prior year
    Q2 FY26

    Approximately 110 basis points higher than prior year, representing just over 6% of visits.

    Same-store surgeries
    -0.1%YoY decline
    Q2 FY26

    With a notable decline of 3.8% in inpatient surgeries.

    Inpatient surgeries
    -3.8%YoY decline
    Q2 FY26

    A notable decline within same-store surgeries.

    Medicaid State Directed Payment Programs EBITDA contribution
    $40 million to $45 million
    Q2 FY26

    Combined EBITDA contribution from recently approved programs, not in previous guidance.

    Arizona State Directed Payment Program reduction
    $15 million
    Q2 FY26

    Offset a portion of the new DPP benefits due to a prior period true-up.

    ACA Disenrollment EBITDA impact
    $20 million
    Q2 FY26

    Estimated negative EBITDA impact in the quarter.

    ACA Disenrollment EBITDA impact
    $25 million
    H1 FY26

    Estimated negative EBITDA impact for the first half of the year.

    Industry KPIs

    5
    MetricValueDetails
    Utilization trends2.9%%
    Same facility volumes2.9%%
    Payer mix supplemental paymentsover 6%%
    Membership covered lives by lineover 6%%
    Adjusted EPS EBITDA leverage guidance$1.3 billion to $1.375 billionUSD

    Deals & partnerships

    3
    Surgical Institute of AlabamaAcquisition of majority ownership

    Strengthening positions in core markets.

    South Anchorage Surgery CenterAcquisition of majority ownership

    Strengthening positions in core markets.

    Unnamed buyerDivestiture of four hospitals in Arkansas$110 million in cash

    Completed during the quarter.

    Risks & headwinds

    8
    Lower Adjusted EBITDAQ2 FY26

    $330 million in Q2 FY26 vs $380 million in prior year

    Mitigation: Continued focus on cost controls and operational efficiency.

    Net Revenue DeclineQ2 FY26

    9.8% YoY decline

    Mitigation: Focus on improving payer mix and service mix, leveraging state-directed payment programs.

    Unexpected Increase in Uninsured VolumesQ2 FY26 and ongoing

    Approximately half of adjusted admissions growth driven by uninsured visits with minimal net revenue; uninsured visits increased 110 bps YoY to over 6% of total visits.

    Mitigation: Addressing payer mix challenges, monitoring ACA disenrollment impacts.

    Softness in Elective Surgical ProceduresQ2 FY26 and expected in H2 FY26

    Same-store surgeries declined 0.1%, inpatient surgeries declined 3.8%.

    Mitigation: Attributed to consumer insecurity, geopolitical instability, and inflationary pressures; monitoring consumer confidence and economic factors; encouraging patients to complete deferred procedures.

    Unfavorable Payer and Service MixQ2 FY26 and expected in H2 FY26

    0.5% decline in net revenue per adjusted admission.

    Mitigation: Focus on attracting higher-acuity and commercially insured patients; leveraging new state-directed payment programs.

    Increase in Medical Specialist FeesQ2 FY26 and ongoing

    Increased approximately 19% YoY, representing 5.6% of net revenue (up from 4.8%).

    Mitigation: In-sourcing certain specialists, managing income guarantees, monitoring anesthesia and radiology costs.

    Payer Payment Slowdown and Increased AuditsQ2 FY26 and ongoing

    Accounts receivable (AR) days are growing.

    Mitigation: Engaging with payers, managing AR, viewing as a timing issue that will normalize after anniversarying.

    ACA Disenrollment ImpactFY26

    Revised FY26 EBITDA impact of $50 million to $75 million (up from $20 million to $30 million).

    Mitigation: Adjusting guidance to reflect higher costs for disenrolled patients utilizing the health system with minimal net revenue.

    What to watch in Q3 FY26

    5

    Surgical volume trends

    next quarter
    CurrentJune showed positive YoY improvement
    TargetSustained positive YoY growth in surgical volumes

    Why it matters

    Surgical volumes, especially elective procedures, are a key driver of revenue and profitability, and their recovery is crucial for improved financial performance.

    as we just tracked kind of through the second quarter, June was our best last month of the quarter, we did see a positive year over year improvement for the month of June.

    Q&A highlights

    7

    What gives confidence that the EPTC headwind won't worsen in H2, given the Q2 impact and typical Q4 margin strength?

    Management clarified the Q2 EBITDA impact from ACA disenrollment was $20 million, bringing the H1 total to $25 million. They now expect a similar impact in H2, with the full-year revised estimate for EBITDA impact at $50 million to $75 million. They believe the volume declines are consistent with expectations and that those who 'tiered down' will behave like higher-deductible commercial patients.

    “So I feel comfortable with our increased range, which now sits between 50 and 75 million of impact on an annual basis.”

    asked by Michael Marion · answered by Jason Johnson

    2 min read6 chapters

    Detailed Narrative

    01

    Operating Performance and Financial Results

    Community Health Systems reported Q2 FY26 adjusted EBITDA of $330 million, down from $380 million in the prior year, with an adjusted EBITDA margin of 11.7%. Net revenue declined 9.8% year-over-year, primarily due to a smaller prior period benefit from state-directed payment programs and recent divestitures. Same-store net revenue increased 2.4%, driven by a 2.9% increase in same-store adjusted admissions, but net revenue per adjusted admission declined 0.5% due to unfavorable payer and service mix.

    02

    Payer Mix and Service Mix Challenges

    The company experienced an unexpected increase in uninsured volumes, which accounted for approximately half of the adjusted admissions growth but generated minimal net revenue. This, combined with continued softness in elective surgical procedures, particularly a 3.8% decline in inpatient surgeries, contributed to a lower surgical versus medical mix. These factors significantly impacted margins and led to the revised full-year outlook.

    03

    Impact of State-Directed Payment Programs

    Results for Q2 FY26 included $40 million to $45 million in combined EBITDA contribution from newly approved Medicaid state-directed payment programs in Florida and Indiana. Approximately $20 million to $25 million of this related to prior periods. However, this benefit was partially offset by an approximate $15 million reduction in the Arizona state-directed payment program due to a prior period true-up📎.

    04

    Cash Flow and Accounts Receivable Dynamics

    Cash flows from operations were $87 million in Q2 FY26, or $143 million when adjusted to exclude cash taxes paid from divestiture proceeds, a significant improvement from a $297 million use in Q1 FY26. However, the company noted a challenge with payers slowing down payments and increasing claim audits and record requests, leading to a growth in accounts receivable days. Management views this as a timing issue rather than a collection issue.

    05

    Surgical Volume Trends and Consumer Confidence

    Softness in elective surgical procedures, particularly orthopedics and cardiac surgeries, was attributed to deteriorating consumer confidence, geopolitical instability, and inflationary pressures. The Consumer Confidence Index reached a 12-month low, and rising gas prices were highlighted as a significant factor impacting disposable income in the company's markets. While inpatient surgeries declined, June showed a positive year-over-year improvement in overall surgical trends, offering some encouragement.

    06

    ACA Disenrollment and Self-Pay Impact

    The company initially estimated a $20 million to $30 million EBITDA impact from ACA disenrollment for FY26. However, based on Q2 experience, the revised full-year estimate for this impact is now $50 million to $75 million. This increase is due to a higher-than-expected number of disenrolled patients continuing to utilize the health system, primarily through emergency room visits, resulting in higher costs with minimal related net revenue.

    AI-generated summary of the company’s earnings call. Not investment advice.