Community Health Systems 2015 Annual Report Download - page 82

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Net operating revenues increased by 4.3% to approximately $19.4 billion for the year ended December 31,
2015, from approximately $18.6 billion for the year ended December 31, 2014. Our provision for bad debts
increased to $3.127 billion, or 13.9% of operating revenues (before the provision for bad debts) for the year
ended December 31, 2015, from $2.922 billion, or 13.6% of operating revenues (before the provision for bad
debts) for the year ended December 31, 2014. During the fourth quarter of 2015, we noted that two key indicators
analyzed as part of the estimate for the allowance for doubtful accounts – cash collections as a percentage of
trailing twelve months revenue and days revenue outstanding – had trended unfavorably since the end of the third
quarter. We also updated our analysis of historical collection rates utilized in the estimate for the allowance for
doubtful accounts, which revealed a deterioration in overall collectability of accounts receivable. As a result, we
refined our estimate of the allowance for doubtful accounts and recorded an increase to the provision for bad
debts, which has been accounted for as a change in estimate during the fourth quarter of 2015. We believe the
increase in uncollectible accounts is the result of slightly lower benefits from healthcare reform compared to
what was previously estimated and a deterioration in the quality of certain categories of self-pay accounts being
pursued for collection by our in-house collection agency. These specific categories of self-pay accounts include
decreases in collections of deductibles and co-pays, increases in personal bankruptcies, and declines in the
growth of scheduled time payments.
The $798 million increase in net operating revenues included $404 million of revenues related to the
operations of the hospitals acquired in the HMA merger due to having an additional 26 days of operations for
such hospitals during the year ended December 31, 2015. In addition, net operating revenues from same-store
hospitals, excluding hospitals acquired in the HMA merger, increased $434 million. These increases in revenue
were offset by a decrease of $40 million in revenue related to non-same-store net operating revenue, primarily
from the other four hospitals acquired in 2014 and impacted by the change in estimate of the provision for bad
debts discussed above. On a same-store basis, net operating revenue increased 2.4% during the year ended
December 31, 2015 as compared to the year ended December 31, 2014. The increase in same-store net operating
revenues was attributable to favorable changes in payor mix with corresponding reductions in charity care and
self-pay discounts as a percentage of revenue. On a consolidated basis, inpatient admissions increased by 1.7%
and adjusted admissions increased by 3.5% during the year ended December 31, 2015 as compared to the year
ended December 31, 2014. On a same-store basis, net operating revenues per adjusted admissions increased
2.1%, while inpatient admissions decreased by 1.8% and adjusted admissions increased by 0.3% during the year
ended December 31, 2015 as compared to the year ended December 31, 2014.
Operating expenses as a percentage of net operating revenues increased from 92.8% during the year ended
December 31, 2014 to 93.1% during the year ended December 31, 2015. Operating expenses, excluding
depreciation and amortization and impairment of long-lived assets, as a percentage of net operating revenues,
increased from 86.3% for the year ended December 31, 2014 to 86.8% for the year ended December 31, 2015.
Salaries and benefits, as a percentage of net operating revenues, increased from 46.2% for the year ended
December 31, 2014 to 46.3% for the year ended December 31, 2015. This increase in salaries and benefits, as a
percentage of net operating revenues, was primarily due to annual merit increases and increases in physician
employment, offset by increased productivity during 2015. Supplies, as a percentage of net operating revenues,
increased from 15.4% for the year ended December 31, 2014 to 15.7% for the year ended December 31, 2015,
primarily as a result of an increase in drug costs over the prior year. Other operating expenses, as a percentage of
net operating revenues, decreased from 23.3% for the year ended December 31, 2014 to 23.2% for the year ended
December 31, 2015. This decrease in other operating expenses, as a percentage of net operating revenues, was
primarily due to decreases in expenses related to achieving meaningful use compliance and acquisition and
integration-related expenses, primarily related to the HMA merger. Government settlement and related costs, as a
percentage of net revenues, was 0.5% for the year ended December 31, 2014. There was a nominal amount of
government settlement and related costs for the year ended December 31, 2015. Rent, as a percentage of net
operating revenues, increased from 2.3% for the years ended December 31, 2014 to 2.4% for the year ended
December 31, 2015.
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