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DATE
Friday, October 24, 2025 at 11:00 a.m. ET
CALL PARTICIPANTS
President and Interim Chief Executive Officer — Kevin J. Hammons
Senior Vice President, Chief Accounting Officer, and Interim Chief Financial Officer — Jason Paul Cassorla
Vice President, Investor Relations — Anton Hie
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RISKS
ED visits declined 1.3% year over year, both reflecting persistent softness in outpatient elective procedures and emergency care volumes.
Management highlighted “continued pressure on consumer demand for elective procedures in our markets,” according to Kevin J. Hammons, and cited macroeconomic headwinds dampening outpatient trends.
Leadership acknowledged “ongoing inflationary pressures, and potential incremental upward pressure from tariffs on imported products and raw materials in future periods.” according to Jason Paul Cassorla
Adjusted free cash flows were “slightly negative for the year to date” for the nine months ended September 30, 2025. according to Jason Paul Cassorla, though management anticipates positive full-year free cash flow for 2025 after adjustments.
TAKEAWAYS
Same Store Net Revenue -- Increased 6% year over year, attributed primarily to rate growth and improved payer mix, supplemented by incremental state-directed payments in New Mexico and Tennessee.
Adjusted EBITDA -- $376 million with a margin of 12.2%, up 100 basis points year over year; excluding a $28 million legal settlement, adjusted EBITDA was $348 million and margin was approximately 11.4%.
Volume Metrics -- Same store inpatient admissions rose 1.3% year over year and adjusted admissions grew 0.3% year over year, while same store surgeries fell 2.2% year over year and ED visits declined 1.3% year over year.
Revenue Per Adjusted Admission -- Increased 5.6% year over year; about one third of this growth was due to state-directed payment programs, with the remainder from payer mix improvement despite lower acuity.
Expense Controls -- Supply expense declined year over year and as a percentage of net revenue dropped 20 basis points to 15% (excluding the $28 million settlement); contract labor expenses decreased slightly compared to the prior year.
Medical Specialist Fees -- Totaled $165 million, up approximately 4% year over year on a same store basis, representing 5.4% of net revenue (excluding the settlement), with expectations for continued upward pressure particularly in radiology.
Physician and APP Staffing -- The company increased employed physicians and advanced practice providers by about 160 compared to the prior year, with further onboarding projected into early next year.
Leverage and Refinancing -- Leverage improved to 6.7 times from 7.4 times at year-end 2024; $1.74 billion of senior secured notes due 2027 were refinanced with issuance of $1.79 billion in 2034 notes, extending the nearest significant maturity to 2029.
Cash Flows -- Cash flows from operations were $70 million for the quarter and $277 million year to date; after excluding $126 million in tax outflows on divestitures, adjusted cash flow from operations was $403 million year to date.
Guidance -- Full-year 2025 adjusted EBITDA guidance was tightened to a range of $1.5 billion to $1.55 billion; this does not assume additional divestitures or new supplemental payment programs beyond those already announced.
SUMMARY
Community Health (CYH +25.92%) management identified continuing softness in outpatient elective surgeries and emergency department volumes, which management attributed to macroeconomic factors and regional economic variability. The payer mix improved primarily through higher commercially insured volumes, beginning in early July and sustained throughout the quarter, with management expecting this trend to benefit results in the next quarter. The company received $91 million in contingent cash proceeds from last year’s Tenova with Cleveland divestiture in October, and expects approximately $195 million in proceeds from an upcoming outreach lab asset sale in the fourth quarter to further bolster liquidity. State-directed payment programs in Tennessee and New Mexico contributed about a third of the 5.6% net revenue per adjusted admission growth, though management noted that lower acuity and fewer high-margin elective procedures had a dilutive effect on net revenue per adjusted admission. Management expects supply expense efficiencies to continue as enterprise resource planning (ERP) system optimization progresses, while ongoing recruitment of physicians and service line expansions in select markets are viewed by leadership as positioning the company for future growth.
During the earnings call, Kevin J. Hammons revealed: “solid expense management across most categories helped drive slight margin expansion year over year, even when excluding the benefit from the legal settlement.”
Leadership stated that capital deployment optionality may increase with anticipated positive free cash flow, allowing management to consider “It gives us some optionality of whether we use incremental free cash flows to further delever the company,” according to Kevin J. Hammons or reinvest in tuck-in deals for EBITDA growth.
Management reported no material impact from tighter Medicaid eligibility in Indiana, despite state-level declines in enrollment.
Payer denial trends have “stabilized” according to Kevin J. Hammons since a spike in 2024, with ongoing internal and third-party investments in denials management and revenue cycle efficiencies maintaining current levels.
INDUSTRY GLOSSARY
Same Store Metrics: Financial and operational comparisons from facilities owned throughout both current and prior reporting periods, excluding the impact of divestitures or acquisitions.
Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, adjusted to exclude specified non-recurring or non-operational items, such as legal settlements.
State-Directed Payments (SDP): Government programs in select states that provide supplemental payments to healthcare providers, designed to support Medicaid payment adequacy or other state-defined objectives.
ERP (Enterprise Resource Planning) System: Integrated software platform used to manage core business processes, such as supply chain, procurement, finance, and operations.
AA (Adjusted Admissions): A measure combining inpatient admissions with outpatient activity, typically adjusted to account for outpatient volumes in a consistent framework.
APP (Advanced Practice Provider): Clinicians such as nurse practitioners and physician assistants who deliver patient care services alongside physicians.
Full Conference Call Transcript
Anton Hie: Thank you, Betsy. Good morning, everyone, and welcome to Community Health Systems, Inc. third quarter 2025 conference call. Joining me today on the call are Kevin J. Hammons, President and Interim Chief Executive Officer, and Jason Paul Cassorla, Senior Vice President, Chief Accounting Officer, and Interim Chief Financial Officer. Before we begin, I'll remind everyone this conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts. These forward-looking statements are subject to a number of known and unknown risks, as described in headings such as Risk Factors in our Annual Report on Form 10-Ks and other reports filed with or furnished to the SEC.
Actual results may differ significantly from those expressed in any forward-looking statements today's discussion. We do not intend to update any of these forward-looking statements. Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We also posted a supplemental slide presentation on our website. All calculations we will discuss today exclude gains or losses from early extinguishment of debt and impairment gains or losses on the sale of businesses. With that said, I will turn the call over to Kevin J. Hammons, President and Interim Chief Executive Officer. Kevin?
Kevin J. Hammons: Thank you, Anton. Good morning, everyone, and thank you for joining our third quarter 2025 conference call. Before we jump into discussing the quarter, I want to take a moment to thank the team here at Community Health Systems, Inc. for the support they've shown me and others through the recent transition in senior leadership. It is gratifying to see our team's confidence in the work we are doing here at Community Health Systems, Inc. and their commitment to our future success.
Over the past ninety days or so since stepping into my new role as interim CEO, I've had the opportunity to visit several of our markets and speak with many of our hospital leadership teams, including operational, financial, clinical, and service line leaders. It is always inspiring to see the folks who are providing high-quality care for our patients and helps put into perspective how important our hospitals are to the people and communities they serve. At Community Health Systems, Inc., we will remain focused on supporting our caregivers, physician partners, and support teams to help ensure an exceptional health care experience for our patients.
Next month, approximately 150 CEOs and CFOs from across the Community Health Systems, Inc. network will gather for a leadership conference where we will discuss our vision for the future of the company and our ongoing commitment to investments in quality, improving both physician and patient experience, improving employee satisfaction, and achieving sustainable positive free cash flow. As I've shared with many on our team already, I'm very optimistic about the future of Community Health Systems, Inc. and our opportunities to continuously improve the health care experience, to continue to improve our operational and financial performance, and to create value for our investors through disciplined and proactive management of our business. Now turning to the third quarter operating results.
Our operating performance was in line with our updated expectations, and our reported results were further enhanced by the recognition of a $28 million gain from the settlement of some prior litigation which reimbursed us for previously incurred expenses. Same store net revenue for the third quarter improved 6% year over year. We were encouraged to see some improvement in payer mix on both the sequential and year-over-year basis, as well as realizing the incremental state-directed payments from New Mexico and Tennessee when compared to the prior year. As we have done all year, we continue to grow our inpatient volume.
However, similar to last quarter, the overall business mix remained heavily skewed towards medical versus surgical cases, and inpatient admissions were flat ahead of outpatient elective procedures. However, solid expense management across most categories helped drive slight margin expansion year over year, even when excluding the benefit from the legal settlement. We continue to make targeted investments to advance our competitive position in many key markets during the quarter, including capacity and service line expansion such as the acquisition of a vascular surgery practice and the relocation of a large OB-GYN practice onto our campus both in Birmingham, Alabama.
The addition of a new urology service line in Las Cruces, New Mexico, the addition of a new neurosurgery and spine program in Laredo, Texas, and new robotic surgery programs in two of our New Mexico markets. We are successfully recruiting physicians and advanced practice providers to our markets. At 09/30/2025, we had approximately 160 more employed physicians and APPs in our clinics than in the prior year. With the recent recruits and planned commencements in the fourth quarter and early next year, we should be favorably positioned as we enter 2026. In addition, we continue to improve our capital structure, further reducing our leverage to 6.7 times down from 7.4 times at year-end 2024.
Also, as a reminder, during the quarter, we refinanced $1.74 billion of our senior secured notes due 2027 through the offering of $1.79 billion of 2034 notes, thereby pushing out our nearest significant maturity to 2029. At this point, I want to introduce Jason Paul Cassorla, our interim chief financial officer, and I'll turn the call over to Jason to review the financial results in greater detail and discuss our updated guidance. Jason?
Jason Paul Cassorla: Thank you, Kevin, and good morning, everyone. For the third quarter, Community Health Systems, Inc. delivered results generally consistent with expectations. The overall volume growth was in line with our updated guidance, and with continued solid execution on controllable aspects of our business, the company achieved expansion in adjusted EBITDA margins and remains on track for the full year. Adjusted EBITDA for the third quarter was $376 million compared with $347 million in the prior year period with a margin of 12.2%, increasing 100 basis points year over year. Results included $28 million from the receipt of a settlement of a legal matter recognized as non-patient revenue.
When excluding this amount, adjusted EBITDA was $348 million and margin was approximately 11.4%, up 20 basis points from the prior year period. Please note that the non-patient revenue related to the legal settlement is excluded from the same store metrics provided in our earnings release and supplemental materials. Same store net revenue for the third quarter increased 6% year over year, again driven primarily by rate growth as net revenue per adjusted admission was up 5.6% year over year. Same store inpatient admissions increased 1.3% year over year and adjusted admissions were up 0.3%. Same store surgeries declined 2.2%, and ED visits were down 1.3%.
We were encouraged by the sequential volume performance coming out of the second quarter, which was better than our typical seasonal experience in the third quarter. However, as Kevin previously noted, we again experienced a divergence in inpatient surgeries which were flat year over year, and outpatient surgeries which were down, reflecting continued pressure on consumer demand for elective procedures in our markets. Despite this environment, the company continued to perform well on cost controls, including labor costs. The year-over-year increase in average hourly rate was in line with our expectations, and contract labor expense was down slightly on a year-over-year basis.
We also performed well again on supply expense, which were down year over year and as a percentage of net revenue fell 20 basis points to 15% when excluding the $28 million legal settlement. While we acknowledge ongoing inflationary pressures, and potential incremental upward pressure from tariffs on imported products and raw materials in future periods, we believe that opportunities remain as we stabilize and mature workflows under our ERP. Medical specialist fees were $165 million in the third quarter, up approximately 4% year over year on a same store basis and representing 5.4% of net revenue when excluding the legal settlement, which is generally consistent with recent quarters.
We expect continued upward pressure on medical specialties in the fourth quarter and into next year, especially in radiology, while increased use of emerging or developing technology in AI tools should eventually help on this front. Cash flows from operations were $70 million for the third quarter and $277 million for the year to date. Cash flows from operations for the year to date as reported includes $126 million in outflows for taxes on gains on sales of hospitals, which are paid out of divestiture proceeds that are reported as investing cash flows.
When excluding these cash taxes on divestiture gains, our adjusted cash flows from operations were $403 million for the year to date, and adjusted free cash flows were slightly negative for the year to date. Based on our historical performance, in which the fourth quarter operating cash flows are typically the strongest of the year, we remain confident in our ability to achieve positive free cash flow for the full year of 2025 after adjusting for cash taxes paid on divestiture gains.
In August, we refinanced substantially all of our 2027 maturities using proceeds from an offering of $1.79 billion and 9.75% senior secured notes due 2034 to redeem the tender offer, $1.743 billion or 99% of our outstanding 2027 senior secured notes. As Kevin previously noted, leverage at quarter end was 6.7 times down from 7.4 times at year-end 2024, and our next significant maturity is in 2029 providing ample runway to continue executing our strategic initiatives. As expected, in October, we received $91 million in contingent cash consideration related to last year's divestiture of Tenova with Cleveland.
We also continue to expect the divestiture of our outreach lab asset to close later this quarter with proceeds of approximately $195 million which provide additional liquidity to fund growth investments or further reduce our leverage. Now moving on to our updated 2025 financial guidance. Based on our operating results through the first nine months, along with the benefit from the legal settlement that was not contemplated in the previous guidance, we are tightening our adjusted EBITDA range for the full year 2025 to $1.5 to $1.55 billion. Consistent with our prior approach, this guidance does not contemplate any further divestitures beyond those announced nor does it assume contribution from any new or pending supplemental payment programs.
This concludes our prepared remarks. So at this time, we will turn the call back over to the operator for Q&A.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. We ask that you limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from Brian Gil Tanquilut with Jefferies. Please go ahead.
Brian Gil Tanquilut: Hey, good morning, guys, and congrats on the quarter. Maybe Kevin, as I think about volume performance, obviously nice to see the positive trend in inpatient. But on the outpatient side, you still saw some weakness in surgeries and ER. Just any thoughts you can share with us in terms of what you're seeing in terms of the recovery of volumes there or how are you guys thinking internally in terms of what that trajectory looks like? And maybe also the components of what outpatient is and what you're seeing in those buckets?
Kevin J. Hammons: Thanks, Brian. Absolutely. So as we called out in the second quarter and as I believe we still saw in the third quarter, you know, some of the economic headwinds, more the macroeconomic climate, and consumer confidence seem to be the big headwind. And I think that continued on into the third quarter. Particularly, some of our markets are experiencing, you know, heavier, you know, or more softness economically than other markets. And so we still believe that has been the primary driver of some of the softness.
Now, as consumer confidence seems to be stabilizing and it's bounced off its lows in the second quarter a little bit and seems to be improving, we are seeing some recovery, and I think that, you know, we experienced that where we saw some improvement in payer mix into the third quarter, and we're certainly experiencing that in some of our markets. So that gives us a little more confidence as that payer mix improves and people are feeling better. They're starting to come back in for more procedures. Although we were still down on outpatient elective surgery volume year over year, it was improved over the second quarter. So we did see some improvement there.
I'd also point out maybe this, you know, the immigration climate probably is affecting some of our markets still, if you think about markets in Arizona. Across Texas, primarily, there's still probably a little bit of an overhang there where patient behavior people are staying away from hospitals, at least, you know, on an elective basis more than we've seen in the past. Now we're also experiencing or noticing that in our ER visits. And many of those are uncompensated, so where you're seeing some lower volume and maybe why that hasn't completely been noticed in our EBITDA generation is because some of that volume that we're seeing or loss of volume particularly in the ER and uncompensated care.
And so that has not had a negative EBITDA impact on us.
Brian Gil Tanquilut: That's very helpful, Kevin. And then maybe just a follow-up question for me. How should we be thinking about your divestiture kind of plans or outlook for 2026?
Kevin J. Hammons: Yeah. We're still pursuing divestitures. We're in some early conversations that, you know, too early at this point. We don't know how far those will go, but certainly, we're continuing to get some inbound interest. We are in some more advanced discussions on a couple of deals which we think, you know, could be announced even later this year. But no agreements have been signed at this point. So nothing to report today, but we are advancing some discussions on other deals.
Operator: The next question comes from A.J. Rice with UBS. Please go ahead.
A.J. Rice: Hi, everybody. First of all, I guess you're moving toward this year. It sounds like you think you'll be free cash flow positive on a full-year 2025 basis, assuming the fourth quarter comes in with a couple of hundred million positive for you. Is that as you begin to move to a position where that's ongoing gonna be the case, does that change your thinking on capital deployment, the amount of CapEx you're gonna spend, other initiatives, maybe in deals with outpatient or other things? Any thoughts on that?
Kevin J. Hammons: Thanks, AJ. Absolutely. I think it frees us up a little bit and does allow us to think and be a little more strategic in terms of how we think about either deploying capital. It gives us some optionality of whether we use incremental free cash flows to further delever the company, which in effect would have a virtuous cycle benefit because it reduced future cash flow. We could use it where there are opportunities for some tuck-in deals to spend capital more strategically in areas of things that we think could, you know, generate further EBITDA. So it does free us up and should then again, create a little more of a virtuous cycle for us.
A.J. Rice: Okay. And then, I mean, it's early, I know. But, when you look ahead to '26, and you're starting your budgeting process, etcetera, are there headwinds or tailwinds that you would call out that we should keep in mind as we try to model '26?
Kevin J. Hammons: Yeah. I think I could point out a few things. Certainly taking into consideration the divestitures that we've completed this year, Lake Norman and Shore Point early in the year, Cedar Park divestiture kind of midyear. We did recognize some prior year SVP for Tennessee. That's about $15 to $20 million. That we'll have this year for the settlement gain that we recognized this quarter. As I think about 2026 directionally, some of the things Medicare rate increase will be strong for 2026. We potentially there's a couple other SDP programs out there in Georgia, Florida, Indiana, the Rural Health Fund, which we don't know, can't quantify at this point, but that should be incrementally positive for us.
And then, you know, we're making continue to make some growth investments. And as you just mentioned, with positive free cash flow this year, continuing on into next year, may allow us to further invest in some incremental growth capital.
Jason Paul Cassorla: Okay. Might add, Kevin. This is Jason. That might wanna include this $28 million legal settlement this quarter. Exclude that from the jump-off from the 2025.
A.J. Rice: Right. Okay. Thanks a lot.
Operator: The next question comes from Ben Hendrix with RBC Capital Markets. Please go ahead.
Ben Hendrix: Just a quick question for Kevin and Jason in turn. Just a little bit more color on your early observations in your roles. You know, Kevin, you mentioned you've visited some facilities in East Surprises or anything? Out of expectation in your review of the platform? And then any initiatives you guys are looking at. You've talked a little bit already about capital deployment. But anything in operations or balance sheet management that could deviate from your prior practice?
Kevin J. Hammons: Thanks, Ben. Appreciate the question. You know, I think the short answer is to say I'm really excited about the direction of the company, and I'm confident that we have the right strategies and people in place to execute on our opportunities. We've had, I believe, a very smooth transition of leadership. And I believe we're already picking up momentum in a number of key areas. As I mentioned in my prepared remarks, you know, we have taken the time to visit several local health systems. We've met with health system leaders and I think, substantially all of our major markets. Already. They're very enthusiastic about the progress we're making.
And I just am becoming increasingly confident that our investments are strategic priorities and the resources that we're appropriately laser-focused on those most important aspects of our business. I think we'll see some of that come to fruition here in the near term. With a few areas, you know, I'm highly focused on quality of care. So our quality ratings are patient and physician experience, employee satisfaction, and I won't take my CFO hat on it. I'll continue to be laser-focused on free cash flow. And making sure we've made such great progress over the last, you know, probably nine quarters in a row.
On free cash flow or, you know, trending positively now that we're getting to kind of crossover from being negative to positive free cash flow, I think that's gonna give us a lot more opportunity. So as I think though about those kind of five priority areas, for myself and the progress that we're already making on quality and getting focused on the others. I think that will help. Really accelerate what we can do in the future.
Jason Paul Cassorla: Hey, Brian. This is Jason. You know, Kevin alluded to his CFO hat. So I'm in the position of following the guy who's still here. And Kevin put into place, you know, the focus on adjusted free cash flow and that virtuous cycle and that we're continuing to make sure that we're laser-focused on that. So no change there. You know, I do think about the we got the ERP fully implemented earlier this year. So continuing to optimize that is a big focus. Evaluation of the most efficient use of proceeds from any divestitures. Whether that's investment in capital or deleveraging through debt repurchases.
So from my standpoint, it's just, you know, I've been here with Kevin for a number of years, so I understand what vision is financially. Am aligned with it, and we're continuing on.
Ben Hendrix: Great. Appreciate that. Just a quick follow-up to a prior comment. With the sequential surgical trend you saw from 2Q into 3Q, anything changing in the way we should think about typical 4Q gives me a little more confidence that Q4 could look more like normal seasonal recovery. There was some concern that if and you get to late in the year and people have not met their commercial patients did not come back in Q3, co-pay and deductible, yes, they may put it off. Until early 2026. It's looking less likely that will occur.
But with the, you know, continued kind of headlines around health care and some uncertainty, we did not wanna get ahead of ourselves in terms of guidance or suggesting that, you know, it could be better. But I think we're in a pretty good position coming into Q4. There's also potentially an opportunity that if people are concerned who have exchange insurance, about losing it. There may be, you know, some more of that comes back in. In Q4. Relatively small. Component of our revenues, less than 5% of our net revenue. So I don't think it's a real material needle mover for us, but it potentially could be a slight positive.
Operator: The next question comes from Andrew Mok with Barclays. Please go ahead.
Andrew Mok: Hi. Good morning. I think I want to just follow-up on some of those encouraging volume trends. Were those trends you saw exiting 3Q or at the start of 4Q? And from a category standpoint, what are you seeing? And is the payer mix improvement generally driven more by the employer-based coverage or the ACA?
Kevin J. Hammons: Thanks. So we saw the payer mix improvements really beginning early Q3. In July. So we saw that improvement throughout Q3. So I think, you know, our expectation would be that will likely continue into Q4. Now from a comp perspective, 2024 was strong. And particularly kind of the post-election period we saw consumer confidence kind of spike in Q4 of last year. So we will, you know, have that to climb over. But all in all, directionally and sequentially, I would say that we should continue or we expect that we could continue to see some improvement Q3 to Q4.
In terms of, you know, where we're seeing improvement in terms of the breakdown, it was primarily in commercially insured business. Although we did see improvement in exchange as well. But, again, the exchange business is a relatively small component of our overall network.
Andrew Mok: Great. And on the government side of things, Indiana is one of your largest states, which I think has one of the largest declines in state Medicaid enrollment to date. Are you seeing the impact of tighter Medicaid eligibility in states like Indiana impact your Medicaid volume results?
Kevin J. Hammons: We've not. We've not experienced any significant impact specifically to Indiana from that.
Andrew Mok: Great. Thank you.
Operator: The next question comes from Jason Paul Cassorla with Guggenheim. Please go ahead.
Jason Paul Cassorla: Can you guys hear me?
Kevin J. Hammons: Yep. I guess you did.
Operator: Okay. Got it. Thank you. I just wanted to touch quickly. I you noted kind of thinking about 2026 and the favorable, Medicare IPPS coming in. Obviously, we're waiting on the final outpatient rule. But, like, as you think about if the outpatient were to come in as proposed, like how do you think about the net of those two pieces as it relates to 2026? Would they largely offset each other, or are there nuances from a Medicare rate perspective if the OPPS comes in as proposed?
Kevin J. Hammons: Thanks. You know, I would say if, you know, with the proposed outpatient, what we know an inpatient post outpatient, I still think it's a little net positive to 2026 over 2025.
Jason Paul Cassorla: Okay. Great. Thanks. And maybe just more of a high-level question. On the ambulatory front, I know you have new access points opening up, including a few ASCs. But as you step back, can you just discuss your ambulatory strategy or remind us help frame maybe what inning you're in terms of building out those access points? And you know, how that's helped your market share position and anything else along those fronts would be very helpful. Thanks.
Kevin J. Hammons: Sure. So we are, you know, continue to look at access points. We've been investing in those, you know, for some time. I think each market in our markets each market's a little bit different. We've taken a little different strategy in those markets where we've had capacity constraints on the inpatient side. We have invested in more inpatient dollars such as, you know, this past year, we opened up new towers in Knoxville, Tennessee where we added, I believe, 58 beds. And we added a new patient tower in Foley, Alabama. Both of those markets, we had capacity constraints. Currently, we do not have any of those kind of larger construction projects on the inpatient side in flight.
And so as we kind of move through '25 and into 2026, more of our dollars will be focused on the access points whether that's urgent care, freestanding EDs, ASCs, and so forth. And so I think those are lower dollar. We can do more of them kind of for the same amount of capital. Now we have been opening, you know, three to four freestanding EDs per year. We have, I believe, three ASCs scheduled for opening this quarter. Here in 2025 in the 2025. We'll probably target, you know, kind of six to eight ASCs for next year. In 2026. Along with some additional, you know, freestanding EDs and possibly some urgent care centers.
And then we're always also, you know, acquiring clinics, and hiring new doctors into our existing clinics as well.
Operator: Okay. Great. Thank you. The next question comes from Stephen C. Baxter with Wells Fargo. Please go ahead.
Mitchell: Hi. This is Mitchell on for Steve. Can you please highlight what drove the 5.6% growth in same store revenue per admission and kind of what you see as a sustainable rate there?
Jason Paul Cassorla: Hey, Steven. This is Jason. About a third of that 5.6% improvement in same store net revenue per AA is a result of the Tennessee, New Mexico, state-directed payment programs that were approved in the second quarter. And then the rest of the improvement is payer mix related. And there is some offset. We did have a little bit lower acuity. So I might just add in, you know, in terms of kind of what's sustainable, you know, we think a mid-single-digit net revenue growth, net revenue per AA growth, it's a sustainable number and, you know, between, you know, your Medicare rate increases or commercial rate increases, we expect acuity to recover going forward.
Right now, you know, there is some dilutive impact on the net revenue per AA with the softer outpatient surgeries, particularly orthopedic and cardiac surgeries which have been areas of softness. But as those come back, we should see a lift in the net revenue for AA just as they're higher acuity services.
Mitchell: Very helpful. Thank you.
Operator: The next question comes from Joshua Richard Raskin with Nephron. Please go ahead. Josh, your line is open. You may now ask your question. We appear to have lost connection with Joshua Richard Raskin. Sorry. Do you guys hear me? Do you guys hear me?
Joshua Richard Raskin: Hear you now.
Operator: Oh, sorry about that. Saved by the bell. Sorry. Can you speak to trends from payers around denials and underpayments? Maybe just update there and, more importantly, around maybe the mitigation of those pressures. And I'm curious if you're using any external vendors, or is it all internal services on the RC side and maybe any changes that have been there through the year?
Kevin J. Hammons: Sure. So, you know, we called out really third quarter of last year. In 2024. A big spike in denials. And since that time, it's stabilized. It has not really gotten any worse. But we continue to invest in our physician adviser program. We're investing in some AI tools in terms of how we do denials with our internal revenue cycle team. We are using a combination of third-party vendors as well as, you know, internally developed products on that. Purposes of our revenue cycle team. Our revenue cycle is managed internally. With our own team that they do use a combination of products.
So, you know, as we get better at it, I would say, you know, we've been able to kind of hold things stable which would indicate that the payers are probably, you know, also denying more claims that but we've been more efficient or better at overturning some of those denials in order to kind of keep things status quo.
Joshua Richard Raskin: Perfect. Perfect. That's helpful. And maybe just a quick one. Flu season seems like off to a little bit of a slow start. I assume that's contemplated in guidance, and I'd be curious if you guys are seeing any updates into October as we kind of move into flu season.
Kevin J. Hammons: Yeah. It is contemplated in guidance. And, you know, we haven't seen any big pickup yet. In our facilities in the heavy flu. So at this point, you know, I'm not sure what we'll see yet, you know, for the remainder of the quarter. But we have kind of taken that into consideration.
Joshua Richard Raskin: Perfect. Thanks.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Hammons for any closing remarks.
Kevin J. Hammons: Thank you, everyone, for joining us on the call today. I want to close by reiterating my thanks for our team members at Community Health Systems, Inc. for their commitment and confidence through the leadership transition and as we approach the future together. If you have any additional questions, you can always reach us at (615) 465-7000. Have a good day, everyone.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.