Thank you, Bailey. Good morning and welcome to Community Health Systems' second quarter 2026 conference call.

Joining me on today's call are Kevin Hammons, Chief Executive Officer, and Jason Johnson, Executive Vice President and 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, which are described in headings such as risk factors in our annual report on Form 10-K and other reports filed with or furnished to the SEC. Actual results may differ significantly from those expressed in any forward-looking statements in 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've also posted a supplemental slide presentation on our website. All calculations we discuss today will exclude gains or losses from early extinguishment of debt, impairment gains or losses on the sale of businesses, and expense for employee termination benefits and other restructuring charges.

With that said, I'll turn the call over to Kevin Hammons, Chief Executive Officer.

Thank you, Anton. Good morning, everyone, and thank you for joining our second quarter 2026 conference call, and for your continued interest in CHS.

Before we get into the call, I want to acknowledge the ongoing commitment and effort of all of our teammates, and thank them for the work they are doing toward advancing our vision to make the healthcare experience exceptional for our patients, our communities, and each other. I am proud to say that in the face of a dynamic operating environment, we have continued to make progress on our top priorities of improving quality, physician experience, patient experience, and employee satisfaction.

In addition to improving Leapfrog safety grades and CMS star ratings that we discussed on last quarter's call, which included 12 of our hospitals achieving a Leapfrog A grade, and approximately 70% achieving Leapfrog A or B grades, we are proud of the recognition coming in from other noteworthy sources. For example, earlier this month, our Lutheran Hospital in Fort Wayne, Indiana was awarded the American College of Cardiology's HeartCARE Center National Distinction of Excellence, the only hospital in the state and one of only 100 hospitals across the country to receive this designation.

Also, several of our hospitals were recognized by CMS for achieving zero hospital-acquired infections, some of the nation's best performance in this area, and many others received recognition and designations reflecting the quality care we provide to our patients. These recognitions underscore the significant progress our clinical teams have driven across multiple measures of safety and quality over the past few years, including record achievement in risk-adjusted mortality index, sepsis mortality, and hospital-acquired infection rates.

We are seeing positive movement in patient experience surveys and in the areas of employee satisfaction and physician experience. The record response rates to our recently completed employee survey shows that we have a very engaged employee base, even as we recognize that we have significant work still to be done.

Our ability to continue advancing in each of these areas will drive enhanced financial performance over time and long-term value creation for our organization and our shareholders. Turning to our operating performance for the second quarter of 2026, adjusted EBITDA was $330 million compared with $380 million in the prior year period on a 9.8% decline in net revenue, primarily reflecting a smaller prior period benefit from newly approved state-directed payment programs, as well as divestitures completed over the past 12 months.

Results for the quarter include the benefits from recently approved Medicaid state-directed payment programs in Indiana and Florida, which were offset by a prior period adjustment to the Arizona state-directed payment program and an unexpected increase in uninsured volumes and continued softness in demand for elective surgical procedures among commercially insured patients, which we attribute to continued consumer insecurity related to geopolitical instability and inflationary pressures. Same-store net revenue increased 2.4% over the prior year period.

Same-store adjusted admissions increased 2.9%. However, approximately half of that volume growth was driven by uninsured visits with minimal related net revenue.

This factor, together with a lower surgical versus medical mix, was more than enough to offset the rate gains from the new state-directed payment programs, resulting in a 0.5% decline in net revenue per adjusted admission for the quarter. We continue to believe that the non-ACA-related payer mix and service mix challenges that we experienced in the first half reflect a temporary disruption in demand for healthcare services in our markets.

In fact, we were encouraged by the improving volume and surgical trends we witnessed exiting the quarter. However, as we consider deteriorating consumer confidence in the markets we serve, economic impacts from escalating hostilities in the Middle East, along with the softer surgeries and unfavorable payer mix we experienced this year to date, we believe it is prudent to be more cautious about the second half of the year, and therefore adjusted our full year outlook accordingly.

Before handing it over, I want to reiterate how proud I am of the progress we are making as an organization and the focus on our top priorities, which we believe will help us navigate a dynamic operating environment and emerge positioned for long-term success and improved financial results. At this point, I will turn the call over to our Chief Financial Officer, Jason Johnson, to review financial results and other information in greater detail.

Jason?

Thank you, Kevin, and good morning, everyone. For the second quarter of 2026, financial results came in below our internal expectations.

The company continued to execute well on the controllable aspects of our business, including strong cost controls, demonstrated further progress on our top priorities, and saw sequential improvement in overall volume trends. However, service and payer mix did not improve as expected, reflecting continued softness in elective procedures, along with higher uncompensated care, both of which drove lower margins.

Adjusted EBITDA for the second quarter was $330 million with a margin of 11.7% versus 12.1% in the prior year period. Results include approximately $40 to $45 million in combined EBITDA contribution from the recently approved Florida and Indiana state-directed payment programs that were not in our previous guidance.

Of this amount, approximately $20 to $25 million related to prior periods. However, a portion of this was offset by an approximate $15 million reduction in the Arizona state-directed program because of a prior period true-up.

Same-store net revenue for the second quarter increased 2.4% year over year. Same-store inpatient admissions increased 1.9% and adjusted admissions increased 2.9%.

Meanwhile, same-store net revenue per adjusted admission declined 0.5% as the rate benefit from new state-directed payment programs was more than offset by unfavorable shifts in payer mix and service mix. As Kevin previously noted, approximately half of the growth in adjusted admissions during the second quarter was from uninsured patients, and similar to other operators, we experienced continued soft demand in commercial elective procedures.

Same-store surgeries declined 0.1% with a notable decline of 3.8% in inpatient surgeries. On the cost side, we performed well with a 0.3% increase in same-store operating expense per adjusted admission.

Labor costs was well managed once again with same-store average hourly rate up approximately 1.1% year over year on a same-store basis, and same-store contract labor spend down 5.6%. However, salaries and benefits expense as a percentage of net revenue increased 100 basis points year over year on a same-store basis, due primarily to increased physician employment.

Supplies expense was well controlled, declining 70 basis points year over year to 14.2% of net revenue on a same-store basis, reflecting both the decline in elective surgical volumes and continued improved procurement under our ERP. Medical specialist fees, meanwhile, increased approximately 19% year over year on a same-store basis and represented 5.6% of net revenue, which was up from 4.8% in the prior year period, and outpaced our forecast for 5% to 8% growth.

Anesthesiology and radiology continued to be the largest pain points in this regard. The increase in anesthesia specialist fees is primarily due to higher salary subsidies from lower net revenues resulting from fewer surgeries.

The increase in radiology fees is primarily due to an increase in imaging volumes. Cash flows from operations were $87 million for the second quarter, or $143 million when adjusted to exclude cash taxes paid out of divestiture proceeds, improving significantly from the use of $297 million in the first quarter.

Several of the items that affected the first quarter cash performance improved or reversed as expected, including improved Medicaid state-directed payment cash flows, less interest paid, and no annual performance bonus payments in the second quarter. In May, we completed a tender offer using proceeds from recent divestitures to repurchase approximately $368 million of the 4.75% senior secured notes due 2031 and $231 million of the 10.875% senior secured notes due 2032.

The company's leverage at quarter end was 6.7 times versus 6.6 times at year end 2025. At quarter end, we had no amounts drawn on our ABL, and our next significant maturity is in 2029.

During the quarter, we completed the previously announced divestiture of four hospitals in Arkansas for $110 million in cash, and also completed the previously announced acquisitions of majority ownership percentages in Surgical Institute of Alabama in Birmingham and South Anchorage Surgery Center in Anchorage, Alaska. These acquisitions are strengthening our positions in core markets and are meeting our expectations for operating and financial performance thus far.

We will continue to evaluate opportunities for growth investments across each of our core markets. As noted in last night's press release, we are updating our financial guidance for 2026.

Specifically, we now expect net revenue to be $11.4 to $11.6 billion and adjusted EBITDA in a range of $1.3 to $1.375 billion. The revised ranges reflect several puts and takes, most notably the full year's benefits from new Medicaid state-directed payment programs in Georgia, Indiana, and Florida, which are more than offset by increased headwinds from macroeconomic factors and disenrollment from Affordable Care Act plans.

On this second point, when we set initial guidance for 2026 in February, we had to make certain assumptions regarding member disenrollment rates, plan switching, and overall patient behavior due to the loss of enhanced premium tax credits. Through the first half of the year, the impact to net revenue has tracked in line with our previous expectations.

However, based on experience to date, we've updated our estimate of how many of these disenrolled patients are continuing to come to our hospitals, which is driving higher costs to provide care with minimal related net revenue. With our revised guidance, we are assuming a similar impact in the second half, along with continued softness in elective surgery volumes, resulting in lower midpoint for adjusted EBITDA.

This concludes our prepared remarks, at this time, we will return the call back over to the operator for Q&A.

Hi, this is Michael Marion on for Ben. Thanks for taking my question.

Believe you mentioned a $20 million headwind related to the EPTC expiring in the quarter, and guidance contemplates a similar run rate for the remainder of the year. What gives you confidence that the EPTC headwind doesn't worsen through the balance of the year, given that 4Qs typically your highest margin quarter, and we're seeing a higher mix of bronze plan selections with very high deductibles?

This is Jason. I'll start and then Kevin can jump in.

For the full year, just to clarify for everyone, we had initially estimated that the net revenue impact from HIX disenrollment would be between $90 and $110 million, and the adjusted EBITDA impact would be between $20 and $30. Coming out of the first quarter, the experience was right in line with those assumptions.

Then in the second quarter, we saw a more significant decline in our HIX volumes, and it was obviously a correlation with our increase in self-pay. We estimate the quarter impact on the EBITDA front to be $20 million negative in the quarter, and about $25 million for the first quarter, $25 million for the first half of the year.

We do think the back half of the year looks like the second quarter, at the midpoint around $20 million-ish. The volume declines are consistent with what we expected in HIX, and the revenues still in our range.

We're assuming that majority of the volume decline in HIX is offset by or is also resulting in an increase in self-pay. I feel comfortable with our increased range, which now sits between $50 and $75 million of impact on an annual basis.

I think that's pure self-pay. I think the people who have maybe metalled down or tiered down are behaving more like any other person that has commercial plans that have a higher deductible, and I think their behavior will mirror more that group.

Hey, good morning, guys. Thanks for taking the question.

Maybe, Jason, as I think about the guidance that you gave given what we've seen in the first half of the year, could you help me bridge to that guide as we think through the back half of the year and anything you'd call out in terms of moving pieces that we need to figure or factor into our models for Q3 and Q4 separately? Thank you.

Thanks for the question, Brian. I'll start.

If you talk about from the midpoint of our initial annual guidance in February was a billion $450. The miss in the first half of the year versus the expectations when we developed that guidance is between $60 and $65 million, we're reduced the annual guidance by that amount.

We assume a similar impact in the second half of the year, we took the second half down by $60 to $70 million. Both those reductions are inclusive of the higher estimated HIX impact that I just mentioned of $50 to $75.

Then on the benefit side, we layered in the back half of the year DPP benefits that we expect from the plans in states that were not approved when we set our initial guidance, weren't factored in. That's Georgia, Indiana, and Florida.

For Florida, just to unpack that a bit, the amount that we recognized for Florida in the second quarter was $20 to $25 million, and that related to the period from October '24 through September '25. We did not continue to accrue at that higher rate for the plan year 2026, which runs from October '25 through September '26, because the plan hasn't been submitted to the CMS yet, and there's some changes in the waivers from what was previously approved, we think it's prudent to kind of wait to see what's ultimately submitted to CMS and how quickly CMS takes to review and ultimately approve the plan.

However, we did factor in the possibilities for the Florida '26 into our guidance. At the low end of our guidance, we assumed that the '26 year is not able to be recognized by year end.

At the high end, we assumed that we are able to recognize the Florida 2026, and the benefit is consistent with the amount that we just recognized in the second quarter.

Understand. Then maybe, Kevin, as I think about the guidance cut, I understand the payer mix headwind here, but when I think about the free cash flow or the operating cash flow adjustment that you made, it looks to be a little bigger.

Just curious how you're thinking about the drivers of that, and what you're able to do. I know some of that is AR related.

Just curious if you can share with us some of the challenges you're facing on the cash flow side that's making it look worse than the payer mix headwind that you called out in the EBITDA line. Thanks.

Sure, and thank you, Brian. One of the challenges that we're experiencing on the cash flow side is really the slow down of payments by the payers, not only just slowing down in the normal course, but they're now auditing more claims before they pay them and having additional record requests.

Oftentimes in the past, those things occurred after payment, and then if there was a problem, there would be some true-up later. Now the behavior of the payers is such that they're doing those exercises prior to payment, which just further slows down the payment process.

Our AR is growing accordingly. Assuming that continues forward, we ultimately get the cash, but it's kind of a one-time slow down in payment.

Our AR days are growing. We've seen some of the payers even talk publicly about increasing their days in AP.

We're on the other side of that equation with increase in days in AR. That said, we don't believe it's necessarily a collection issue.

It's just a timing issue, and once we anniversary that, then we're back on a normal run rate.

Thank you.

Hi, everybody. Just maybe to drill down on what you're seeing in the surgical volumes a little bit more.

I know you called out a couple of service lines. Would you say that the surgeries that you're seeing the softness in are surgeries that traditionally are viewed as more elective and postponable procedures?

Is that what you're seeing? Then can you break it down between is this a phenomenon of what you're seeing around the public exchanges or is it broader than that?

Then also another element of it is, I know you have stand-alone ASCs versus your hospital surgery inpatient/outpatient. Is there any distinction between what you're seeing in the free-standing surgery centers with what you're seeing in the hospital-based surgeries?

Thanks, A.J. This is Kevin.

I'll start on this one. Definitely the procedural softness in service line softness is trending towards more elective procedures.

Orthopedics being the largest decline, your hip and knee and shoulder replacements. Those are typically procedures that people can delay or at least defer for periods of time.

Get a cortisone shot, maybe continue to try to manage the pain and manage through some rehab, at least for a period of time. We're also seeing some softness in cardiac surgeries, and intuitively those seem less elective, but they really are more elective.

As people defer visits to their cardiologist and defer some of their screenings, oftentimes those procedures also get deferred. We saw that during COVID when there was a significant decline, again not intuitive, but there was a significant decline in cardiac procedures during COVID that were hard to explain, but we're seeing some of that as well.

On the inpatient/outpatient, we're seeing bigger declines in the inpatient side, and overall we saw some increase in outpatient surgeries. Our surgery centers are picking up, but it is kind of lower acuity surgeries and not the orthopedic and some of the cardiac procedures that you would normally have expected.

We are seeing really good increases in clinic visits and in things like orthopedic MRIs, those continue to outpace prior year at a pretty significant rate, which would suggest we're capturing the patients. They probably still need the procedures, but those visits and screenings are not translating into surgeries, which lend us to continue to believe or support our belief that it's more of an economic decision that people are delaying the follow-on procedures.

Okay. Then follow-up, maybe just ask about your uncompensated care.

I know you gave the percentage of uncompensated care as percent of revenue up significantly year to year. I wondered if you have any color on the percent of your admissions that are uninsured this year versus last year?

Also I was wondering, did it step up significantly from Q1 to Q2? Sure.

We were approximately 5% of our visits, just shy of 5% of our visits prior year were uncompensated or self-pay patients. This year, we're about 110 basis points higher, just over 6% of visits.

Roughly 20% increase or so in self-pay visits.

Was that different than first quarter materially, or was first quarter sort of similar to second quarter?

Second quarter was greater than first quarter. We did not see that big of an increase in the first quarter.

Okay. Interesting.

All right. Thanks a lot.

Great. Thanks for taking my question.

Maybe can you just walk through some of the mechanisms on the medical specialists fees, right? You've done a lot of work there to insource to help offset industry-wide pressures, but it does seem like these costs will pressure you regardless if volume trends are favorable or unfavorable to your enterprise.

I guess just any updated thoughts on the medical specialist fee backdrop, if you can revisit some of those subsidies if volumes remain pressured or anything else to help offset the growth there would be helpful. Thanks.

Yeah. The most significant component of that's anesthesia that does have the income guarantee.

When volumes are down, surgical volumes in particular, and anesthesiologists are not collecting or generating as much revenues, and so they're guaranteed the minimums in the contract, then we have to pay the subsidies. That one is definitely volume-based to some extent, and then that's where we are seeing the significant amount of increase.

I would say that we are doing several things, and, in fact, we have insourced certain anesthesiologists and a few other specialties in certain locations. In some of those cases when we insource, that may mean that we're not just employing some of the docs, but we're also contracting with some on a 1099 basis.

When that happens, we get the professional fee in revenue, but the payment to the docs for providing the services still goes through medical specialists fees. That impact was about $3 million of net revenue in the quarter versus the prior year, and about $6 million year to date.

There's a little bit of offset, grossed up in revenue, but it's still outpacing what we had expected. Kevin, I don't know if you have any more flavor.

No, I think you covered that.

Got it. Thanks.

Maybe could you guys comment on your thoughts around the proposed Medicare OPPS rule, the outpatient rule, and focus not more so on the 340B proposal, the provision in there, if that were to be finalized, how you're balancing better OPPS rates against from that position against maybe any impacts to potential divestitures or otherwise? Just any thoughts on the proposed rates would be helpful.

Sure. The for-profit hospitals did receive a pretty significant, I think it's close to 10.5% bump in the outpatient rates effective January 1st, 2027.

Yes, the for-profit hospitals who had received a benefit during the Trump administration's first term had received some additional money that was taken out of 340B. We are faced with having to pay that back.

That payback begins next year. That payback of the former 340B money will offset a pretty significant portion of that bump, at least for a few years.

All that said, we think the net increase in outpatient rate for 2027 should be around 5%. It's still a much better improvement in Medicare outpatient rates than we have been getting over the past several years, if not the best ever, even on a net basis.

Then once the full 340B amount is paid back, then that base rate on the outpatient side has been elevated, we've view this as a very positive.

Hi. Thanks.

Just to kind of ask for a little bit more detail on the payer mix and service mix challenges. I guess would you say that those are largely or almost entirely driven by what you're talking about in terms of the exchange dynamics and the commercial elective procedures, or would you say that that kind of extends maybe into the medical side of the business as well?

Wondering if you could talk more about what you're seeing for employer-based coverage and demand there and maybe how that compares to the demand growth that you're seeing in Medicare and Medicaid in the quarter. Thank you.

I think the demand in Medicare continues to be about the same or continue to actually increase, we're seeing increase in Medicare-related population. Commercial, although we've seen some reduction in commercial business, it's been a smaller percentage.

I think the increase in uninsured is primarily coming from the exchange business. You don't have complete visibility into that, but it seems to be the most direct correlation.

There is also a decline in Medicaid, and we're hearing somewhat anecdotally, but more difficulty in some demographics not wanting to sign up for Medicaid or having more difficult time signing up for Medicaid. There's been some decrease in Medicaid volumes, which could also be contributing to some of the increase in uninsured or self-pay.

In terms of kind of the softness in surgeries, we think that is primarily commercially insured patients, and as a result of kind of economic headwinds with copays and deductibles. We're not seeing the decline in the emergency room business, which is where primarily the amount of uninsured care that we're seeing or self-pay business is coming through the emergency room.

It's not the pressure that we're seeing on surgeries.

Okay. Then if we were to set aside the exchange headwinds in the back half and the moving parts on some of the Medicaid dollars, how should we think about what guidance assumes in terms of underlying performance?

Do you assume these dynamics improve at all throughout the balance of the year, or would you say you've reflected something closer to what you saw in the first half now? Thank you.

This is Jason. It really does look similar to the first half.

We in the range do expect on the higher end there could be some more growth in the second half as that commercial volume comes back in. They meet their deductibles in end of the third quarter, early fourth quarter, and then try to get the procedures done before the year end.

The risk, which is more reflected on the lower end, is that they don't get to the point where they meet those deductibles this year, and they continue to defer those elective procedures into the next year.

I think it's fair to say that our back half range assumes a similar decline as we experienced in the first half offset by then some of the approved state-directed payment programs.

Right.

Hi, good morning. I think I heard at one point that the exit rate on surgeries was encouraging.

Can you elaborate on that comment and how that's informing your back half outlook? Thanks.

Sure. As we just track kind of through the second quarter, June was our best month of the quarter.

We did see a positive year-over-year improvement for the month of June. Despite kind of negative or slightly negative on surgeries for the quarter, we were positive year over year in the month of June.

Great. Then, yeah, I appreciate the comments that consumer insecurity is driving lower elective surgeries overall.

I think I've heard both sort of macro concerns around gas prices, as well as deductibles. Is there a view internally on what's the bigger driver of this affordability issue?

Thanks.

I think so a couple of things I'd point to. We look at kind of consumer confidence index, which has trended down.

It was low in March, being a leading indicator which played out in the second quarter, continued softness. That consumer confidence index continued to deteriorate through the second quarter, and I believe it's at a 12-month low right now.

It's down around the lows of when we were during COVID. As we look at that and look at kind of the very near-term impact, I would say that we view that as a little bit of a headwind.

What's contributing to that? A couple things.

Gas, the price at the pump, as we saw or what we thought may have been some improvements in Q1 in consumer confidence as some of the hostilities in the Middle East broke out and gas prices started to go up in that March and April time frame. I think that is having a big impact when you think about our communities and the median household income, which is about $64,000 compared to $81,000 national average.

Our communities sit well below national average, and as gas prices go up, that has a pretty significant impact on disposable income for those households. Healthcare seems to be one of the first things that people will delay or will at least attempt to delay if they can.

I would say that that's probably one of the biggest drivers. I'd also point to, as we have a new Fed chair coming in, at least early in the year, we were expecting rate decreases throughout the year, and now we're looking at the potential of a Fed rate increase.

I think overall in the markets, that's probably having a little bit of a muted impact. We're seeing higher inflation.

The price of groceries is not coming down like that we had anticipated earlier in the year, again putting pressure on household incomes.

Great. Thank you.

Hey, good morning, everybody. One thing we've been focused on is this silver to bronze migration in the ACA.

Is that something that you saw in the quarter? More broadly, has the collectibility on self-pay deteriorated, or do you think that's possible?

Thanks.

We don't have complete visibility into what plan somebody had elected or been under in previous year versus what tier they're under this year. I do think we are seeing more business in the bronze plan this year than we have in the past.

We don't have, again, complete visibility, at least on a piece-by-piece basis, to really analyze that. In terms of collectibility of self-pay, we only collect a few pennies on the dollar anyway, there's no real room to get much worse on that.

We're effectively not recognizing any revenue on that self-pay business.

Okay. Then just the comment on the ACA, I think initially you said $100 million, $100 million-ish revenue and $20 to $30 of EBITDA.

The attach rate was 25%, whereas some of your peers talked about much higher incremental margins. I think Tenet was closer to 100%.

Can you just talk about kind of your current thinking if you lose $100 of ACA revenue, how does that translate into EBITDA losses?

Our initial guidance assumed that the folks who lost insurance from the credits expiring stayed out of the health system. In reality, or to a large extent stayed out.

In reality, we're seeing that those folks who relied on those enhanced premium tax credits to afford exchange insurance plans are continuing to utilize the health system largely in a similar fashion and rate than they did before. These people were high ER utilizers,

and

we've Right. seen that trend.

We underestimated how many people would continue to come to our health system.

Okay. Thank you.

That's very helpful.

Thank you, everyone, for joining the call today. If you have any additional questions, you can always reach us at 615-465-7000.

Have a great day. Thank you.

This concludes today's conference call. You may now disconnect.