Community Health Systems (CYH), one of the leading hospital operator companies in the US, has taken several steps to increase its market share and its geographical reach.
The graph below shows the trend in Community Health Systems’ operating and net profit margins over the past five quarters.
Community Health Systems and LifePoint Hospitals, Inc. (LPNT) are acquiring hospitals in non-urban communities and select urban communities in the US. The company acquires hospitals to create regional networks, especially in states where more of the population is uninsured.
Although this strategy exposes the company to bad-debt issues, it will be beneficial in the longer term. By positioning itself to be the network provider in under-penetrated markets, the company can earn higher revenues down the road.
Tenet Healthcare Corporation (THC) acquired Vanguard Health Systems to enter new markets for much the same reason.
The healthcare industry, covered by the Healthcare Select Sector SPDR Fund (XLV) incurs substantial expenses for medical supplies and equipment. The acquisition of Health Management Associates (or HMA) increased the Community Health Systems’ ownership in HealthTrust, a group purchasing organization. This will allow the company to buy supplies at better rates.
In short, well-planned mergers are helping the company realize synergies and improve its profitability.
For-profit hospital companies like Community Health Systems and HCA Holdings Inc. (HCA) are also focusing on increasing physician affiliations in newly entered markets. Community Health Systems recruited the largest number of physicians and mid-level practitioners in 2014.
In new markets, patients first approach physicians for treatment. Based on the guidance provided, patients may seek further treatment at hospitals. Community Health Systems aims to take advantage of these referrals to increase its market share.