COMMUNITY HEALTH SYSTEMS, INC. You should read this discussion together with our Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.
Executive Overview
We are one of the nation's largest healthcare companies. Our affiliates are leading providers of healthcare services, developing and operating healthcare delivery systems in 46 distinct markets across 16 states. As ofDecember 31, 2022 , our subsidiaries own or lease 80 affiliated hospitals, with approximately 13,000 beds, and operate more than 1,000 sites of care, including physician practices, urgent care centers, freestanding emergency departments, occupational medicine clinics, imaging centers, cancer centers and ambulatory surgery centers. We generate revenues by providing a broad range of general and specialized hospital healthcare services and outpatient services to patients in the communities in which we are located. We are paid for our services by governmental agencies, private insurers and directly by the patients we serve.
Economic Conditions and COVID-19 Pandemic
Economic conditions inthe United States continue to be challenging in various respects, andthe United States economy continues to experience significant inflationary pressures, elevated interest rates, challenging labor market conditions, and disruptions to supply networks. Taking into account these factors, we have incurred, and may continue to incur, increased expenses arising from factors such as wage inflation for permanent employees and increased rates for and utilization of temporary contract labor (including contract nursing personnel), and during the year endedDecember 31, 2022 , we also experienced unfavorable changes in payor mix, declines in inpatient admissions and lower overall acuity. These factors had an unfavorable impact on our financial results during the year endedDecember 31, 2022 , and may have an unfavorable impact on our financial results in future periods which could be material. While we have implemented cost containment and other measures to try to counteract these developments, we may continue to be unable to fully offset the impact of these factors on the operation of our business. In addition, during the year endedDecember 31, 2022 , our financial results were adversely impacted by Hurricane Ian, which negatively impacted certain of our hospitals and other healthcare facilities located inFlorida . As a provider of healthcare services, we have been and may continue to be affected by the public health and economic effects of the COVID-19 pandemic. While we are not able to fully quantify the impact that the pandemic will have on our future financial results, developments related to the pandemic may continue to affect our financial performance. The ongoing impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic, the impact of the pandemic on economic conditions, the volume of canceled or rescheduled procedures at our facilities, and the spread of potentially more contagious and/or virulent forms of the virus, including any variants of the virus that may be resistant to currently available vaccines. If economic conditions inthe United States further significantly deteriorate and/or public health conditions related to the COVID-19 pandemic significantly worsen, any such developments could materially and adversely affect our results of operations, financial position, and/or our cash flows.
Acquisition, Divestiture and Closure Activity
We may give consideration to divesting certain of our hospitals and non-hospital businesses. Generally, these hospitals and non-hospital businesses are not in one of our strategically beneficial service areas, are less complementary to our business strategy and/or have lower operating margins. In addition, we continue to receive interest from potential acquirers for certain of our hospitals and non-hospital businesses. As such, we may sell additional hospitals and/or non-hospital businesses if we consider any such disposition to be in our best interests. We expect proceeds from any such divestitures to be used for general corporate purposes (including potential debt repayments and/or debt repurchases) and capital expenditures. During 2022, we completed the divestiture of one hospital. This hospital represented annual net operating revenues in 2021 of approximately$18 million , and we received total net proceeds of less than$1 million in connection with this disposition. In addition, we completed the divestiture of one hospital onJanuary 1, 2023 , for which we received net proceeds of approximately$85 million at a preliminary closing onDecember 30, 2022 . As noted below, we have also entered into a definitive agreement to sell another hospital which has not yet been completed. During 2021, we completed the divestiture of five hospitals, including three which closed effectiveJanuary 1, 2021 (for these hospitals we received net proceeds at a preliminary closing onDecember 31, 2020 ). These five hospitals represented annual net operating revenues in 2020 of approximately$275 million and, including the net proceeds for the three hospital divestitures that preliminarily closed onDecember 31, 2020 , we received total net proceeds of approximately$28 million in connection with the disposition of these hospitals. 53 -------------------------------------------------------------------------------- During 2020, we completed the divestiture of 13 hospitals, including three which closed effectiveJanuary 1, 2020 (for these hospitals, we received the net proceeds at a preliminary closing onDecember 31, 2019 ). These 13 hospitals represented annual net operating revenues in 2019 of approximately$1.2 billion and, including the net proceeds for the three hospitals that preliminarily closed onDecember 31, 2019 , we received total net proceeds of approximately$845 million in connection with the disposition of these hospitals.
The following table provides a summary of hospitals that we divested during the
years ended
Licensed Effective
Hospital Buyer City, State Beds Date
2022 Divestiture:
AllianceHealth Seminole SSM Health Care of Seminole, OK 32 July 1,
Oklahoma, Inc. 2022
2021 Divestitures:
Lea Regional Medical Covenant Health January 1,
Center System Hobbs, NM 84 2021
Tennova Healthcare - Vanderbilt
Tullahoma University Medical Tullahoma, January 1,
Center TN 135 2021
Tennova Healthcare - Vanderbilt
Shelbyville University Medical Shelbyville, January 1,
Center TN 60 2021
Northwest Mississippi Clarksdale, February
Medical Center Delta Health System MS 181 1, 2021
AllianceHealth Midwest SSM Health Care of Midwest April 1,
Oklahoma, Inc. City, OK 255 2021
2020 Divestitures:
Berwick Hospital Center Fayette Holdings, December
Inc. Berwick, PA 90 1, 2020
Brownwood Regional Medical Hendrick Health Brownwood, October
Center System TX 188 27, 2020
Abilene Regional Medical Hendrick Health October
Center System Abilene, TX 231 27, 2020
San Angelo Community Shannon Health San Angelo, October
Medical Center System TX 171 24, 2020
Bayfront Health St. St.
Petersburg Petersburg, October 1,
Orlando Health, Inc. FL 480 2020
Hill Regional Hospital Hillsboro, August 1,
AHRK Holdings, LLC TX 25 2020
St. Cloud Regional Medical St. Cloud, July 1,
Center Orlando Health, Inc. FL 84 2020
Northern Louisiana Medical Allegiance Health July 1,
Center Management, Inc. Ruston, LA 130 2020
Shands Live Oak Regional HCA Healthcare, May 1,
Medical Center Inc., or HCA Live Oak, FL 25 2020
Shands Starke Regional May 1,
Medical Center HCA Starke, FL 49 2020
Southside Regional Medical Bon Secours Mercy Petersburg, January 1,
Center Health System VA 300 2020
Southampton Memorial Bon Secours Mercy January 1,
Hospital Health System Franklin, VA 105 2020
Southern Virginia Regional Bon Secours Mercy January 1,
Medical Center Health System Emporia, VA 80 2020
During the three months ended September 30, 2022 , we completed the closure of
Shorepoint Health Venice hospital (312 licensed beds) in Venice, Florida . We
recorded an impairment charge of approximately $29 million during the year ended
December 31, 2022 , to adjust the fair value of the long-lived assets of this
hospital, including property and equipment and capitalized software costs, based
on their estimated fair value.
During the three months ended September 30, 2022 , the provision of inpatient
services and substantially all outpatient services ceased at First Hospital
Wyoming Valley (psychiatric hospital) (149 licensed beds) in Wilkes-Barre,
Pennsylvania , resulting in the closure of this facility being substantially
complete as of September 30, 2022 . We completed the closure of First Hospital
Wyoming Valley during the three months ended December 31, 2022 . We recorded an
impairment charge of approximately $15 million during the year ended
December 31, 2022 , to adjust the fair value of the long-lived assets of this
hospital, including property and equipment and capitalized software costs, based
on their estimated fair value.
On January 1, 2023 , we completed the sale of substantially all of the assets of
Greenbrier Valley Medical Center (122 licensed beds) in Ronceverte, West
Virginia , to a subsidiary of Vandalia Health, Inc. pursuant to the terms of a
definitive agreement which was entered into on September 14, 2022 , as amended.
The net proceeds from this sale were received at a preliminary closing on
December 30, 2022 .
On December 30, 2022 , we entered into a definitive agreement for the sale of
substantially all of the assets of Plateau Medical Center (25 licensed beds) in
Oak Hill, West Virginia , to a subsidiary of Vandalia Health, Inc. There can be
no assurance that this potential divestiture subject to definitive agreement
will be completed, or if it is completed, the ultimate timing of the completion
of this divestiture.
During the three months ended December 31, 2022 , we notified the lessor of
AllianceHealth Woodward (87 licensed beds) in Woodward, Oklahoma that the lease
will not be renewed and will therefore expire effective December 1, 2023 . We
recorded an impairment charge of approximately $8 million in conjunction with
the determination to exit this lease.
54
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Effective December 31, 2022 , the lease for AllianceHealth Clinton (56 licensed
beds) in Clinton, Oklahoma expired and was not renewed. We recorded an
impairment charge of approximately $1 million during the year ended December 31,
2022 in conjunction with exiting the lease to operate this hospital.
On July 30, 2021 , we sold our unconsolidated equity interests in Macon
Healthcare, LLC , a joint venture with certain subsidiaries of HCA representing
two hospitals in Macon, Georgia , in which we owned a 38% interest. We received
$110 million in cash in connection with the sale of these equity interests and
recognized a pre-tax gain of approximately $39 million on the sale of our
investments in unconsolidated affiliates during the year ended December 31,
2021 .
Effective September 30, 2020 , one or more affiliates of the Company finalized an
agreement to terminate the lease and cease operations of Shands Lake Shore
Regional Medical Center (99 licensed beds) in Lake City, Florida , including
transferring leased assets back to the landlord, the Lake Shore Hospital
Authority . We recorded an impairment charge of approximately $3 million during
the year ended December 31, 2020 in conjunction with exiting the lease to
operate this hospital.
On November 30, 2020 , we completed the sale of 50% ownership interest in Merit
Health Biloxi (153 licensed beds) and its associated healthcare businesses in
Biloxi, Mississippi to Memorial Properties, Inc. , an affiliate of Memorial
Hospital of Gulfport pursuant to the terms of a definitive agreement which was
entered into October 12, 2020 . Merit Health Biloxi and its associated healthcare
businesses remain consolidated entities of the Company.
During the year ended December 31, 2022 , we paid approximately $9 million to
acquire the operating assets and related businesses of certain physician
practices, clinics, ambulatory surgery centers and other ancillary businesses
that operate within the communities served by our hospitals. We allocated the
purchase price to property and equipment, working capital, noncontrolling
interests and goodwill.
Overview of Operating Results
Our net operating revenues for the year endedDecember 31, 2022 decreased$157 million to approximately$12.2 billion compared to approximately$12.4 billion for the year endedDecember 31, 2021 . On a same-store basis, net operating revenues for the year endedDecember 31, 2022 decreased$27 million .
We had net income of
• an after-tax charge of
legal matters and related costs,
• an after-tax benefit of
debt,
• an after-tax benefit of $93 million from the gain on the CoreTrust
transaction,
• an after-tax charge of $12 million for the change in estimate of the
professional claims liability related to divested locations,
• an after-tax charge of
divested and closed businesses based on their estimated fair values, and
• an after-tax benefit of
closure of businesses as well as service line closures and consolidations at
certain hospitals.
Additionally, during the year endedDecember 31, 2022 , certain of our facilities inFlorida experienced an interruption in their business and incurred additional costs as a direct result of Hurricane Ian, which made landfall in lateSeptember 2022 . The hurricane resulted in an estimated loss of net operating revenues together with incremental expenses directly related to hurricane response efforts of approximately$18 million on a pre-tax basis during the year endedDecember 31, 2022 . Amounts incurred are net of insurance proceeds received to-date totaling$2 million . Due to the timing of this event, it is expected that an immaterial amount of incremental expenses will be incurred in the first half of 2023 for continued clean-up and remediation efforts. Likewise, additional insurance proceeds received by us related to this event, if any, are expected to be immaterial.
Net income for the year ended
• an after-tax charge of
debt,
• an after-tax charge of
divested businesses based on their estimated fair values, net of gains
recognized upon the sale of certain businesses,
• an after-tax benefit of
equity interests in
55
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• an after-tax benefit of
liability claims for which the third-party insurer's obligation to insure us
for the underlying loss has been settled.
Consolidated inpatient admissions for the year endedDecember 31, 2022 , decreased 1.7%, compared to the year endedDecember 31, 2021 , and consolidated adjusted admissions for the year endedDecember 31, 2022 , increased 2.6%, compared to the year endedDecember 31, 2021 . Same-store inpatient admissions for the year endedDecember 31, 2022 , increased 0.5%, compared to the year endedDecember 31, 2021 , and same-store adjusted admissions for the year endedDecember 31, 2022 , increased 5.0%, compared to the year endedDecember 31, 2021 . Self-pay revenues represented approximately 0.7% and 0.9% of net operating revenues for the years endedDecember 31, 2022 and 2021, respectively. The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 11.5% and 8.9% for the years endedDecember 31, 2022 and 2021, respectively. Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.4% and 1.0% for the years endedDecember 31, 2022 and 2021, respectively.
Overview of Legislative and Other Governmental Developments
The healthcare industry is subject to changing political, regulatory, and economic influences that may affect our business. In recent years, the healthcare industry has undergone significant changes, many of which have been aimed at reducing costs and government spending.The U.S. Congress and certain state legislatures have introduced and passed a large number of proposals and legislation affecting the healthcare system, including laws intended to impact access to health insurance. The most prominent of these efforts, the Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed, and expanded health insurance coverage through a combination of public program expansion and private sector health insurance reforms. The Affordable Care Act has been, and continues to be, subject to legislative and regulatory changes and court challenges. For example, effectiveJanuary 1, 2019 , the financial penalty associated with the mandate that most individuals enroll in a health insurance plan was effectively eliminated. However, some states have imposed individual health insurance mandates, and other states have explored or offer public health insurance options. To increase access to health insurance during the COVID-19 pandemic, the ARPA enhanced subsidies for individuals eligible to purchase coverage through Affordable Care Act marketplaces. The Inflation Reduction Act, enacted inAugust 2022 , extends these enhanced subsidies through 2025. In addition, in aSeptember 2021 final rule, HHS extended the annual open enrollment period for coverage through federal marketplaces and granted state exchanges flexibility to lengthen their open enrollment periods. These changes and initiatives may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased. Of critical importance to us is the potential impact of any changes specific to the Medicaid program, including the funding and expansion provisions of the Affordable Care Act and subsequent legislation or agency initiatives. Historically, the states with the greatest reductions in the number of uninsured adult residents have expanded Medicaid. A number of states have opted out of the Medicaid coverage expansion provisions, but could ultimately decide to expand their programs at a later date. Of the 16 states in which we operated hospitals as ofDecember 31, 2022 , nine states have taken action to expand their Medicaid programs. At this time, the other seven states have not, includingFlorida ,Alabama ,Tennessee ,Mississippi andTexas , where we operated a significant number of hospitals as ofDecember 31, 2022 . Some states use, or have applied to use, waivers granted by CMS to implement expansion, impose different eligibility or enrollment conditions, or otherwise implement programs that vary from federal standards. Other recent reform initiatives and proposals at the federal and state levels include those focused on price transparency and limiting out-of-network charges, which may impact prices, our competitive position and the relationships between hospitals, insurers, patients, and ancillary providers (such as anesthesiologists, radiologists, and pathologists). For example, the No Surprises Act imposes various requirements on providers and health plans intended to prevent "surprise" medical bills. Among other restrictions and requirements, the law prohibits providers from charging patients an amount beyond the in-network cost sharing amount for services rendered by out-of-network providers, subject to limited exceptions. For services for which balance billing is prohibited (even when no balance billing occurs), the No Surprises Act includes provisions that may limit the amounts received by out-of-network providers by health plans, and also establishes an IDR process for providers and payors to handle payment disputes that cannot be resolved through direct negotiations. Additionally, in connection with requirements that providers provide, in advance of the date of the scheduled item or service or upon request, a good faith estimate of expected charges to uninsured or self-pay patients for scheduled items and services, such patients may invoke a patient-provider dispute resolution process established by regulation to challenge charges in certain circumstances. Other trends toward transparency and value-based purchasing may impact the competitive position and patient volumes of providers. For example, the CMS Care Compare website makes available to the public certain data that hospitals submit in connection with Medicare reimbursement claims, including hospital performance data on quality measures and patient satisfaction. In addition, Medicare reimbursement for hospitals is adjusted based on quality and efficiency measures, and CMS currently administers various accountable care organizations and bundled payment demonstration projects. The CMS Innovation Center has highlighted the need to 56 -------------------------------------------------------------------------------- accelerate the movement to value-based care and drive broader system transformation. However, the COVID-19 pandemic may impact provider performance and data reporting under value-based care initiatives. CMS has temporarily modified requirements of certain programs by, for example, implementing special scoring and payment policies intended to mitigate negative impacts of the public health emergency on hospitals participating in the Hospital Value-Based Purchasing Program and similar programs. In response to the COVID-19 pandemic, federal and state governments have passed legislation, promulgated regulations, and taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health emergency and to provide financial relief. Primary legislative sources of COVID-19 relief include the CARES Act, the PPPHCE Act, the CAA, and the ARPA. Together, these stimulus laws authorized over$186 billion in funding to be distributed through the PHSSEF to eligible healthcare providers, including public entities and Medicare- and/or Medicaid-enrolled providers. PHSSEF payments are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic and are not required to be repaid, provided that recipients attest to and comply with certain terms and conditions, including limitations on balance billing, not using PHSSEF funds to reimburse expenses or losses that other sources have been or are obligated to reimburse and audit and reporting requirements. The CARES Act and related legislation include other provisions offering financial relief, including through Medicare and Medicaid payment adjustments, such as a 20% add-on to the inpatient PPS DRG rate for COVID-19 patients and delays of scheduled reductions to Medicaid DSH reductions, and expansion of the Medicare Accelerated and Advance Payment Program. All accelerated payments received by us through this program had, by the end of 2021, been recouped or repaid or assumed by buyers in connection with hospitals we divested. In addition, theCongress temporarily suspended the Medicare sequestration payment adjustment, which would have otherwise reduced payments to Medicare providers by 2% as required by the BCA. The sequestration adjustment was phased back in with a 1% reduction beginningApril 1, 2022 , and returned to 2% onJuly 1, 2022 . The BCA sequestration has been extended through the first six months of 2032. The ARPA, in addition to providing funding for healthcare providers, increased the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the PAYGO Act. As a result, an additional Medicare spending reduction of up to 4% was required to take effect inJanuary 2022 . However,Congress has delayed implementation of this payment reduction until 2025. The CARES Act and related legislation also permitted the deferral of payment of the employer portion of social security taxes betweenMarch 27, 2020 andDecember 31, 2020 , with 50% of the deferred amount dueDecember 31, 2021 and the remaining 50% dueDecember 31, 2022 . ThroughDecember 31, 2022 , net of amounts that have been repaid to the respective federal, state, and local agencies, we received approximately$924 million in pandemic relief fund payments through various federal, state and local programs on a cumulative basis since their enactment. Of the net amount received to-date, we received (returned) pandemic relief fund payments through various federal, state and local programs of approximately$161 million ,$58 million and$705 million during the years endedDecember 31, 2022 , 2021 and 2020, respectively. Payments recognized to-date have not impacted net operating revenues, and had a positive impact on net income attributable toCommunity Health Systems, Inc. stockholders during the years endedDecember 31, 2022 , 2021 and 2020 in the amount of$133 million ,$107 million and$452 million , respectively. Amounts received through various federal, state or local programs that have not yet been recognized or otherwise have not been refunded to HHS or the various state and local agencies are included within accrued liabilities-other in the consolidated balance sheets, and such unrecognized amounts may be returned to HHS or the respective state or local agency, as applicable, or may be recognized in future periods if the underlying conditions for recognition are reasonably assured of being met. We have satisfied all current reporting requirements for pandemic relief funds received to-date, as applicable. With respect to the Medicare Accelerated and Advanced Payment Program, we received Medicare accelerated payments of approximately$1.2 billion inApril 2020 . No additional Medicare accelerated payments have been received by us since such time and because CMS is no longer accepting new applications for accelerated payments, we do not expect to receive additional Medicare accelerated payments. CMS began recouping Medicare accelerated payments inApril 2021 . As ofDecember 31, 2022 , all Medicare accelerated payments received by us have been recouped or repaid to CMS or assumed by buyers related to hospitals we divested. Approximately$1.1 billion and$77 million of Medicare accelerated payments were recouped or repaid to CMS or assumed by buyers related to hospitals we divested during the years endedDecember 31, 2021 and 2020, respectively. There is still uncertainty regarding the magnitude and timing of any future payments or benefits that we may receive or realize under the CARES Act and other stimulus and relief legislation passed in response to the COVID-19 pandemic. However, we did not receive or recognize any significant level of payments or benefits under the CARES Act and other existing legislation during the three months endedDecember 31, 2022 , and do not expect to receive or recognize any significant level of payments or benefits under the CARES Act and other existing legislation in future periods. 57 -------------------------------------------------------------------------------- Beyond financial assistance, federal and state governments have enacted legislation and established regulations intended to ease legal and regulatory burdens on healthcare providers. These measures include temporary relief from Medicare conditions of participation requirements for healthcare providers, temporary relaxation of licensure requirements for healthcare professionals, temporary relaxation of privacy restrictions for telehealth remote communications, promoting use of telehealth by temporarily expanding the scope of services for which Medicare reimbursement is available, and limited waivers of fraud and abuse laws for activities related to COVID-19 during the public health emergency period. Asthe United States has experienced a moderation of infection and related hospitalization rates in comparison to earlier periods, federal and state governments have shifted to reducing or terminating certain temporary measures that were implemented earlier in the COVID-19 public health emergency. The public health emergency continues to evolve, and there is uncertainty regarding the ultimate impact to our business of governmental efforts to assist healthcare providers responding to and otherwise affected by the COVID-19 pandemic. Some of the measures allowing for flexibility in delivery of care and various financial supports for healthcare providers are available only until funds expire or for the duration of the federal public health emergency. The current declaration expiresMay 11, 2023 . The presidential administration has indicated that the public health emergency will not be extended. Termination of the public health emergency may impact our operations and financial results. Further, there can be no assurance that the terms of provider relief funding or other programs will not change or be interpreted in ways that affect our funding or eligibility to participate or our ability to comply with applicable requirements and retain amounts received. We continue to assess the potential impact of the CARES Act and other enacted stimulus and relief legislation, the potential impact of future stimulus and relief measures, if any, and the impact of other laws, regulations, and guidance related to COVID-19 on our business, results of operations, financial condition and cash flows. InJune 2022 , theU.S. Supreme Court ruled inAmerican Hospital Association v. Becerra, a case on the 340B Drug Pricing Program that could impact Medicare reimbursement to us, both in respect of past periods and future periods. The 340B program allows certain non-profit healthcare organizations that care for many uninsured and low-income patients to purchase outpatient drugs from pharmaceutical manufacturers at discounted rates. Our hospitals do not participate in the 340B program. In 2018, HHS implemented a payment policy that reduced Medicare payments to 340B hospitals for most drugs obtained at 340B-discounted rates. These payment cuts resulted in increased payments for non-340B hospitals, including our facilities. In Becerra, theU.S. Supreme Court determined that HHS unlawfully reduced reimbursement rates for 340B hospitals. The remedy for past payment years has not yet been determined. However, if it is determined that budget neutrality applies to the remedy, companies or entities that operate non-340B hospitals such as us may be required to repay previously received payments, which could have a material adverse impact on our financial results in any future reporting period in which such future repayments are recognized or paid. In addition, depending on future Medicare payment policies, companies or entities that operate non-340B hospitals such as us could receive decreased reimbursement going forward for outpatient drugs and services, which would adversely impact our results on a prospective basis. As noted above, for calendar year 2023, CMS finalized the payment rate for drugs acquired through the 340B program in light of theU.S. Supreme Court decision and, as a result of the payment rate change, implemented a reduction of approximately 3.1% to payment rates for non-drug services under the outpatient PPS for calendar year 2023 to achieve budget neutrality. As a result of our current levels of cash, available borrowing capacity, long-term outlook on our debt repayments, the refinancing of certain of our notes, proceeds from any potential future disposition of hospitals or other investments such as our minority equity interests in various businesses, as applicable, and the continued projection of our ability to generate cash flows, we anticipate that we will be able to invest the necessary capital in our business over the next 12 months and for the foreseeable future thereafter. We believe there continues to be ample opportunity to strengthen our market share in substantially all of our markets by decreasing the need for patients to travel outside their communities for healthcare. Furthermore, we will continue to strive to improve operating efficiencies and procedures in order to improve the performance of our hospitals.
Sources of Revenue
The following table presents the approximate percentages of net operating revenues by payor source for the periods indicated. The data for the periods presented are not strictly comparable due to the effect that businesses acquired, sold, closed or opened during each of the respective periods, as applicable, have had on these statistics.
Year Ended December 31,
2022 2021 2020
Medicare 20.9 % 21.4 % 23.9 %
Medicaid 14.8 13.5 13.4
Medicare Managed Care 16.1 15.1 13.6
Other third-party payors 47.5 49.1 49.3
Self-pay 0.7 0.9 (0.2 )
Total 100.0 % 100.0 % 100.0 %
58-------------------------------------------------------------------------------- As shown above, we receive a substantial portion of our revenues from the Medicare, Medicaid and Medicare Managed Care programs. Included in other third-party payors is operating revenues from insurance companies with which we have insurance provider contracts, insurance companies for which we do not have insurance provider contracts, workers' compensation carriers and non-patient service revenue, such as rental income and cafeteria sales. In the future, we generally expect the portion of revenues received from the Medicare, including Medicare Managed Care, and Medicaid programs to increase over the long-term due to the general aging of the population and other factors, including health reform initiatives. There has been a trend toward increased enrollment in Medicare and Medicare Managed Care, which may adversely affect our operating revenue. We may also be impacted by regulatory requirements imposed on insurers, such as minimum medical-loss ratios and specific benefit requirements. Furthermore, in the normal course of business, managed care programs, insurance companies and employers actively negotiate the amounts paid to hospitals. Our relationships with payors may be impacted by price transparency initiatives and out-of-network billing restrictions, including those in the No Surprises Act, which took effectJanuary 1, 2022 . There can be no assurance that we will retain our existing reimbursement arrangements or that third-party payors will not attempt to further reduce the rates they pay for our services. Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-based reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for the treatment of patients covered by Medicare, Medicaid and non-governmental payors are generally less than our standard billing rates. We account for the differences between the estimated program reimbursement rates and our standard billing rates as contractual allowance adjustments, which we deduct from gross revenues to arrive at net operating revenues. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net income by an insignificant amount in each of the years endedDecember 31, 2022 , 2021 and 2020. The payment rates under the Medicare program for hospital inpatient and outpatient acute care services are based on prospective payment systems, which depend upon a patient's diagnosis or the clinical complexity of services provided to a patient, among other factors. These rates are indexed for inflation annually, although increases have historically been less than actual inflation. OnAugust 10, 2022 , CMS published the final rule to increase this index by 4.1% for hospital inpatient acute care services that are reimbursed under the prospective payment system for federal fiscal year 2023 (which beganOctober 1, 2022 ). Together with other changes to payment policies, payment rates for hospital inpatient acute care services are expected to increase approximately 4.3%. Hospitals that do not submit required patient quality data are subject to a reduction in payments. We are complying with this data submission requirement. Payments may also be affected by various other adjustments, including those that depend on patient-specific or hospital specific factors. For example, the "two midnight rule" establishes admission and medical review criteria for inpatient services limiting when services to Medicare beneficiaries are payable as inpatient hospital services. Reductions in the rate of increase or overall reductions in Medicare reimbursement may cause a decline in the growth of our net operating revenues. Payment rates under the Medicaid program vary by state. In addition to the base payment rates for specific claims for services rendered to Medicaid enrollees, several states utilize supplemental reimbursement programs to make separate payments that are not specifically tied to an individual's care, some of which offset a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from CMS and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. The programs are generally authorized for a specified period of time and require CMS's approval to be extended. We are unable to predict whether or on what terms CMS will extend the supplemental programs in the states in which we operate. Under these supplemental programs, we recognize revenue and related expenses in the period in which amounts are estimable and payment is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and included as Medicaid revenue in the table above, and fees, taxes or other program related costs are reflected in other operating expenses. Results of Operations Our hospitals offer a broad variety of inpatient and outpatient medical and surgical services. These include general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic services, psychiatric and rehabilitation services. Historically, the strongest demand for hospital services generally occurs during January through April and the weakest demand for these services generally occurs during the summer months. Accordingly, eliminating the effects of new acquisitions and/or divestitures, our net operating revenues and earnings are historically highest during the first quarter and lowest during the third quarter. 59 -------------------------------------------------------------------------------- The following tables summarize, for the periods indicated, selected operating data. Year Ended December 31, 2022 2021 2020 Operating results, as a percentage of net operating revenues: Net operating revenues 100.0 % 100.0 % 100.0 % Operating expenses (a) (88.3 ) (84.1 ) (85.3 ) Depreciation and amortization (4.4 ) (4.4 ) (4.7 ) Impairment and gain (loss) on sale of businesses, net (0.6 ) (0.2 ) (0.4 ) Income from operations 6.7 11.3 9.6 Interest expense, net (7.0 ) (7.2 ) (8.7 ) Gain (loss) from early extinguishment of debt 2.1 (0.6 ) 2.6 Gain on sale of equity interests inMacon Healthcare, LLC - 0.3 - Gain from CoreTrust transaction 1.0 - - Equity in earnings of unconsolidated affiliates 0.1 0.2
0.1
Income before income taxes 2.9 4.0
3.6
(Provision for) benefit from income taxes (1.4 ) (1.0 ) 1.5 Net income 1.5 3.0
5.1
Less: Net income attributable to noncontrolling interests (1.1 ) (1.1 ) (0.8 ) Net income attributable toCommunity Health Systems , Inc. stockholders 0.4 % 1.9 % 4.3 % Year Ended December 31, 2022 2021 Percentage (decrease) increase from prior year: Net operating revenues (1.3 )% 4.9 % Admissions (b) (1.7 ) (5.9 ) Adjusted admissions (c) 2.6 (2.3 ) Average length of stay (d) (6.0 ) 6.4
Net income attributable to
Inc. stockholders (80.0 ) (55.0 ) Same-store percentage (decrease) increase from prior year (e): Net operating revenues (0.2 )% 12.5 % Admissions (b) 0.5 2.2 Adjusted admissions (c) 5.0 5.9
(a) Operating expenses include salaries and benefits, supplies, other operating
expenses, and lease cost and rent, net of the reduction in operating expenses
resulting from the recognition of pandemic relief funds.
(b) Admissions represents the number of patients admitted for inpatient
treatment.
(c) Adjusted admissions is a general measure of combined inpatient and outpatient
volume. Adjusted admissions is computed by multiplying admissions by gross
patient revenues and then dividing that number by gross inpatient revenues.
(d) Average length of stay represents the average number of days inpatients stay
in our hospitals.
(e) Excludes information for businesses sold or closed during each of the
respective periods, as applicable, and one hospital opened in 2022.
Items (b) - (e) are metrics used to manage our performance. These metrics provide useful insight to investors about the volume and acuity of services we provide, which aid in evaluating our financial results.
Year Ended
Net operating revenues decreased by 1.3% to approximately$12.2 billion for the year endedDecember 31, 2022 , from approximately$12.4 billion for the year endedDecember 31, 2021 . Net operating revenues on a same-store basis from hospitals that were operated throughout both periods decreased$27 million , or 0.2%, during the year endedDecember 31, 2022 , compared to the same period in 2021. On a period-over-period basis, there was a decline in net operating revenues as a result of fewer inpatient admissions which was partially offset by an increase in outpatient visits and surgeries. Also, lower overall acuity of services was 60 -------------------------------------------------------------------------------- partially offset by improved reimbursement rates. Non-same-store net operating revenues decreased$130 million during the year endedDecember 31, 2022 , compared to the same period in 2021, with the decrease attributable primarily to the divestiture of hospitals during 2021 and 2022. On a consolidated basis, inpatient admissions decreased by 1.7% during the year endedDecember 31, 2022 , compared to the same period in 2021. Also on a consolidated basis, adjusted admissions increased by 2.6% during the year endedDecember 31, 2022 , as compared to the same period in 2021. On a same-store basis, net operating revenues per adjusted admission decreased 5.0%, while inpatient admissions increased by 0.5% and adjusted admissions increased by 5.0% for the year endedDecember 31, 2022 , compared to the same period in 2021. Operating costs and expenses, as a percentage of net operating revenues, increased from 88.7% during the year endedDecember 31, 2021 to 93.3% during the year endedDecember 31, 2022 . Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, increased from 84.1% for the year endedDecember 31, 2021 to 88.3% for the year endedDecember 31, 2022 . Salaries and benefits increased as a percentage of net operating revenues from 42.4% for the year endedDecember 31, 2021 to 43.6% for the year endedDecember 31, 2022 , primarily due to wage increases driven by inflation and current competitive labor market conditions. Supplies, as a percentage of net operating revenues, decreased from 16.5% for the year endedDecember 31, 2021 to 16.2% for the year endedDecember 31, 2022 . Other operating expenses, as a percentage of net operating revenues, increased from 23.9% for the year endedDecember 31, 2021 to 27.3% for the year endedDecember 31, 2022 , primarily due to higher costs for contract labor, professional liability insurance and medical specialist fees. Lease cost and rent, as a percentage of net operating revenues, increased from 2.5% for the year endedDecember 31, 2021 to 2.6% for the year endedDecember 31, 2022 . Pandemic relief funds, as a percentage of net operating revenues, were (1.4)% for the year endedDecember 31, 2022 , compared to (1.2)% for the same period in 2021.
Depreciation and amortization, as a percentage of net operating revenues,
remained consistent at 4.4% for both years ended
Impairment and (gain) loss on sale of businesses was$71 million for the year endedDecember 31, 2022 , which primarily related to a hospital divestiture and the closure or non-renewal of leases for three hospitals as discussed more specifically under "Acquisition, Divestiture, Closures and Other Activity" herein, compared to$24 million for the same period in 2021, which related primarily to divestitures during the period. Interest expense, net, decreased by$27 million to$858 million for the year endedDecember 31, 2022 compared to$885 million for the same period in 2021. This was primarily due to our debt refinancing activity during 2021 and 2022. Gain from early extinguishment of debt of$253 million was recognized during the year endedDecember 31, 2022 , compared to a loss from early extinguishment of debt of$79 million in the same period in 2021, as a result of the refinancing of certain of our outstanding notes in each period as well as open market and privately negotiated repurchases of certain of our outstanding notes completed during the year endedDecember 31, 2022 . There was no pre-tax gain recognized on the sale of unconsolidated equity interests during the year endedDecember 31, 2022 . A pre-tax gain of$39 million was recognized during the year endedDecember 31, 2021 on the sale of unconsolidated equity interests inMacon Healthcare, LLC , a joint venture with certain subsidiaries of HCA representing two hospitals inMacon, Georgia , in which we owned a 38% interest. Gain from the CoreTrust transaction of$119 million was recognized during the year endedDecember 31, 2022 , as discussed below under the heading "Liquidity and Capital Resources." There was no gain from the CoreTrust transaction recognized during the year endedDecember 31, 2021 . Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, decreased to (0.1)% for the year endedDecember 31, 2022 from (0.2)% for the year endedDecember 31, 2021 , primarily due to the sale of our unconsolidated equity interests inMacon Healthcare, LLC during the year endedDecember 31, 2021 . The net results of the above-mentioned changes resulted in income before income taxes decreasing$150 million to$349 million for the year endedDecember 31, 2022 from$499 million for the year endedDecember 31, 2021 . Our provision for income taxes for the years endedDecember 31, 2022 and 2021 was$170 million and$131 million , respectively, and the effective tax rates were 48.7% and 26.3% for the years endedDecember 31, 2022 and 2021, respectively. The increase in the provision for income taxes for the year endedDecember 31, 2022 , compared to the same period in 2021 was primarily due to an increase in non-deductible interest for 2022 compared to 2021, compounded by an adverse change in the Internal Revenue Code Section 163(j) limit for deductible interest expense beginning in 2022. The difference in our effective tax rate for the year endedDecember 31, 2022 , compared to the same period in 2021 was due to the aforementioned increase in the provision for income taxes and the decline in income before taxes. 61 --------------------------------------------------------------------------------
Net income, as a percentage of net operating revenues, was 1.5% for the year
ended
Net income attributable to noncontrolling interests, as a percentage of net
operating revenues, remained consistent at 1.1% for both years ended
Net income attributable toCommunity Health Systems, Inc. was$46 million for the year endedDecember 31, 2022 , compared to$230 million for the same period in 2021.
Year Ended
Net operating revenues increased by 4.9% to approximately$12.4 billion for the year endedDecember 31, 2021 , from approximately$11.8 billion for the year endedDecember 31, 2020 . Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased$1.4 billion , or 12.5%, during the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . The increase in same-store net operating revenues was primarily due to increased volumes and higher acuity during 2021. Non-same-store net operating revenues decreased$794 million during the year endedDecember 31, 2021 , in comparison to the prior year period, with the decrease attributable primarily to the divestiture of hospitals during 2020 and 2021. On a consolidated basis, inpatient admissions decreased by 5.9% during the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . Also on a consolidated basis, adjusted admissions decreased by 2.3% during the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . On a same-store basis, net operating revenues per adjusted admission increased 6.3%, while inpatient admissions increased by 2.2% and adjusted admissions increased by 5.9% for the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 . All operating expense calculations, as a percentage of net operating revenues, were impacted by the net effect of divestitures and the aforementioned increase in same-store net operating revenues. Operating costs and expenses, as a percentage of net operating revenues, decreased from 90.4% during the year endedDecember 31, 2020 to 88.7% during the year endedDecember 31, 2021 . Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, decreased from 85.3% for the year endedDecember 31, 2020 to 84.1% for the year endedDecember 31, 2021 . Salaries and benefits decreased as a percentage of net operating revenues from 45.9% for the year endedDecember 31, 2020 to 42.4% for the year endedDecember 31, 2021 . Supplies, as a percentage of net operating revenues, decreased from 16.6% for the year endedDecember 31, 2020 to 16.5% for the year endedDecember 31, 2021 . Other operating expenses, as a percentage of net operating revenues, decreased from 25.1% for the year endedDecember 31, 2020 to 23.9% for the year endedDecember 31, 2021 . Lease cost and rent, as a percentage of net operating revenues, decreased from 2.8% for the year endedDecember 31, 2020 to 2.5% for the year endedDecember 31, 2021 . Pandemic relief funds, as a percentage of net operating revenues, were (1.2)% for the year endedDecember 31, 2021 , compared to (5.1)% for the year endedDecember 31, 2020 . The decreases in salaries and benefits, supplies and lease cost and rent, as a percentage of net operating revenues, during the year endedDecember 31, 2021 compared toDecember 31, 2020 is primarily due to the impact of the COVID-19 pandemic on net operating revenues in 2020. Depreciation and amortization, as a percentage of net operating revenues, decreased to 4.4% for the year endedDecember 31, 2021 from 4.7% for the year endedDecember 31, 2020 , primarily due to a decrease in net operating revenues as a result of the COVID-19 pandemic in 2020. Impairment and (gain) loss on sale of businesses was$24 million for the year endedDecember 31, 2021 , compared to$48 million for the year endedDecember 31, 2020 , related to impairment of the long-lived assets and reporting unit goodwill allocated to hospitals classified as held-for-sale or sold during the respective periods. Interest expense, net, decreased by$146 million to$885 million for the year endedDecember 31, 2021 compared to$1.031 billion for the year endedDecember 31, 2020 . This was primarily due to our debt refinancing activity during the years endedDecember 31, 2021 and 2020 as discussed further in Capital Resources. Loss from early extinguishment of debt of$79 million was recognized during the year endedDecember 31, 2021 , as a result of the refinancing of certain of our outstanding notes as discussed further in Capital Resources. Gain from early extinguishment of debt of$317 million was recognized during the year endedDecember 31, 2020 , as a result of various financing activities.
Equity in earnings of unconsolidated affiliates, as a percentage of net
operating revenues, increased to (0.2)% for the year ended
The net results of the above-mentioned changes resulted in income before income taxes increasing$77 million to$499 million for the year endedDecember 31, 2021 from$422 million for the year endedDecember 31, 2020 . 62 -------------------------------------------------------------------------------- Our provision for income taxes for the year endedDecember 31, 2021 was$131 million compared to a benefit from income taxes of$185 million for the year endedDecember 31, 2020 . Our effective tax rates were 26.3% and (43.8)% for the years endedDecember 31, 2021 and 2020, respectively. The difference in our effective tax rate for the year endedDecember 31, 2021 , when compared to the year endedDecember 31, 2020 , was primarily due to a decrease in the valuation allowance in 2020 as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act; the CARES Act related benefits for deductibility of interest recognized in 2020 did not reoccur in 2021.
Net income, as a percentage of net operating revenues, was 3.0% for the year
ended
Net income attributable to noncontrolling interests, as a percentage of net
operating revenues, increased to 1.1% for the year ended
Net income attributable toCommunity Health Systems, Inc. was$230 million for the year endedDecember 31, 2021 , compared to$511 million for the year endedDecember 31, 2020 . Cybersecurity Event As previously disclosed on a Current Report on Form 8-K filed by us onFebruary 13, 2023 ,Fortra, LLC , a third-party vendor who provides a secure file transfer software platform utilized by our subsidiaries experienced a security breach whereby PHI and PI of certain patients of our healthcare facilities were exposed to Fortra's attacker. Upon receiving notification of the security breach, we promptly launched an investigation. While the investigation is ongoing, we do not believe this security breach has had an impact on any of our information systems and we have not experienced a material interruption of business, including the delivery of patient care. With regard to the PHI and PI compromised by the Fortra breach, we currently estimate that approximately one million individuals may have been affected by this attack. We have incurred, and may incur in the future, expenses and losses related to this incident, some of which may not be covered by our cyber/privacy liability insurance policies. We will ensure that appropriate notification is provided to affected patients and regulatory agencies as required by federal and state law. While we are continuing to measure the impact of this security breach, including certain remediation expenses and other potential liabilities, we do not currently believe this incident will have a material adverse effect on our business, operations, or financial results.
Liquidity and Capital Resources
2022 Compared to 2021
Net cash provided by operating activities was approximately$300 million for the year endedDecember 31, 2022 , compared to net cash used in operating activities of$131 million for the year endedDecember 31, 2021 , with the change primarily attributable to the repayment of Medicare accelerated payments in 2021. Total cash paid for interest increased to approximately$835 million for the year endedDecember 31, 2022 , from approximately$778 million for the year endedDecember 31, 2021 . Cash paid for income taxes, net of refunds received, resulted in a net payment of$6 million and$4 million during the years endedDecember 31, 2022 and 2021, respectively. Our net cash used in investing activities was approximately$259 million for the year endedDecember 31, 2022 , compared to approximately$524 million for the year endedDecember 31, 2021 , a decrease of approximately$265 million . The decrease in net cash used in investing activities during the year endedDecember 31, 2022 , compared to the prior year, primarily resulted from a decrease of$54 million in cash used for the purchase of property and equipment, an increase of$28 million in cash proceeds from the sale of property and equipment, a decrease of$53 million in cash used to purchase other investments, a decrease of$65 million in cash used in the net impact of the purchases and sales of available-for-sale debt and equity securities, an increase resulting from$121 million in cash representing our share of proceeds from the sale of a majority interest in CoreTrust by HealthTrust, a group purchasing organization in which we are a noncontrolling partner, distributed during the year endedDecember 31, 2022 , and an increase of$72 million in cash proceeds from dispositions of hospitals and other ancillary operations. These items, which decreased cash used in investing activities, were partially offset by an increase of$6 million in cash paid for acquisitions of facilities and other related businesses, an increase of$12 million in cash used to purchase investments in unconsolidated affiliates, and a decrease of$110 million in cash from the sale of equity interests inMacon Healthcare, LLC during the year endedDecember 31, 2022 , compared to the year endedDecember 31, 2021 . Our net cash used in financing activities was$430 million for the year endedDecember 31, 2022 , compared to approximately$514 million for the year endedDecember 31, 2021 , a decrease of approximately$84 million . This was primarily due to the net effect of our debt repayments, refinancing activities, and cash paid for deferred financing costs and other debt-related costs during the years endedDecember 31, 2022 and 2021. 63 --------------------------------------------------------------------------------
2021 Compared to 2020
Net cash used in operating activities was approximately$131 million for the year endedDecember 31, 2021 , compared to net cash provided by operating activities of$2.2 billion for the year endedDecember 31, 2020 . The change was primarily attributable to the receipt of Medicare accelerated payments as well as PHSSEF funds under the CARES Act and PPPHCE Act during the year endedDecember 31, 2020 and the repayment of Medicare accelerated payments during the year endedDecember 31, 2021 . Total cash paid for interest decreased to approximately$778 million for the year endedDecember 31, 2021 from approximately$1.0 billion for the year endedDecember 31, 2020 . Cash paid for income taxes, net of refunds received, resulted in a net payment of$4 million and$2 million during the years endedDecember 31, 2021 and 2020, respectively. Our net cash used in investing activities was approximately$524 million for the year endedDecember 31, 2021 , compared to net cash provided by investing activities of approximately$177 million for the year endedDecember 31, 2020 , a decrease of approximately$701 million . The cash used in investing activities during the year endedDecember 31, 2021 was primarily impacted by a decrease of$631 million in cash proceeds from dispositions of hospitals and other ancillary operations, an increase in cash used in the purchase of property and equipment of$29 million , an increase of$2 million in cash used for acquisition of facilities and other related businesses, a decrease in cash used in the net impact of the purchase and sale of available-for-sale and equity securities of$85 million , an increase in cash from proceeds from the sale of equity interests inMacon Healthcare, LLC of$110 million and an increase in cash used to purchase other investments of$64 million . Our net cash used in financing activities was$514 million for the year endedDecember 31, 2021 , compared to approximately$895 million for the year endedDecember 31, 2020 , an increase of approximately$381 million . The increase in cash used in financing activities, in comparison to the prior year, was primarily due to the net effect of our debt repayments, refinancing activities, and cash paid for deferred financing costs and other debt-related costs as further described below.
Liquidity
Net working capital was approximately$896 million and$1.1 billion atDecember 31, 2022 andDecember 31, 2021 , respectively. Net working capital decreased by approximately$219 million betweenDecember 31, 2021 andDecember 31, 2022 . The decrease is primarily due to the decrease in cash and cash equivalents as a result of cash paid for interest, deferred financing costs, contract labor and open market and privately negotiated repurchases of certain of our outstanding notes as well as a decrease in patient accounts receivable, net, during the year endedDecember 31, 2022 , partially offset by an increase in prepaid expenses and taxes and a decrease in accrued employee compensation. In addition to cash flows from operations, available sources of capital include amounts available under the asset-based loan (ABL) credit agreement, or the ABL Credit Agreement, as amended and restated onNovember 22, 2021 , and anticipated access to public and private debt markets as well as proceeds from the disposition of hospitals or other investments such as our minority equity interests in various businesses, as applicable. Pursuant to the ABL Credit Agreement, the lenders have extended toCHS/Community Health Systems, Inc. , or CHS, a revolving asset-based loan facility. The maximum aggregate amount under the ABL Facility is$1.0 billion , subject to borrowing base capacity. AtDecember 31, 2022 , we had outstanding borrowings of$53 million and approximately$852 million of additional borrowing capacity (after taking into consideration$83 million of outstanding letters of credit) under the ABL Facility. Letters of credit were reduced during the year endedDecember 31, 2022 by$20 million primarily due to a reduction in an insurance-related letter of credit. The issued letters of credit were primarily in support of potential insurance-related claims and certain bonds. Principal amounts outstanding under the ABL Facility, if any, will be due and payable in full onNovember 22, 2026 . 2021 Financing Activity
On
OnFebruary 2, 2021 , we completed a private offering of$1.775 billion aggregate principal amount of 6?% Junior-Priority Secured Notes dueApril 15, 2029 , or the 6?% Junior-Priority Secured Notes due 2029. The proceeds of the offering were used, together with cash on hand, to redeem the 9?% Junior-Priority Secured Notes due 2023 via a tender offer which was funded onFebruary 2, 2021 , or to the extent not tendered, to fund the redemption of the remaining notes onFebruary 4, 2021 , and to pay related fees and expenses. The 6?% Junior-Priority Secured Notes due 2029 bear interest at a rate of 6.875% per year payable semi-annually in arrears onApril 15 andOctober 15 of each year, commencing onOctober 15, 2021 . OnFebruary 9, 2021 , we completed a private offering of$1.095 billion aggregate principal amount of 4¾% Senior Secured Notes dueFebruary 15, 2031 , or the 4¾% Senior Secured Notes due 2031. The proceeds of the offering were used, together with cash on 64 --------------------------------------------------------------------------------
hand, to redeem the 8?% Senior Secured Notes due 2024 on
On
OnMay 19, 2021 , we completed a private offering of$1.440 billion aggregate principal amount of 6?% Junior-Priority Secured Notes dueApril 1, 2030 , or the 6?% Junior-Priority Secured Notes due 2030. The proceeds of the offering were used, together with cash on hand, to redeem the 8?% Junior-Priority Secured Notes due 2024 onMay 19, 2021 and to pay related fees and expenses. The 6?% Junior-Priority Secured Notes due 2030 bear interest at a rate of 6.125% per year payable semi-annually in arrears onApril 1 andOctober 1 , commencing onOctober 1, 2021 . OnNovember 22, 2021 , we entered into an amendment and restatement agreement, or the Amendment, to refinance and replace the Credit Agreement, and, as amended by the Amendment, or the Amended and Restated ABL Credit Agreement, dated as ofApril 3, 2018 withJPMorgan Chase Bank, N.A ., as administrative agent, and the lenders and other agents party thereto. Pursuant to the Amended and Restated ABL Credit Agreement, we have a revolving asset-based loan facility available to us in the maximum aggregate principal amount of$1.0 billion , subject to borrowing base capacity. The ABL Facility includes borrowing capacity available for letters of credit of$200 million . Refer to Note 6 of the Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K for additional information about the ABL Facility.
2022 Financing Activity
OnFebruary 4, 2022 , we completed a private offering of$1.535 billion aggregate principal amount of 5¼% Senior Secured Notes dueMay 15, 2030 , or the 5¼% Senior Secured Notes due 2030. The proceeds of the offering were used to redeem the 6?% Senior Secured Notes due 2025 onFebruary 4, 2022 , and to pay related fees and expenses. The 5¼% Senior Secured Notes due 2030 bear interest at a rate of 5.250% per year payable semi-annually in arrears onMay 15 andNovember 15 , commencing onNovember 15, 2022 .
During the year ended
Principal Amount
6?% Senior Notes due 2028 $ 11
4¾% Senior Secured Notes due 2031 37
6?% Junior-Priority Secured Notes due 2029 389
6?% Junior-Priority Secured Notes due 2030 208
Total principal amount of debt extinguished $ 645
A pre-tax gain from early extinguishment of debt of approximately $253 million
was recognized associated with these financing activities during the year ended
December 31, 2022 .
Additional Liquidity Information
Our ability to meet the restricted covenants and financial ratios and tests in the ABL Facility and the indentures governing our outstanding notes can be affected by events beyond our control, and we cannot assure you that we will meet those tests. A breach of any of these covenants could result in a default under the ABL Facility and/or the indentures that govern our outstanding notes. Upon the occurrence of an event of default under the ABL Facility or indentures that govern our outstanding notes, all amounts outstanding under the ABL Facility and the indentures that govern our outstanding notes may become immediately due and payable and all commitments under the ABL Facility to extend further credit may be terminated. As ofDecember 31, 2022 , approximately$21 million of our outstanding debt of approximately$11.6 billion is due within the next 12 months and approximately 100% of our outstanding debt has a fixed rate of interest. Our debt as a percentage of total capitalization remained consistent at 112% for the years endedDecember 31, 2022 and 2021.
Net proceeds from divestitures, if any, are expected to be used for general corporate purposes (including potential debt repayments and/or debt repurchases) and capital expenditures.
65
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As previously discussed, we may require an increased level of working capital if
we experience extended billing and collection cycles resulting from ongoing
negative economic conditions and/or factors arising from the COVID-19 pandemic,
which may impact service mix, revenue mix, payor mix and patient volumes, as
well as our ability to collect outstanding receivables. A material increase in
the amount or deterioration in the collectability of accounts receivable would
adversely affect our cash flows and results of operations, requiring an
increased level of working capital.
We believe that internally generated cash flows and current levels of
availability for additional borrowing under the ABL Facility, as well as our
continued access to the capital markets, will be sufficient to finance
acquisitions, capital expenditures, working capital requirements, and any debt
repurchases or other debt repayments we may elect to make or be required to make
through the next 12 months and the foreseeable future thereafter. Pandemic
relief funds that we have received and may continue to receive through various
federal, state and local stimulus or relief programs have been and will continue
to be used according to applicable terms and conditions as reimbursement for
lost revenues or incremental expenses attributable to COVID-19, including
working capital requirements and capital expenditures. In addition, ongoing
negative economic conditions (including inflationary conditions and elevated
interest rate levels) and/or the COVID-19 pandemic have resulted in, and may
continue to result in, significant disruptions of financial and capital markets,
which could reduce our ability to access capital and negatively affect our
liquidity in the future. Additionally, while we have received and may continue
to receive pandemic relief funds and may continue to be able to utilize pandemic
relief funds which have been received, as noted above, there is no assurance
regarding the extent to which we will continue to benefit from these payments or
other stimulus and relief measures. Moreover, we do not expect to receive or
recognize any significant level of payments or benefits under the CARES Act and
other existing legislation in future periods.
As noted above, during the year ended December 31, 2022 , we extinguished a
portion of certain series of our outstanding notes through open market and
privately negotiated repurchases, and we may elect from time to time to continue
to purchase our outstanding debt in open market purchases, privately negotiated
transactions or otherwise. Any such debt repurchases will depend upon prevailing
market conditions, our liquidity requirements, contractual restrictions,
applicable securities laws requirements, and other factors.
Capital Resources
Material cash requirements from known contractual and other obligations primarily consist of purchase obligations, long-term debt and related interest payments, operating leases, finance leasing and financing obligations, and capital expenditures related to routine capital, information systems infrastructure and applications, replacement or de novo construction projects and bed expansion projects, certain commitments and other investments. Refer to Notes 6, 9 and 15 of the Notes to Consolidated Financial Statements for amounts outstanding as ofDecember 31, 2022 related to long-term debt, and related interest payments, operating leases, finance leasing and financing obligations, and certain commitments. Purchase obligations include supplies and third-party services purchased in the normal course of business. Open purchase orders total$269 million as ofDecember 31, 2022 and substantially all such amounts are due in the next 12 months. Other investments includes, among other things, purchases of investments in unconsolidated affiliates which are expected to be incurred within the next 24 months. Cash expenditures for purchases of facilities and other related businesses were approximately$9 million in 2022,$3 million in 2021 and$1 million in 2020. Our expenditures for the years endedDecember 31, 2022 , 2021 and 2020, were primarily related to physician practices, clinics, ambulatory surgery centers and other ancillary businesses. Excluding the cost to construct replacement and de novo hospitals, our cash expenditures for routine capital for the year endedDecember 31, 2022 totaled$358 million compared to$321 million in 2021 and$274 million in 2020. These capital expenditures related primarily to the purchase of additional equipment, minor renovations and information systems infrastructure. While none of our hospitals experienced extensive property damage from Hurricane Ian, we have incurred costs for repairs and may incur costs for capital expenditures needed to remediate damage that was incurred. Costs to construct replacement hospitals totaled$17 million ,$63 million and$117 million for the years endedDecember 31, 2022 , 2021 and 2020, respectively, primarily related to the construction of a replacement facility inFort Wayne, Indiana . During the years endedDecember 31, 2022 , 2021 and 2020, we also had cash expenditures of$40 million ,$85 million and$49 million , respectively, that represent both planning and construction costs primarily for two de novo hospitals in theTucson, Arizona market. These two de novo hospitals were completed during the fourth quarter of 2020 and the first half of 2022, respectively. Pursuant to a hospital purchase agreement from ourMarch 1, 2016 acquisition ofNorthwest Health -Starke , formerly known asStarke Hospital , we committed to build a replacement facility inKnox, Indiana . Construction of the replacement facility forNorthwest Health -Starke is required to be completed within five years of the date we enter into a new lease withStarke County, Indiana , the hospital lessor, or in the event we do not enter into a new lease withStarke County , construction shall be completed bySeptember 30 , 66 --------------------------------------------------------------------------------
2026. We have not entered into a new lease with the lessor for
In addition to the commitment to build a replacement facility inKnox, Indiana , other off-balance sheet arrangements consist of letters of credit issued on the ABL Facility, primarily in support of potential insurance-related claims and specified outstanding bonds of approximately$83 million as well as approximately$6 million representing the maximum potential amount of future payments under physician recruiting guarantee commitments in excess of the liability recorded atDecember 31, 2022 .
We expect total capital expenditures of approximately
Reimbursement, Legislative and Regulatory Changes
Ongoing legislative and regulatory efforts, and judicial interpretations, could reduce or otherwise adversely affect the payments we receive from Medicare and Medicaid and other payors. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings, interpretations and discretion, and which are at times subject to court challenges, which may further affect payments made under those programs. Further, the federal and state governments might, in the future, reduce the funds available under those programs, require repayment of previously received funds or require more stringent utilization and quality reviews of hospital facilities. Additionally, there may be a continued rise in managed care programs and additional restructuring of the financing and delivery of healthcare inthe United States . These events could cause our future financial results to be adversely impacted. We cannot estimate the impact of Medicare and Medicaid reimbursement changes that have been enacted or are currently or may in the future be under consideration. We cannot predict whether additional reimbursement reductions will be made or whether any such changes or other restructuring of the financing and delivery of healthcare would have a material adverse effect on our business, financial conditions, results of operations, cash flow, capital resources and liquidity.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those policies that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. We believe that our critical accounting policies are limited to those described below. The following information should be read in conjunction with our significant accounting policies included in Note 1 of the Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K. Revenue Recognition Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for treatment of patients covered by these programs are generally less than the standard billing rates. Explicit price concessions are recorded for contractual allowances that are calculated and recorded through a combination of internally- and externally-developed data collection and analysis tools to automate the monthly estimation of required contractual allowances. Within these automated systems, payors' historical paid claims data and contracted amounts are utilized to calculate the contractual allowances. This data is updated on a monthly basis. All hospital contractual allowance calculations are subjected to monthly review by management to ensure reasonableness and accuracy. We account for the differences between the estimated program reimbursement rates and the standard billing rates as contractual allowance adjustments, which is one component of the deductions from gross revenues to arrive at net operating revenues. The process of estimating contractual allowances requires us to estimate the amount expected to be received based on payor contract provisions. The key assumption in this process is the estimated contractual reimbursement percentage, which is based on payor classification, historical paid claims data and, when applicable, application of the expected managed care plan reimbursement based on contract terms. Due to the complexities involved in these estimates, actual payments we receive could be different from the amounts we estimate and record. If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% atDecember 31, 2022 from our estimated reimbursement percentage, net income for the year endedDecember 31, 2022 would have changed by approximately$88 million , and net accounts receivable atDecember 31, 2022 would have changed by$113 million . Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. 67 -------------------------------------------------------------------------------- We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known. Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net income by an insignificant amount for each of the years endedDecember 31, 2022 , 2021 and 2020.
Patient Accounts Receivable
Substantially all of our accounts receivable are related to providing healthcare services to patients at our hospitals and affiliated businesses. Collection of these accounts receivable is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and outstanding patient balances for which the primary insurance payor has paid some but not all of the outstanding balance, with the remaining outstanding balance (generally deductibles and co-payments) owed by the patient. For all procedures scheduled in advance, our policy is to verify insurance coverage prior to the date of the procedure. Insurance coverage is not verified in advance of procedures for walk-in and emergency room patients. We estimate any adjustments to the transaction price for implicit price concessions by reserving a percentage of all self-pay accounts receivable without regard to aging category, based on collection history, adjusted for expected recoveries and any anticipated changes in trends. Our ability to estimate the transaction price and any implicit price concessions is not impacted by not utilizing an aging of our net accounts receivable as we believe that substantially all of the risk exists at the point in time such accounts are identified as self-pay. The percentage used to reserve for all self-pay accounts is based on our collection history. We believe that we collect substantially all of our third-party insured receivables, which include receivables from governmental agencies. Patient accounts receivable can be impacted by the effectiveness of our collection efforts and, as described in our significant accounting policies included in Note 1 of the Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K, numerous factors may affect the net realizable value of accounts receivable. If the actual collection percentage differed by 1% atDecember 31, 2022 from our estimated collection percentage as a result of a change in expected recoveries, net income for the year endedDecember 31, 2022 would have changed by$38 million , and net accounts receivable atDecember 31, 2022 would have changed by$49 million . We also continually review our overall reserve adequacy by monitoring historical cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net operating revenues and admissions by payor classification, days revenue outstanding, the composition of self-pay receivables between pure self-pay patients and the patient responsibility portion of third-party insured receivables and the impact of recent acquisitions and dispositions. Our policy is to write-off gross accounts receivable if the balance is under$10.00 or when such amounts are placed with outside collection agencies. We believe this policy accurately reflects our ongoing collection efforts and is consistent with industry practices. We had approximately$1.7 billion atDecember 31, 2022 and$2.2 billion atDecember 31, 2021 , being pursued by various outside collection agencies. We expect to collect less than 4%, net of estimated collection fees, of the amounts being pursued by outside collection agencies. As these amounts have been written-off, they are not included in our accounts receivable. Collections on amounts previously written-off are recognized as a recovery of net operating revenues when received. However, we take into consideration estimated collections of these future amounts written-off in determining the implicit price concessions used to measure the transaction price for the applicable portfolio of patient accounts receivable.
All of the following information is derived from our hospitals, excluding clinics, unless otherwise noted.
Patient accounts receivable from our hospitals represent approximately 98% of our total consolidated accounts receivable.
Days revenue outstanding, adjusted for the impact of receivables for state
Medicaid supplemental payment programs and divested facilities, was 56 days and
55 days at
Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately$15.9 billion as ofDecember 31, 2022 and approximately$16.2 billion as ofDecember 31, 2021 . The approximate percentage of total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) summarized by aging categories is as follows: As ofDecember 31, 2022 : % of Gross Receivables Payor 0 - 90 Days 90 - 180 Days 180 - 365 Days Over 365 Days Medicare 11 % 1 % - % - % Medicaid 7 % 1 % 1 % 1 % Medicare Managed Care 15 % 3 % 3 % 1 % Other third-party payors 18 % 3 % 3 % 2 % Self-Pay 7 % 6 % 8 % 9 % 68
-------------------------------------------------------------------------------- As ofDecember 31, 2021 : % of Gross Receivables Payor 0 - 90 Days 90 - 180 Days 180 - 365 Days Over 365 Days Medicare 12 % 1 % - % - % Medicaid 7 % 1 % 1 % 1 % Medicare Managed Care 13 % 2 % 1 % 1 % Other third-party payors 20 % 3 % 2 % 1 % Self-Pay 8 % 5 % 9 % 12 %
The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and implicit price concessions) summarized by payor is as follows:
December 31,
2022 2021
Insured receivables 69.5 % 66.3 %
Self-pay receivables 30.5 33.7
Total 100.0 % 100.0 %
The combined total at our hospitals and clinics for the estimated implicit price
concessions for self-pay accounts receivable and allowances for other self-pay
discounts and contractuals, as a percentage of gross self-pay receivables, was
approximately 91% at both December 31, 2022 and 2021. If the receivables that
have been written-off, but where collections are still being pursued by outside
collection agencies, were included in both the allowances and gross self-pay
receivables specified above, the percentage of combined allowances to total
self-pay receivables would have been 93% at both December 31, 2022 and 2021.
AtDecember 31, 2022 , we had approximately$4.2 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.Goodwill represents the excess of the fair value of the consideration conveyed in an acquisition over the fair value of net assets acquired.Goodwill is evaluated for impairment annually and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. We performed our last annual goodwill impairment evaluation during the fourth quarter of 2022 using theOctober 31, 2022 measurement date, which indicated no impairment. The determination of fair value in our goodwill impairment analysis is based on an estimate of fair value for the hospital operations reporting unit utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited to, the most recent price of our common stock and fair value of our long-term debt, our recent financial results, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income tax rates, costs of invested capital and a discount rate. Future estimates of fair value could be adversely affected if the actual outcome of one or more of the assumptions described above changes materially in the future, including as a result of any decline in or volatility of our stock price and the fair value of our long-term debt, lower than expected hospital volumes and/or net operating revenues, higher market interest rates, increased operating costs or other adverse impacts on our financial results. Such changes impacting the calculation of our fair value could result in a material impairment charge in the future. Moreover, declines in the fair market value of our senior and unsecured notes and common stock during the year endedDecember 31, 2022 , as well as macroeconomic conditions and our financial results during the year endedDecember 31, 2022 (including the effect of increased wage and contract labor expense), have increased our risk of future goodwill impairment, which could be material. Professional Liability Claims As part of our business of providing healthcare services, we are subject to legal actions alleging liability on our part. We accrue for losses resulting from such liability claims, as well as loss adjustment expenses that are out-of-pocket and directly related to such liability claims. These direct out-of-pocket expenses include fees of outside counsel and experts. We do not accrue for costs that are part of our corporate overhead, such as the costs of our in-house legal and risk management departments. The losses resulting from professional liability claims primarily consist of estimates for known claims, as well as estimates for incurred but not reported claims. The estimates are based on specific claim facts, our historical claim reporting and payment patterns, the nature and level of our hospital operations, and actuarially determined projections. The actuarially determined projections are based on our actual claim data, including historic reporting and payment patterns which have been gathered over the life of the Company. As discussed below, since we purchase excess insurance on a claims-made basis that transfers risk to third-party insurers, the estimated liability for professional and general liability claims does include an amount for the losses covered by our excess insurance. We also record a receivable for the 69 --------------------------------------------------------------------------------
expected reimbursement of losses covered by our excess insurance. Since we believe that the amount and timing of our future claims payments are reliably determinable, we discount the amount we accrue for losses resulting from professional liability claims.
The net present value of the projected payments was discounted using weighted-average interest rates of 3.8% in 2022 and 1.8% in both 2021 and 2020. This liability is adjusted for new claims information in the period such information becomes known to us. Professional liability expense includes the losses resulting from professional liability claims and loss adjustment expense, as well as excess insurance premiums, and is presented within other operating expenses in the accompanying consolidated statements of income. Our processes for obtaining and analyzing claims and incident data are standardized across all of our businesses and have been consistent for many years. We monitor the outcomes of the medical care services that we provide and for each reported claim, we obtain various information concerning the facts and circumstances related to that claim. In addition, we routinely monitor current key statistics and volume indicators in our assessment of utilizing historical trends. The average lag period between claim occurrence and payment of a final settlement is between three and four years, although the facts and circumstances of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after settlement with the claimant is reached, settled claims represent approximately 7% or less of the total liability at the end of any period. For purposes of estimating our individual claim accruals, we utilize specific claim information, including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years and geography. Several actuarial methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses our company-specific historical claims data and other information. Company-specific data includes information regarding our business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data. Significant assumptions are made on the basis of the aforementioned information in estimating reserves for incurred but not reported claims. A 1% change in assumptions for either severity or frequency as ofDecember 31, 2022 would have increased or decreased the reserve between$5 million to$15 million . Based on these analyses, we determine our estimate of the professional liability claims. The determination of management's estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of management. Changes in reserve data or the trends and factors that influence reserve data may signal fundamental shifts in our future claim development patterns or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover, since our methods and models use different types of data and we select our liability from the results of all of these methods, we typically cannot quantify the precise impact of such factors on our estimates of the liability. Due to our standardized and consistent processes for handling claims and the long history and depth of our company-specific data, our methodologies have historically produced reliably determinable estimates of ultimate paid losses. Management considers any changes in the amount and pattern of its historical paid losses up through the most recent reporting period to identify any fundamental shifts or trends in claim development experience in determining the estimate of professional liability claims. However, due to the subjective nature of this estimate and the impact that previously unforeseen shifts in actual claim experience can have, future estimates of professional liability could be adversely impacted when actual paid losses develop unexpectedly based on assumptions and settlement events that were not previously known or anticipated. Year Ended December 31, 2022 2021 2020 Accrual for professional liability claims, beginning of year$ 533 $ 602 $ 612 Liability for insured claims (1) (5 ) (22 ) 17 Expense (income) related to: Current accident year 92 108 102 Prior accident years 19 (18 ) 56 (Income) expense from discounting (18 ) (4 ) 10 Total incurred loss and loss expense (2) 93 86 168 Paid claims and expenses related to: Current accident year - (1 ) - Prior accident years (154 ) (132 ) (195 ) Total paid claims and expenses (154 ) (133 ) (195 ) Accrual for professional liability claims, end of year$ 467 $ 533 $ 602
(1) The liability for insured claims is recorded in the consolidated balance
sheets with a corresponding insurance recovery receivable.
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(2) Total expense, including premiums for insured coverage, was
2022,
In the ordinary course of business, our expense with respect to professional liability claims, which is actuarially determined, is limited to amounts not covered by third-party insurance policies, which typically provide coverage for professional liability claims. During the year endedDecember 31, 2020 , we incurred expenses in the amount of approximately$50 million related to the settlement of a professional liability claim for which our third-party insurers' obligation to provide coverage to us in connection with the underlying loss was being litigated. The subject of the litigation for the recovery of the full amount of the$50 million settlement was whether the claim was covered under the subject policies. This litigation was settled during the year endedDecember 31, 2021 , and in connection with this settlement, approximately$22 million was recovered from various third-party insurers related to their obligation to provide coverage for the professional liability claim. During the year endedDecember 31, 2022 , we experienced an increase in the amounts paid or expected to be paid to settle outstanding professional liability claims related to divested locations, compared to the same period in the prior year and to previous actuarially determined estimates. This resulted in a change in estimate of$15 million during the three months and year endedDecember 31, 2022 . There were no other significant changes in our estimate of the reserve for professional liability claims during the years endedDecember 31, 2022 , 2021 and 2020. We are primarily self-insured for professional liability claims; however, we obtain excess insurance that transfers the risk of loss to a third-party insurer for claims in excess of our self-insured retentions. Our excess insurance is underwritten on a claims-made basis. For claims reported prior toJune 1, 2002 , substantially all of our professional and general liability risks were subject to a less than$1 million per occurrence self-insured retention and for claims reported fromJune 1, 2002 throughJune 1, 2003 , these self-insured retentions were$2 million per occurrence. Substantially all claims reported afterJune 1, 2003 and beforeJune 1, 2005 are self-insured up to$4 million per claim. Substantially all claims reported on or afterJune 1, 2005 and beforeJune 1, 2014 are self-insured up to$5 million per claim. Substantially all claims reported on or afterJune 1, 2014 and beforeJune 1, 2018 are self-insured up to$10 million per claim. Substantially all claims reported on or afterJune 1, 2018 are self-insured up to$15 million per claim. Management, on occasion, has selectively increased the insured risk at certain hospitals based upon insurance pricing and other factors and may continue that practice in the future. Excess insurance for all hospitals has been purchased through commercial insurance companies and generally covers us for liabilities in excess of the self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of which totals up to$95 million per occurrence and in the aggregate for claims reported on or afterJune 1, 2003 , up to$145 million per occurrence and in the aggregate for claims reported on or afterJanuary 1, 2008 , up to$195 million per occurrence and in the aggregate for claims reported on or afterJune 1, 2010 , and up to at least$216 million per occurrence and in the aggregate for claims reported on or afterJune 1, 2015 . In addition, for integrated occurrence professional liability claims, there is an additional$50 million of excess coverage for claims reported on or afterJune 1, 2014 and an additional$75 million of excess coverage for claims reported on or afterJune 1, 2015 throughJune 1, 2020 . The$75 million in integrated occurrence coverage will also apply to claims reported betweenJune 1, 2020 andJune 1, 2023 for events that occurred prior toJune 1, 2020 but which were not previously known or reported. For certain policy years prior toJune 1, 2014 , if the first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention will increase to$10 million per claim for any subsequent claims in that policy year until our total aggregate coverage is met. BeginningJune 1, 2018 , this drop-down provision in the excess policies attaches over the$15 million per claim self-insured retention. EffectiveJune 1, 2014 , the hospitals acquired from HMA were insured on a claims-made basis as described above and through commercial insurance companies as described above for substantially all claims reported on or afterJune 1, 2014 except for physician-related claims with an occurrence date prior toJune 1, 2014 . Prior toJune 1, 2014 , the former HMA hospitals obtained insurance coverage through a wholly-owned captive insurance subsidiary and a risk retention group subsidiary, or Insurance Subsidiaries, that are domiciled in theCayman Islands andSouth Carolina , respectively. The Insurance Subsidiaries provided (i) claims-made coverage to all of the former HMA hospitals and (ii) occurrence-basis coverage to most of the physicians employed by the former HMA hospitals. The employed physicians not covered by the Insurance Subsidiaries generally maintained claims-made policies with unrelated third-party insurance companies. To mitigate the exposure of the program covering the former HMA hospitals and other healthcare facilities, the Insurance Subsidiaries bought claims-made reinsurance policies from unrelated third parties for claims above self-retention levels of$10 million or$15 million per claim, depending on the policy year. Income Taxes
We must make estimates in recording provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets. We believe that future income will enable us to realize certain deferred tax assets, subject to the valuation allowance we have established.
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The total amount of unrecognized benefit that would impact the effective tax
rate, if recognized, was $2 million as of December 31, 2022 . A total of less
than $1 million of interest and penalties is included in the amount of liability
for uncertain tax positions at December 31, 2022 . It is our policy to recognize
interest and penalties related to unrecognized benefits in our consolidated
statements of income as income tax expense.
It is possible the amount of unrecognized tax benefit could change in the next
12 months as a result of a lapse of the statute of limitations and settlements
with taxing authorities; however, we do not anticipate the change will have a
material impact on our consolidated results of operations or consolidated
financial position.
Our federal income tax return for the 2014, 2015 and 2018 tax years are under
examination by the Internal Revenue Service. We believe the result of this
examination will not be material to our consolidated results of operations or
consolidated financial position. In addition, we have extended our federal
statute of limitations through December 31, 2023 for the tax period ended
December 31, 2018 .
Recent Accounting Pronouncements
InSeptember 2022 , theFinancial Accounting Standards Board issued Accounting Standards Update, or ASU, 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50), Disclosure of Supplier Finance Program Obligations." This ASU provides specific authoritative guidance for disclosure of supplier finance programs including key terms of such programs, amounts outstanding, and where the obligations are presented in the statement of financial position. This ASU is effective for all entities for financial statements issued for annual periods beginning afterDecember 15, 2022 , including interim periods, except for the disclosure of rollforward information, which is effective for annual periods beginning afterDecember 15, 2023 . Certain components of this guidance must be applied retrospectively while others may be applied prospectively. We are currently evaluating the impact that adoption of this ASU will have on our consolidated financial statements. We have evaluated all other recently issued, but not yet effective, ASUs and do not expect the eventual adoption of these ASUs to have a material impact on our consolidated financial position or results of operations.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 that involve risk and uncertainties. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," "thinks," and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. A number of factors could affect the future results of the Company or the healthcare industry generally and could cause the Company's expected results to differ materially from those expressed in this Form 10-K. These factors include, among other things:
• general economic and business conditions, both nationally and in the regions
in which we operate, including the current negative macroeconomic conditions,
ongoing inflationary pressures that have significantly increased and may
continue to significantly increase our expenses, the current high interest
rate environment, ongoing challenging labor market conditions and labor
shortages, and supply chain shortages and disruptions, as well as the current
and/or potential future adverse impact of such economic conditions and other
factors on our net operating revenues (including our service mix, revenue mix,
payor mix and/or patient volumes) and our ability to collect outstanding
receivables;
• developments related to COVID-19, including, without limitation, related to
the length and severity of the pandemic; the volume of canceled or rescheduled
procedures; and the spread of potentially more contagious and/or virulent
forms of the virus, including variants of the virus for which currently
available vaccines, treatments and tests may not be effective or authorized;
• uncertainty regarding the magnitude and timing of any future payments or
benefits we may receive or realize under the CARES Act, the PPPHCE Act, the
CAA, the ARPA and any other future stimulus or relief measures related to
COVID-19;
• the impact of current or future federal and state health reform initiatives,
including the Affordable Care Act, and the potential for changes to the
Affordable Care Act, its implementation or its interpretation (including
through executive orders and court challenges);
• the extent to and manner in which states support increases, decreases or
changes in Medicaid programs, implement health insurance exchanges or alter
the provision of healthcare to state residents through legislation, regulation
or otherwise;
• the future and long-term viability of health insurance exchanges and potential
changes to the beneficiary enrollment process;
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--------------------------------------------------------------------------------• risks associated with our substantial indebtedness, leverage and debt service
obligations, including our ability to refinance such indebtedness on
acceptable terms or to incur additional indebtedness, and our ability to
remain in compliance with debt covenants;
• demographic changes;
• changes in, or the failure to comply with, federal, state or local laws or
governmental regulations affecting our business;
• potential adverse impact of known and unknown legal, regulatory andgovernmental proceedings and other loss contingencies, including governmental
investigations and audits, and federal and state false claims act litigation;
• our ability, where appropriate, to enter into and maintain provider
arrangements with payors and the terms of these arrangements, which may be
further affected by the increasing consolidation of health insurers and
managed care companies and vertical integration efforts involving payors and
healthcare providers;
• changes in, or the failure to comply with, contract terms with payors and
changes in reimbursement policies or rates paid by federal or state healthcare
programs or commercial payors;
• any security breaches, cyber-attacks, loss of data, other cybersecurity
threats or incidents, and any actual or perceived failures to comply with
legal requirements governing the privacy and security of health information or
other regulated, sensitive or confidential information, or legal requirements
regarding data privacy or data protection, and the impact of the security
breach announced by us on
and financial risks associated with this security breach, the results of our
ongoing investigation of this security breach, any potential regulatory
inquiries and/or litigation to which we may become subject in connection with
this security breach, and the extent of remediation and other additional costs
that may be incurred by us in connection with this security breach;
• any potential impairments in the carrying value of goodwill, other intangible
assets, or other long-lived assets, or changes in the useful lives of other
intangible assets;
• changes in inpatient or outpatient Medicare and Medicaid payment levels and
methodologies;
• the effects related to the implementation of the sequestration spending
reductions pursuant to both the Budget Control Act of 2011 and the
Pay-As-You-Go Act of 2010 and the potential for future deficit reduction
legislation;
• increases in the amount and risk of collectability of patient accounts
receivable, including decreases in collectability which may result from, among
other things, self-pay growth and difficulties in recovering payments for
which patients are responsible, including co-pays and deductibles;
• the efforts of insurers, healthcare providers, large employer groups and
others to contain healthcare costs, including the trend toward value-based
purchasing;
• the impact of competitive labor market conditions and the shortage of nurses,
including in connection with our ability to hire and retain qualified nurses,
physicians, other medical personnel and key management, and increased labor
expenses as a result of such competitive labor market conditions, inflation
and competition for such positions;
• any failure to obtain medical supplies or pharmaceuticals at favorable prices;
• liabilities and other claims asserted against us, including self-insured
professional liability claims;
• competition;
• trends toward treatment of patients in less acute or specialty healthcare
settings, including ambulatory surgery centers or specialty hospitals or via
telehealth;
• changes in medical or other technology;
• changes in U.S. GAAP;
• the availability and terms of capital to fund any additional acquisitions or
replacement facilities or other capital expenditures;
• our ability to successfully make acquisitions or complete divestitures, our
ability to complete any such acquisitions or divestitures on desired terms or
at all, the timing of the completion of any such acquisitions or divestitures,
and our ability to realize the intended benefits from any such acquisitions or
divestitures;
• the impact that changes in our relationships with joint venture or syndication
partners could have on effectively operating our hospitals or ancillary
services or in advancing strategic opportunities;
• our ability to successfully integrate any acquired hospitals and/or outpatient
facilities, or to recognize expected synergies from acquisitions;
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--------------------------------------------------------------------------------• the impact of severe weather conditions and climate change, as well as the
timing and amount of insurance recoveries in relation to severe weather
events;
• our ability to obtain adequate levels of insurance, including cyber, general
liability, professional liability, and directors and officers liability
insurance;
• timeliness of reimbursement payments received under government programs;
• effects related to pandemics, epidemics, or outbreaks of infectious diseases,
including the coronavirus causing the disease known as COVID-19;
• any failure to comply with our obligations under license or technology
agreements;
• challenging economic conditions in non-urban communities in which we operate;
• the concentration of our revenue in a small number of states;
• our ability to realize anticipated cost savings and other benefits from our
current strategic and operational cost savings initiatives;
• any changes in or interpretations of income tax laws and regulations; and
• the risk factors set forth in this Form 10-K and our other public filings with
the
Although we believe that these forward-looking statements are based upon reasonable assumptions, these assumptions are inherently subject to significant regulatory, economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond our control. Accordingly, we cannot give any assurance that our expectations will in fact occur, and we caution that actual results may differ materially from those in the forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this filing. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
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