INTRODUCTION TO MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of this section, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the context within which our financial information may be analyzed, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows. MD&A, which should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, includes the following sections: •Management Overview •Forward-Looking Statements •Sources of Revenue for Our Hospital Operations Segment •Results of Operations •Liquidity and Capital Resources •Critical Accounting Estimates Our business consists of our Hospital Operations and other ("Hospital Operations") segment, our Ambulatory Care segment and our Conifer segment. Our Hospital Operations segment is comprised of acute care and specialty hospitals, imaging centers, ancillary outpatient facilities, microhospitals and physician practices. AtJune 30, 2022 , our subsidiaries operated 60 hospitals serving primarily urban and suburban communities in nine states. InApril 2021 , we completed the sale of the majority of the urgent care centers then held by our Hospital Operations segment to an unaffiliated urgent care provider. In addition, inAugust 2021 , we completed the sale of five Miamiarea hospitals and certain related operations (the "Miami Hospitals") then held by our Hospital Operations segment. InApril 2022 , we completed the sale of a Hospital Operations segment microhospital. Our Ambulatory Care segment is comprised of the operations ofUSPI Holding Company, Inc. ("USPI"). USPI had indirect ownership interests in 410 ambulatory surgery centers (each, an "ASC") (261 consolidated) and 24 surgical hospitals (eight consolidated) in 34 states atJune 30, 2022 . InApril 2021 , we completed the sale of 40 urgent care centers then held by our Ambulatory Care segment to an unaffiliated urgent care provider and transferred 24 imaging centers from our Ambulatory Care segment to our Hospital Operations segment. EffectiveJune 30, 2022 , we purchased all of the shares previously held byBaylor University Medical Center ("Baylor") in USPI for$406 million , which increased our ownership interest in USPI's voting shares from 95% to 100%. See Note 13 to the accompanying Condensed Consolidated Financial Statements and the "Liquidity and Capital Resources" section of MD&A for additional information about this transaction. Our Conifer segment provides revenue cycle management and valuebased care services to hospitals, health systems, physician practices, employers and other clients through our Conifer Holdings, Inc. subsidiary ("Conifer"). AtJune 30, 2022 , Conifer provided services to approximately 660 Tenet and nonTenet hospitals and other clients nationwide. Nearly all of the services comprising the operations of our Conifer segment are provided byConifer Health Solutions, LLC , in which we own an interest of approximately 76%, or by one of its direct or indirect wholly owned subsidiaries. Unless otherwise indicated, all financial and statistical information included in MD&A relates to our continuing operations, with dollar amounts expressed in millions (except peradjustedpatientadmission and peradjustedpatientday amounts). Continuing operations information includes the results of our same 60 hospitals operated throughout the six months endedJune 30, 2022 and 2021, as well as the Miami Hospitals sold inAugust 2021 and theArizona microhospital sold inApril 2022 . Continuing operations information excludes the results of our hospitals and other businesses that have been classified as discontinued operations for accounting purposes. We believe this information is useful to investors because it includes the operations of all facilities in continuing operations for the period of time that we owned and operated them, and it reflects the recent trends we are experiencing with respect to volumes, revenues and expenses. We present certain metrics as a percentage of net operating revenues because a significant portion of our operating expenses are variable. In addition, we present certain metrics on a peradjusted-patientadmission and peradjustedpatientday basis to show trends other than volume. In certain cases, information presented in MD&A for our Hospital Operations segment is described as presented on a samehospital basis, which includes the results of our same 60 hospitals operated throughout the six months endedJune 30, 2022 and 2021, and excludes the results of the Miami Hospitals we sold inAugust 2021 , the results of theArizona microhospital sold inApril 2022 and the results of our discontinued operations. We present samehospital data because we believe it provides investors with useful information regarding the performance of our current portfolio of hospitals and other 27 -------------------------------------------------------------------------------- Table of Contents operations that are comparable for the periods presented, as well as reflects recent trends we are experiencing with respect to volumes, revenues and expenses. MANAGEMENT OVERVIEW RECENT DEVELOPMENTS Formation of New Joint Venture-OnJuly 15, 2022 , USPI completed the previously announced formation of a new joint venture withUnited Urology Group ("UUG"), including the purchase of ownership interests in 22 new and established ASCs located inMaryland ,Colorado andArizona , which USPI will manage and consolidate. USPI paid$105 million in connection with this transaction.
IMPACT OF THE COVID-19 PANDEMIC
The COVID19 pandemic continued to adversely impact all three segments of our business, as well as our patients, communities and employees, in the six months endedJune 30, 2022 . Broad economic factors resulting from the pandemic affected our patient volumes, service mix and revenue mix. In addition, the pandemic continued to have an adverse impact on certain of our operating expenses during the six months endedJune 30, 2022 . Various federal legislative actions, including additional funding for thePublic Health and Social Services Emergency Fund ("PRF"), have mitigated some of the economic disruption caused by the COVID19 pandemic on our business. In the six months endedJune 30, 2022 and 2021, we received cash payments from the PRF and state and local grant programs totaling$104 million and$63 million , respectively, including$27 million received during the six-month period in 2021 by our unconsolidated affiliates for whom we provide cash management services. We recognized$100 million and$50 million , respectively, from these funds as grant income during the six-month periods in 2022 and 2021, respectively. In addition, we recognized$11 million in equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statement of Operations during the six months endedJune 30, 2021 . Throughout MD&A, we have provided additional information on the impact of the COVID19 pandemic on our results of operations and the steps we have taken, and are continuing to take, in response. The ultimate extent and scope of the pandemic and its future impact on our business remain unknown. For information about risks and uncertainties related to COVID19 that could affect our results of operations, financial condition and cash flows, see the Risk Factors section in Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2021 ("Annual Report") and in Part II of our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2022 ("Q1'22 Report").
CYBERSECURITY INCIDENT
InApril 2022 , we experienced a cybersecurity incident that temporarily disrupted a subset of our acute care operations and involved the exfiltration of certain confidential company and patient information (the "Cybersecurity Incident"). During this time, our hospitals remained operational and continued to deliver patient care safely and effectively, utilizing wellestablished backup processes. We immediately suspended user access to impacted information technology applications, executed extensive cybersecurity protection protocols, and took steps to restrict further unauthorized activity. We have restored impacted information technology operations, and we have taken additional measures to protect patient, employee and other data, as appropriate, in response to the Cybersecurity Incident. Disruption from the Cybersecurity Incident placed pressure on our Hospital Operations segment's volumes and earnings in April andMay 2022 . We believe a significant portion of the 5.3% decline in our adjusted patient admissions on a same-hospital basis in the three months endedJune 30, 2022 as compared to the same period in 2021 is due to business interruption from the incident. In addition, we estimate that the Cybersecurity Incident had an adverse pre-tax impact of approximately$100 million during the three months endedJune 30, 2022 . This estimate includes the costs to remediate the issues, lost revenues from the associated business interruption and other related expenses. We have insurance coverage and have filed a claim within our policy limits for these losses. We are unable to predict or control the timing or amount of insurance recoveries.
TRENDS AND STRATEGIES
As described above and throughout MD&A, we continue to experience negative impacts of the pandemic on our business in varying degrees. Throughout the COVID19 pandemic, we have taken, and we continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and changes in our service mix and revenue mix. We have issued new senior unsecured notes and senior secured first lien notes, redeemed existing senior unsecured notes and senior secured first lien notes, including those with the highest interest rates of all of our longterm debt, and amended our 28 -------------------------------------------------------------------------------- Table of Contents senior secured revolving credit facility (as amended to date, the "Credit Agreement"). We also decreased our employee headcount throughout the organization at the outset of the COVID-19 pandemic, and we deferred certain operating expenses that were not expected to impact our response to the pandemic. In addition, we reduced certain variable costs across the enterprise. Together with government relief packages, we believe these actions supported our ability to provide essential patient services during the initial uncertainty caused by the COVID-19 pandemic and continue to do so. For further information on our liquidity, see "Liquidity and Capital Resources" below. We have experienced, and continue to experience, increased competition with other healthcare providers in recruiting and retaining qualified personnel responsible for the operation of our facilities. There is a limited availability of experienced medical support personnel nationwide, which drives up the wages and benefits required to recruit and retain employees. In particular, like others in the healthcare industry, we continue to experience a shortage of criticalcare nurses in certain disciplines and geographic areas. This shortage has been exacerbated by the COVID19 pandemic as more nurses choose to retire early, leave the workforce or take travel assignments. In some areas, the increased demand for care of COVID19 patients in our hospitals, as well as the direct impact of COVID19 on physicians, employees and their families, have put a strain on our resources and staff. Over the past two years, we have had to rely on higher-cost temporary contract labor, which we compete with other healthcare providers to secure, and pay premiums above standard compensation for essential workers. In addition, we have experienced significant price increases in medical supplies, particularly for personal protective equipment ("PPE"), and we have encountered supplychain disruptions, including shortages and delays. We believe that several key trends are also continuing to shape the demand for healthcare services: (i) consumers, employers and insurers are actively seeking lowercost solutions and better value as they focus more on healthcare spending; (ii) patient volumes are shifting from inpatient to outpatient settings due to technological advancements and demand for care that is more convenient, affordable and accessible; (iii) the growing aging population requires greater chronic disease management and higheracuity treatment; and (iv) consolidation continues across the entire healthcare sector. In addition, the healthcare industry, in general, and the acute care hospital business, in particular, have experienced significant regulatory uncertainty based, in large part, on administrative, legislative and judicial efforts to limit, alter or repeal the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 ("Affordable Care Act"). It is difficult to predict the full impact of regulatory uncertainty on our future revenues and operations. Expansion of Our Ambulatory Care Segment-In response to these trends, we continue to focus on opportunities to expand our Ambulatory Care segment through acquisitions, organic growth, construction of new outpatient centers and strategic partnerships. During the years endedDecember 31, 2021 and 2020, we invested$1.315 billion and$1.200 billion , respectively, to acquire ownership interests in new ASCs, increase our ownership interests in existing facilities and invest in de novo facilities. This activity included the acquisition of ownership interests in 86 ASCs and related ambulatory support services (collectively, the "SCD Centers") fromSurgical Center Development #3, LLC andSurgical Center Development #4, LLC ("SCD") inDecember 2021 . USPI and SCD's principals have also entered into a joint venture and development agreement under which USPI will have the exclusive option to partner with affiliates of SCD on the future development of a minimum target of 50 de novo ASCs over a period of five years. During the six months endedJune 30, 2022 , we opened three new ASCs in partnership with the affiliates of SCD. In addition, USPI formed a new joint venture with UUG and acquired ownership interests in 22 new and established ASCs inJuly 2022 . The ASCs, which will be managed and consolidated by USPI, are located inArizona ,Colorado andMaryland . Also during the six months endedJune 30, 2022 , we acquired controlling interests in three ASCs inFlorida and one in each ofArizona andNew Hampshire , and we acquired noncontrolling interests in an ASC in each ofNew Jersey andTexas . During the same period, we also acquired controlling ownership interests in nine previously unconsolidated ASCs in seven geographically diverse states. In addition, we opened six ASCs in various states in the first half of 2022, including the ASCs opened in partnership with affiliates of SCD as noted above. We believe USPI's ASCs and surgical hospitals offer many advantages to patients and physicians, including greater affordability, predictability, flexibility and convenience. Moreover, due in part to advancements in medical technology and due to the lower cost structure and greater efficiencies that are attainable at a specialized outpatient site, we believe the volume and complexity of surgical cases performed in an outpatient setting will continue to increase. Historically, our outpatient services have generated significantly higher margins for us than inpatient services. Driving Growth in Our Hospital Systems-We remain committed to better positioning our hospital systems and competing more effectively in the everevolving healthcare environment by focusing on driving performance through operational effectiveness, increasing capital efficiency and margins, investing in our physician enterprise, particularly our specialist network, enhancing patient and physician satisfaction, growing our higherdemand and higheracuity clinical service lines (including outpatient lines), expanding patient and physician access, and optimizing our portfolio of assets. Over the past several years, we have undertaken enterprisewide costefficiency measures, and we continue to transition certain support 29 -------------------------------------------------------------------------------- Table of Contents operations offshore to ourGlobal Business Center ("GBC") inthe Philippines . We incurred restructuring charges in conjunction with these initiatives in the six months endedJune 30, 2022 , and we could incur additional such charges in the future. We regularly review the marginal costs of providing certain services, and we manage our operations and make staffing decisions based on those analyses. We also continue to exit service lines, businesses and markets that we believe are no longer a core part of our longterm growth strategy. InApril 2021 , we divested the majority of our urgent care centers operated under the MedPost and CareSpot brands by our Hospital Operations and Ambulatory Care segments. In addition, we completed the sale of the Miami Hospitals inAugust 2021 and the sale of anArizona micro-hospital inApril 2022 . We intend to further refine our portfolio of hospitals and other healthcare facilities when we believe such refinements will help us improve profitability, allocate capital more effectively in areas where we have a stronger presence, deploy proceeds on higherreturn investments across our business, enhance cash flow generation, reduce our debt and lower our ratio of debttoAdjusted EBITDA. Improving the Customer Care Experience-As consumers continue to become more engaged in managing their health, we recognize that understanding what matters most to them and earning their loyalty is imperative to our success. As such, we have enhanced our focus on treating our patients as traditional customers by: (i) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (ii) expanding service lines aligned with growing community demand, including a focus on aging and chronic disease patients; (iii) offering greater affordability and predictability, including simplified registration and discharge procedures, particularly in our outpatient centers; (iv) improving our culture of service; and (v) creating health and benefit programs, patient education and health literacy materials that are customized to the needs of the communities we serve. Through these efforts, we intend to improve the customer care experience in every part of our operations. Driving Conifer's Growth-Conifer serves approximately 660 Tenet and nonTenet hospitals and other clients nationwide. In addition to providing revenue cycle management services to health systems and physicians, Conifer provides support to both providers and selfinsured employers seeking assistance with clinical integration, financial risk management and population health management. Conifer remains focused on driving growth by continuing to market and expand its revenue cycle management and valuebased care solutions businesses. We believe that our success in growing Conifer and increasing its profitability depends in part on our success in executing the following strategies: (i) attracting hospitals and other healthcare providers that currently handle their revenue cycle management processes internally as new clients; (ii) generating new client relationships through opportunities from USPI and Tenet's acute care hospital acquisition and divestiture activities; (iii) expanding revenue cycle management and valuebased care service offerings through organic development and small acquisitions; and (iv) leveraging data from tens of millions of patient interactions for continued enhancement of the valuebased care environment to drive competitive differentiation. Improving Profitability-As we return to more normal operations, we continue to focus on growing patient volumes and effective cost management as a means to improve profitability. We believe our inpatient admissions have been constrained in recent years (prior to the COVID19 pandemic) by increased competition, utilization pressure by managed care organizations, new delivery models that are designed to lower the utilization of acute care hospital services, the effects of higher patient copays, coinsurance amounts and deductibles, changing consumer behavior, and adverse economic conditions and demographic trends in certain of our markets. Our business has also been impacted by the rise in inflation and its effects on elective procedures, wages and costs. However, we also believe that emphasis on higherdemand clinical service lines (including outpatient services), focus on expanding our ambulatory care business, cultivation of our culture of service, participation in Medicare Advantage health plans that have been experiencing higher growth rates than traditional Medicare, and contracting strategies that create shared value with payers should help us grow our patient volumes over time. We are also continuing to explore new opportunities to enhance efficiency, including further integration of enterprisewide centralized support functions, outsourcing additional functions unrelated to direct patient care, and reducing clinical and vendor contract variation. Reducing Our Leverage Over Time-All of our longterm debt has a fixed rate of interest, except for outstanding borrowings, if any, under our Credit Agreement, and the maturity dates of our notes are staggered from 2024 through 2031. We believe that our capital structure minimizes the nearterm impact of increased interest rates, and the staggered maturities of our debt allow us to refinance our debt over time. It remains our longterm objective to reduce our debt and lower our ratio of debttoAdjusted EBITDA, primarily through more efficient capital allocation and Adjusted EBITDA growth, which should lower our refinancing risk. During the six months endedJune 30, 2022 , we redeemed or repurchased$2.572 billion aggregate principal amount of our senior secured first lien and senior unsecured notes in advance of their maturity dates. We used the proceeds from our issuance of$2.000 billion aggregate principal amount of 6.125% senior secured first lien notes due 2030 (the "2030 Senior Secured First Lien Notes") and cash on hand to finance these transactions. 30
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Our ability to execute on our strategies and respond to the aforementioned trends is subject to the extent and scope of the impact on our operations of the COVID19 pandemic, as well as a number of other risks and uncertainties, all of which may cause actual results to be materially different from expectations. For information about risks and uncertainties that could affect our results of operations, see the Risk Factors section in Part II of our Q1'22 Report and the ForwardLooking Statements and Risk Factors sections in Part I of our Annual Report.
RESULTS OF OPERATIONS-OVERVIEW
The following tables present selected operating statistics for our Hospital Operations and Ambulatory Care segments, as well as consolidated net operating revenues and expenses on a continuing operations basis:
Three Months Ended June 30, Increase Selected Operating Statistics 2022 2021 (Decrease) Hospital Operations - hospitals and related outpatient facilities: Number of hospitals (at end of period) 60 65 (5) (1) Total admissions 128,068 153,319 (16.5) % Adjusted patient admissions(2) 239,031 273,824 (12.7) % Paying admissions (excludes charity and uninsured) 121,722 143,864 (15.4) % Charity and uninsured admissions 6,346 9,455 (32.9) % Admissions through emergency department 96,137 114,911 (16.3) % Emergency department visits, outpatient 541,096 541,417 (0.1) % Total emergency department visits 637,233 656,328 (2.9) % Total surgeries 87,387 101,023 (13.5) % Patient days - total 658,995 757,003 (12.9) % Adjusted patient days(2) 1,192,999 1,328,952 (10.2) % Average length of stay (days) 5.15 4.94 4.3 % Average licensed beds 15,382 17,170 (10.4) % Utilization of licensed beds(3) 47.1 % 48.4 % (1.3) % (1) Total visits 1,413,222 1,653,430 (14.5) % Paying visits (excludes charity and uninsured) 1,331,959 1,540,577 (13.5) % Charity and uninsured visits 81,263 112,853 (28.0) % Ambulatory Care: Total consolidated facilities (at end of period) 269 232 37 (1) Total consolidated cases 317,437 352,972 (10.1) %
(1) The change is the difference between the 2022 and 2021 amounts shown. (2) Adjusted patient admissions/days represents actual patient admissions/days adjusted to
include outpatient services provided by facilities in our Hospital Operations segment
by multiplying actual patient admissions/days by the sum of gross inpatient revenues
and outpatient revenues and dividing the results by gross inpatient revenues. (3) Utilization of licensed beds represents patient days divided by number of days in the
period divided by average licensed beds.
Total admissions decreased by 25,251, or 16.5%, and total surgeries decreased by 13,636, or 13.5%, in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . Total emergency department visits decreased 2.9% in the three months endedJune 30, 2022 compared to the same period in 2021. These decreases in our patient volumes are primarily attributable to the impact of the Cybersecurity Incident on certain of our hospitals and the sale of the Miami Hospitals inAugust 2021 . The decrease in Ambulatory Care total consolidated cases of 10.1% in the three months endedJune 30, 2022 compared to the same period in 2021 is due primarily to the sale of the Ambulatory Care segment's urgent care centers to a third party inApril 2021 and the impact of the COVID-19 pandemic. Three Months Ended June 30, Increase Revenues 2022 2021 (Decrease) Net operating revenues: Hospital Operations prior to inter-segment eliminations$ 3,645 $ 4,095 (11.0) % Ambulatory Care 771 664 16.1 % Conifer 333 319 4.4 % Inter-segment eliminations (111) (124) (10.5) % Total$ 4,638 $ 4,954 (6.4) % 31
-------------------------------------------------------------------------------- Table of Contents Consolidated net operating revenues decreased by$316 million , or 6.4%, in the three months endedJune 30, 2022 compared to the same period in 2021, primarily due to the adverse impact of the Cybersecurity Incident and the loss of revenues in our Hospital Operations segment from the Miami Hospitals we sold inAugust 2021 , partially offset by high patient acuity and negotiated commercial rate increases. On a consolidated basis, the decrease in net operating revenues was further offset by higher revenues from our Ambulatory Care segment, which increased$107 million , or 16.1%, in the 2022 period compared to the 2021 period. This increase was largely driven by our recently acquired ASCs and negotiated commercial rate increases. Conifer's revenues, net of intercompany eliminations, increased$27 million , or 13.8%, during the three months endedJune 30, 2022 compared to the same period in 2021, primarily due to contractual rate increases and new business expansion. During the three months endedJune 30, 2022 and 2021, we recognized net grant income of$94 million and$19 million , respectively, which amounts are not included in net operating revenues. Our accounts receivable days outstanding ("AR Days") from continuing operations were 59.8 days atJune 30, 2022 and 57.0 days atDecember 31, 2021 . The increase was primarily due to revenue recognized in the six months endedJune 30, 2022 related to a recently approved Texas Medicaid supplemental funding program, which revenue has not yet been entirely collected. Our AR Days target is less than 55 days. AR Days are calculated as our accounts receivable from continuing operations on the last date in the quarter divided by our net operating revenues from continuing operations for the quarter ended on that date divided by the number of days in the quarter. This calculation includes our Hospital Operations segment's contract assets. The AR Days calculation excludes (i) urgent care centers operated under the MedPost and CareSpot brands, which we divested inApril 2021 , (ii) the Miami Hospitals, which we sold inAugust 2021 , and (iii) ourCalifornia provider fee revenues.
The following table provides information about certain operating expenses by segment on a continuing operations basis:
Three Months Ended June 30, Increase Selected Operating Expenses 2022 2021 (Decrease) Hospital Operations: Salaries, wages and benefits$ 1,752 $ 1,941 (9.7) % Supplies 605 689 (12.2) % Other operating expenses 840 901 (6.8) % Total$ 3,197 $ 3,531 (9.5) % Ambulatory Care: Salaries, wages and benefits $ 201$ 169 18.9 % Supplies 205 169 21.3 % Other operating expenses 100 95 5.3 % Total $ 506$ 433 16.9 % Conifer: Salaries, wages and benefits $ 173$ 170 1.8 % Supplies 1 1 - % Other operating expenses 66 58 13.8 % Total $ 240$ 229 4.8 % Total: Salaries, wages and benefits$ 2,126 $ 2,280 (6.8) % Supplies 811 859 (5.6) % Other operating expenses 1,006 1,054 (4.6) % Total$ 3,943 $ 4,193 (6.0) % Rent/lease expense(1): Hospital Operations $ 68$ 75 (9.3) % Ambulatory Care 28 24 16.7 % Conifer 3 3 - % Total $ 99$ 102 (2.9) % (1) Included in other operating expenses. 32
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Table of Contents The following table provides information about certain of our Hospital Operations segment's operating expenses per adjusted patient admission on a continuing operations basis:
Three Months Ended June 30, Increase Selected Operating Expenses per Adjusted Patient Admission 2022 2021 (Decrease) Hospital Operations: Salaries, wages and benefits per adjusted patient admission(1)$ 7,331 $ 7,090 3.4 % Supplies per adjusted patient admission(1) 2,534 2,519 0.6 % Other operating expenses per adjusted patient admission(1) 3,509 3,289 6.7 % Total per adjusted patient admission$ 13,374 $ 12,898 3.7 %
(1) Adjusted patient admissions represents actual patient admissions adjusted to include
outpatient services provided by facilities in our Hospital Operations segment by
multiplying actual patient admissions by the sum of gross inpatient revenues and
outpatient revenues and dividing the results by gross inpatient revenues.
Salaries, wages and benefits expense for our Hospital Operations segment decreased$189 million , or 9.7%, in the three months endedJune 30, 2022 compared to the same period in 2021. This change was primarily attributable to the sale of the Miami Hospitals inAugust 2021 , lower incentive compensation and employee benefits costs, and our continued focus on cost-efficiency measures, partially offset by increased overtime expense and annual merit increases for certain of our employees. On a peradjustedpatient-admission basis, salaries, wages and benefits increased 3.4% in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily due to lower adjusted patient admissions. Supplies expense for our Hospital Operations segment decreased$84 million , or 12.2%, during the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . This decrease was primarily attributable to the sale of the Miami Hospitals, the decrease in patient volumes during the 2022 period and our cost-efficiency measures, partially offset by increased costs for certain supplies as a result of the COVID-19 pandemic and high patient acuity. On a peradjusted-patientadmission basis, supplies expense increased 0.6% in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . Other operating expenses for our Hospital Operations segment decreased$61 million , or 6.8%, in the three months endedJune 30, 2022 compared to the same period in 2021. The decrease was primarily attributable to sale of theMiami Hospitals and our continued focus on cost-efficiency measures. On a peradjustedpatientadmission basis, other operating expenses in the three months endedJune 30, 2022 increased 6.7% compared to the same period in 2021, primarily due to lower adjusted patient admissions and the proportionally higher level of fixed costs (e.g., rent expense) in other operating expenses.
LIQUIDITY AND CAPITAL RESOURCES OVERVIEW
Cash and cash equivalents were
Significant cash flow items in the three months ended
•Net cash provided by operating activities before interest, taxes, discontinued operations, and restructuring charges, acquisitionrelated costs, and litigation costs and settlements of$543 million (including$99 million from federal and state grants);
•Proceeds from the sale of facilities and other assets of
•Debt payments of
•Proceeds from the issuance of
•Interest payments of
•Income tax payments of
•Capital expenditures of
•$175 million of distributions paid to noncontrolling interests;
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•Payments totaling
•$26 million of payments for purchases of businesses or joint venture interests.
Net cash provided by operating activities was$347 million in the six months endedJune 30, 2022 compared to$779 million in the six months endedJune 30, 2021 . Key factors contributing to the change between the 2022 and 2021 periods include the following:
•$475 million of Medicare advances recouped in the six months ended
•$104 million of cash received from grants in the six months ended
•Lower interest payments of
•Higher income tax payments of
•Decreased cash receipts of
•The timing of other working capital items.
FORWARD-LOOKING STATEMENTS
This report includes "forwardlooking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, target, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forwardlooking statements, including (but not limited to) disclosure regarding (i) the impact of the COVID-19 pandemic, (ii) our future earnings, financial position, and operational and strategic initiatives, and (iii) developments in the healthcare industry. Forwardlooking statements represent management's expectations, based on currently available information, as to the outcome and timing of future events, but, by their nature, address matters that are indeterminate. They involve known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements to be materially different from those expressed or implied by forwardlooking statements. Such factors include, but are not limited to, the risks described in the ForwardLooking Statements and Risk Factors sections in Part I of our Annual Report and the Risk Factors section in Part II of our Q1'22 Report. When considering forwardlooking statements, you should keep in mind the risk factors and other cautionary statements in our Annual Report and in this report. Should one or more of the risks and uncertainties described in these reports occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forwardlooking statement. We specifically disclaim any obligation to update any information contained in a forwardlooking statement or any forwardlooking statement in its entirety except as required by law.
All forwardlooking statements attributable to us are expressly qualified in their entirety by this cautionary information.
SOURCES OF REVENUE FOR OUR HOSPITAL OPERATIONS SEGMENT
We earn revenues for patient services from a variety of sources, primarily managed care payers and the federal Medicare program, as well as state Medicaid programs, indemnitybased health insurance companies and uninsured patients (that is, patients who do not have health insurance and are not covered by some other form of thirdparty arrangement). 34 -------------------------------------------------------------------------------- Table of Contents The following table presents the sources of net patient service revenues less implicit price concessions for our hospitals and related outpatient facilities, expressed as percentages of net patient service revenues less implicit price concessions from all sources: Three Months Ended Six Months Ended Net Patient Service Revenues Less June 30, Increase June 30,
Increase
Implicit Price Concessions from: 2022 2021 (Decrease)(1) 2022 2021 (Decrease)(1) Medicare 17.3 % 18.4 % (1.1) % 17.5 % 18.6 % (1.1) % Medicaid 7.4 % 7.6 % (0.2) % 6.4 % 7.4 % (1.0) % Managed care(2) 69.4 % 67.3 % 2.1 % 70.3 % 67.6 % 2.7 % Uninsured 1.1 % 1.6 % (0.5) % 1.1 % 1.4 % (0.3) % Indemnity and other 4.8 % 5.1 % (0.3) % 4.7 % 5.0 % (0.3) %
(1) The change is the difference between the 2022 and 2021 percentages presented. (2) Includes Medicare and Medicaid managed care programs.
Our payer mix on an admissions basis for our hospitals, expressed as a percentage of total admissions from all sources, is presented below:
Three Months Ended Six Months Ended June 30, Increase June 30, Increase Admissions from: 2022 2021 (Decrease)(1) 2022 2021 (Decrease)(1) Medicare 20.7 % 20.7 % - % 21.1 % 21.1 % - % Medicaid 5.6 % 5.7 % (0.1) % 5.6 % 5.7 % (0.1) % Managed care(2) 65.7 % 64.3 % 1.4 % 65.3 % 64.0 % 1.3 % Charity and uninsured 5.0 % 6.2 % (1.2) % 4.8 % 6.1 % (1.3) % Indemnity and other 3.0 % 3.1 % (0.1) % 3.2 % 3.1 % 0.1 %
(1) The change is the difference between the 2022 and 2021 percentages presented. (2) Includes Medicare and Medicaid managed care programs.
GOVERNMENT PROGRAMS
CMS is an agency of theU.S. Department of Health and Human Services ("HHS") that administers a number of government programs authorized by federal law; it is the single largest payer of healthcare services inthe United States . Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, as well as some younger people with certain disabilities and conditions, and is provided without regard to income or assets. Medicaid is coadministered by the states and is jointly funded by the federal government and state governments. Medicaid is the nation's main public health insurance program for people with low incomes and is the largest source of health coverage inthe United States . TheChildren's Health Insurance Program ("CHIP"), which is also coadministered by the states and jointly funded, provides health coverage to children in families with incomes too high to qualify for Medicaid, but too low to afford private coverage. Unlike Medicaid, the CHIP is limited in duration and requires the enactment of reauthorizing legislation. Funding for the CHIP has been reauthorized through federal fiscal year 2027. Medicare Medicare offers its beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan (which includes "Part A" and "Part B"), is a feeforservice ("FFS") payment system. The other option, called Medicare Advantage (sometimes called "Part C" or "MA Plans"), includes health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), private FFS Medicare special needs plans and Medicare medical savings account plans. Our total net patient service revenues from continuing operations of the hospitals and related outpatient facilities in our Hospital Operations segment for services provided to patients enrolled in the Original Medicare Plan were$579 million and$697 million for the three months endedJune 30, 2022 and 2021, respectively, and$1.198 billion and$1.385 billion for the six months endedJune 30, 2022 and 2021, respectively. A general description of the types of payments we receive for services provided to patients enrolled in the Original Medicare Plan is provided in our Annual Report. Recent regulatory and legislative updates to the terms of these payment systems and their estimated effect on our revenues can be found under "Regulatory and Legislative Changes" below. 35 -------------------------------------------------------------------------------- Table of Contents Medicaid Medicaid programs and the corresponding reimbursement methodologies vary from statetostate and from yeartoyear. Even prior to the COVID19 pandemic, several states in which we operate faced budgetary challenges that resulted in reduced Medicaid funding levels to hospitals and other providers. Because most states must operate with balanced budgets, and the Medicaid program is generally a significant portion of a state's budget, states can be expected to adopt or consider adopting future legislation designed to reduce or not increase their Medicaid expenditures. In addition, some states delay issuing Medicaid payments to providers to manage state expenditures. As an alternative means of funding provider payments, many of the states in which we operate have adopted supplemental payment programs authorized under the Social Security Act. Continuing pressure on state budgets and other factors, including legislative and regulatory changes, could result in future reductions to Medicaid payments, payment delays or changes to Medicaid supplemental payment programs. Federal government denials or delayed approvals of waiver applications or extension requests by the states in which we operate could materially impact our Medicaid funding levels. Estimated revenues under various state Medicaid programs, including statefunded Medicaid managed care programs, constituted approximately 19.2% and 17.3% of total net patient service revenues less implicit price concessions of our acute care hospitals and related outpatient facilities for the six months endedJune 30, 2022 and 2021, respectively. We also receive disproportionate share hospital ("DSH") and other supplemental revenues under various state Medicaid programs. For the six months endedJune 30, 2022 and 2021, our total Medicaid revenues attributable to DSH and other supplemental revenues were approximately$292 million and$392 million , respectively. The decrease between the two sixmonth periods was primarily attributable to$77 million of assessments we recognized related to the Texas Comprehensive Hospital Increase Reimbursement Program ("CHIRP") following its approval in 2022. During the six months endedJune 30, 2022 , we also recognized$155 million of revenue related to CHIRP that is included in Managed Medicaid revenue rather than the DSH and other supplemental revenues classification due to the structure of the program. Medicaid revenues attributable to DSH and other supplemental payment programs included the following: Six Months Ended June 30, 2022 2021 Medicaid DSH$ 59 $ 69 Other Medicaid supplemental payment programs, net 310 323 369 392 CHIRP assessments (77) -$ 292 $ 392 Total Medicaid and Managed Medicaid net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment for the six months endedJune 30, 2022 and 2021 were$1.315 billion and$1.287 billion , respectively. During the six months endedJune 30, 2022 , Medicaid and Managed Medicaid revenues comprised 33% and 67%, respectively, of our Medicaidrelated net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment. All Medicaid and Managed Medicaid patient service revenues are presented net of provider taxes or assessments paid by our hospitals, which are reported as an offset reduction to FFS Medicaid revenue. Because we cannot predict what actions the federal government or the states may take under existing or future legislation and/or regulatory changes to address budget gaps, deficits, Medicaid expansion, provider fee programs or Medicaid Section 1115 waivers, we are unable to assess the effect that any such legislation or regulatory action might have on our business; however, the impact on our future financial position, results of operations or cash flows could be material. 36 -------------------------------------------------------------------------------- Table of Contents Regulatory and Legislative Changes
Material updates to the information set forth in our Annual Report about the Medicare and Medicaid payment systems, as well as other government programs impacting our business, are provided below.
Proposed Payment and Policy Changes to the Medicare Inpatient Prospective Payment Systems-Section 1886(d) of the Social Security Act requires CMS to update Medicare inpatient FFS payment rates for hospitals reimbursed under the inpatient prospective payment systems ("IPPS") annually. The updates generally become effectiveOctober 1 , the beginning of the federal fiscal year ("FFY"). InApril 2022 , CMS issued proposed changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 2023 Rates ("Proposed IPPS Rule"). The Proposed IPPS Rule includes the following proposed payment and policy changes: •A market basket increase of 3.1% for Medicare severityadjusted diagnosisrelated group ("MSDRG") operating payments for hospitals reporting specified quality measure data and that are meaningful users of electronic health record technology; CMS also proposed a 0.4% multifactor productivity reduction required by the Affordable Care Act and a 0.5% increase required by the Medicare Access and CHIP Reauthorization Act that together result in a net operating payment update of 3.2% before budget neutrality adjustments; •Changes to the hospital ValueBased Purchasing ("VBP") and Hospital-Acquired Condition ("HAC") programs for FFY 2023 due to the impact of the COVID-19 Public Health Emergency, including the implementation of a special scoring methodology for the VBP program that results in each hospital receiving a valuebased incentive payment amount equal to its 2% reduction to the operating standardized amount; and suppression of all measures in the HAC reduction program resulting in no hospitals being penalized for FFY 2023;
•An increase in the cost outlier threshold from
•A 1.63% net increase in the capital federal MSDRG rate; and
•Updates to the three factors used to determine the amount and distribution of Medicare uncompensated care disproportionate share hospital ("UCDSH") payments.
According to CMS, the combined impact of the proposed payment and policy changes in the Proposed IPPS Rule for operating costs will yield an average 1.4% increase in Medicare operating MSDRG FFS payments for hospitals in urban areas, and an average 2.3% increase in such payments for proprietary hospitals in FFY 2023. We estimate that all the proposed payment and policy changes affecting operating MSDRG and UCDSH payments will result in an estimated 2.3% increase in our annual Medicare FFS IPPS payments, which yields an estimated increase of approximately$45 million . Because of the uncertainty associated with various factors that may influence our future IPPS payments by individual hospital, including legislative, regulatory or legal actions, admission volumes, length of stay and case mix, as well as potential changes to the Proposed IPPS Rule, we cannot provide any assurances regarding our estimate of the impact of the proposed payment and policy changes. Proposed Payment and Policy Changes to the Medicare Outpatient Prospective Payment and Ambulatory Surgery Center Payment Systems-InJuly 2022 , CMS released proposed policy changes and payment rates for the Hospital Outpatient Prospective Payment System ("OPPS") and Ambulatory Surgical Center Payment System for calendar year ("CY") 2023 ("Proposed OPPS/ASC Rule"). The Proposed OPPS/ASC Rule includes the following proposed payment and policy changes: •An estimated net increase of 2.7% for the OPPS rates based on an estimated market basket increase of 3.1%, reduced by a multifactor productivity adjustment required by the Affordable Care Act of 0.4%; •Removal of 10 services from the Inpatient Only List (which is the list of procedures that must be performed on an inpatient basis) after determining such services meet established criteria for removal; •Establishment of an exemption for rural Sole Community Hospitals from the site-neutral Medicare reduced payment rate for clinic visits furnished in exempt off-campus, provider-based departments and payment for such visits at the full OPPS rate; and
•A 2.7% increase to the Ambulatory Surgical Center payment rates.
37 -------------------------------------------------------------------------------- Table of Contents In addition, the Proposed OPPS/ASC Rule acknowledges that additional changes would be forthcoming with respect to CMS' 340B program, which allows certain hospitals (i.e., only nonprofit organizations with specific federal designations and/or funding) ("340B Hospitals") to purchase drugs at discounted rates from drug manufacturers ("340B Drugs"). In the CY 2018 final rule regarding OPPS payment and policy changes, CMS reduced the payment for 340B Drugs from the average sales price ("ASP") plus 6% to the ASP minus 22.5% and made a corresponding budgetneutral increase to payments to all hospitals for other drugs and services reimbursed under the OPPS (the "340B Payment Adjustment"). CMS retained the same 340B Payment Adjustment in the final rules regarding OPPS payment and policy changes for CYs 2019 through 2022. Certain hospital associations and hospitals commenced litigation challenging CMS' authority to impose the 340B Payment Adjustment for CYs 2018, 2019 and 2020. Following the initial court decisions and a series of appeals, theU.S. Supreme Court (the "Supreme Court ") unanimously ruled inJune 2022 that the decision to impose the 340B Payment Adjustment in CYs 2018 and 2019 was unlawful. The case was remanded to the lower courts to determine the appropriate remedy, and it is expected that 340B Hospitals will be permitted to reclaim at least some portion of the 340B payments that were previously withheld. The Proposed OPPS/ASC Rule states that CMS did not have sufficient time to account for theSupreme Court decision in the CY 2023 proposed rates and budget neutrality calculations; however, CMS has indicated that it does anticipate applying the ASP plus 6% for 340B Drugs in the CY 2023 final rule, in lieu of the current payment policy of ASP minus 22.5%. CMS is still evaluating how to apply theSupreme Court ruling to the prior cost years and is seeking comments on potential remedies. CMS projects that the combined impact of the proposed payment and policy changes in the Proposed OPPS/ASC Rule under the current 340B payment policy (of ASP minus 22.5%) will yield an average 2.9% increase in Medicare FFS OPPS payments for hospitals in urban areas and an average 3.5% increase in Medicare FFS OPPS payments for proprietary hospitals. Based on CMS' estimates under the current 340B payment policy, the projected annual impact of the payment and policy changes in the Proposed OPPS/ASC Rule on our hospitals is an increase to Medicare FFS hospital outpatient revenues of approximately$21 million , which represents an increase of approximately 3.7%. However, CMS projects that the combined impact of the proposed payment and policy changes in the Proposed OPPS/ASC Rule under the anticipated final 340B payment policy (of ASP plus 6%) will yield an average 4% increase in Medicare FFS OPPS payments for hospitals in urban areas and an average 0.5% increase in Medicare FFS OPPS payments for proprietary hospitals. Based on CMS' estimates under the anticipated final 340B payment policy, the projected annual impact of the payment and policy changes in the Proposed OPPS/ASC Rule on our hospitals is an increase to Medicare FFS hospital outpatient revenues of approximately$3 million , which represents an increase of approximately 0.5%. Because of the uncertainty associated with various factors that may influence our future OPPS payments, including legislative or legal actions, volumes and case mix, as well as potential changes to the proposed rule, we cannot provide any assurances regarding our estimate of the impact of the proposed payment and policy changes. In addition, it remains unclear at this time how CMS will finance any retroactive payments for 340B payments that were previously withheld given that the original policy was budgetneutral and HHS already redistributed the savings. We cannot predict the remedy that will be imposed, the timing thereof, or what further actions CMS orCongress might take with respect to the 340B program; however, it is possible that reversal of the 340B Payment Adjustments could have an adverse effect on our future net operating revenues and cash flows. Proposed Payment and Policy Changes to the Medicare Physician Fee Schedule-InJuly 2022 , CMS released the CY 2023 Medicare Physician Fee Schedule ("MPFS") Proposed Rule ("MPFS Proposed Rule"). The MPFS Proposed Rule includes updates to payment policies, payment rates and other provisions for services reimbursed under the MPFS fromJanuary 1 through December 31, 2023 . Under the MPFS Proposed Rule, the CY 2023 conversion factor, which is the base rate that is used to convert relative units into payment rates, would be reduced from$34.61 to$33.08 , due in part to the expiration of the one-time 3% payment increase provided for in CY 2022 by the Protecting Medicare and American Farmers from Sequester Cuts Act, as well as budget neutrality rules. This change would result in an annual reduction of approximately$8 million to our FFS MPFS revenues. Because of the uncertainty associated with various factors that may influence our future MPFS payments, including legislative, regulatory or legal actions, volumes and case mix, as well as potential changes to the MPFS Proposed Rule, we cannot provide any assurances regarding our estimate of the impact of the proposed payment and policy changes. Public Health and Social Services Emergency Fund-During the six months endedJune 30, 2022 and 2021, our Hospital Operations and Ambulatory Care segments together recognized a total of$87 million and$38 million , respectively, of PRF grant income associated with lost revenues and COVIDrelated costs. Our Hospital Operations segment also recognized$13 million and$12 million of grant income from state and local grant programs during the same sixmonth periods in 2022 and 2021, respectively. In addition, we recognized$11 million of grant income through our unconsolidated affiliates during the six months endedJune 30, 2021 . Grant income recognized by our Hospital Operations and Ambulatory Care segments is presented in grant income, and grant income recognized through our unconsolidated affiliates is presented in equity in earnings of unconsolidated affiliates, in each case in our condensed consolidated statements of operations. We cannot predict whether 38
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Medicare and Medicaid Payment Policy Changes-The federally mandated 2% sequestration reduction on Medicare FFS and Medicare Advantage payments to hospitals, physicians and other providers was suspended effectiveMay 1, 2020 throughDecember 31, 2021 . The Protecting Medicare and American Farmers from Sequester Cuts Act (the "Sequester Cuts Act"), which was signed into law inDecember 2021 , extended the 2% Medicare sequestration moratorium throughMarch 31, 2022 , and adjusted the sequestration to 1% for the periodApril 1, 2022 throughJune 30, 2022 , after which the full 2% reduction will be restored unless further legislation is passed. The impact of the Sequester Cuts Act on our operations was an increase of approximately$39 million of revenues in the six months endedJune 30, 2022 . Because of the uncertainty associated with various factors that may influence our future Medicare and Medicaid payments, including future legislative, legal or regulatory actions, or changes in volumes and case mix, there is a risk that actual payments received under, or the ultimate impact of, these programs will differ materially from our expectations. PRIVATE INSURANCE Managed Care We currently have thousands of managed care contracts with various HMOs and PPOs. HMOs generally maintain a fullservice healthcare delivery network comprised of physician, hospital, pharmacy and ancillary service providers that HMO members must access through an assigned "primary care" physician. The member's care is then managed by his or her primary care physician and other network providers in accordance with the HMO's quality assurance and utilization review guidelines so that appropriate healthcare can be efficiently delivered in the most costeffective manner. HMOs typically provide reduced benefits or reimbursement (or none at all) to their members who use noncontracted healthcare providers for nonemergency care. PPOs generally offer limited benefits to members who use noncontracted healthcare providers. PPO members who use contracted healthcare providers receive a preferred benefit, typically in the form of lower copays, coinsurance or deductibles. As employers and employees have demanded more choice, managed care plans have developed hybrid products that combine elements of both HMO and PPO plans, including highdeductible healthcare plans that may have limited benefits, but cost the employee less in premiums. The amount of our managed care net patient service revenues, including Medicare and Medicaid managed care programs, from our hospitals and related outpatient facilities during the six months endedJune 30, 2022 and 2021 was$4.819 billion and$5.025 billion , respectively. Our top 10 managed care payers generated 62% of our managed care net patient service revenues for the six months endedJune 30, 2022 . During the same period, national payers generated 43% of our managed care net patient service revenues; the remainder came from regional or local payers. At bothJune 30, 2022 andDecember 31, 2021 , 67% of our net accounts receivable for our Hospital Operations segment were due from managed care payers. Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, perdiem rates, discounted FFS rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient's bill is subject to adjustment on a patientbypatient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. We believe it is reasonably likely for there to be an approximately 3% increase or decrease in the estimated contractual allowances related to managed care plans. Based on reserves atJune 30, 2022 , a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately$16 million . Some of the factors that can contribute to changes in the contractual allowance estimates include: (i) changes in reimbursement levels for procedures, supplies and drugs when threshold levels are triggered; (ii) changes in reimbursement levels when stoploss or outlier limits are reached; (iii) changes in the admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (iv) final coding of inhouse and dischargednotfinalbilled patients that change reimbursement levels; (v) secondary benefits determined after primary insurance payments; and (vi) reclassification of patients among insurance plans with different coverage and payment levels. Contractual allowance estimates are periodically reviewed for accuracy by taking into consideration known contract terms, as well as payment history. We believe our estimation and review process enables us to identify instances on a timely basis where such estimates need to be revised. We do not believe there were any adjustments to estimates of patient bills that were material to our revenues. In addition, on a corporatewide basis, we do not record any general provision for adjustments to estimated contractual allowances for managed 39 -------------------------------------------------------------------------------- Table of Contents care plans. Managed care accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for these payers and other factors that affect the estimation process. We expect managed care governmental admissions to continue to increase as a percentage of total managed care admissions over the near term. However, the managed Medicare and Medicaid insurance plans typically generate lower yields than commercial managed care plans, which have been experiencing an improved pricing trend. Although we have benefited from solid yearoveryear aggregate managed care pricing improvements for some time, we have seen these improvements moderate in recent years, and we believe this moderation could continue into the future. In the six months endedJune 30, 2022 , our commercial managed care net inpatient revenue per admission from the hospitals in our Hospital Operations segment was approximately 81% higher than our aggregate yield on a peradmission basis from government payers, including managed Medicare and Medicaid insurance plans. Indemnity An indemnitybased agreement generally requires the insurer to reimburse an insured patient for healthcare expenses after those expenses have been incurred by the patient, subject to policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her utilization of healthcare and selection of healthcare providers.
Legislative Changes
As more fully described in Item 1, Business - Healthcare Regulation and Licensing, of Part I of our Annual Report, the No Surprises Act ("NSA") and the rules promulgated thereunder went into effect onJanuary 1, 2022 . TheNSA is intended to address unexpected gaps in insurance coverage that result in "surprise medical bills" when patients unknowingly obtain medical services from physicians and other providers outside their health insurance network, including certain emergency services, anesthesiology services and air ambulance transportation. At this time, we are unable to assess the effect that theNSA or regulations relating to theNSA might have on our business, financial position, results of operations or cash flows.
UNINSURED PATIENTS
Uninsured patients are patients who do not qualify for government programs payments, such as Medicare and Medicaid, do not have some form of private insurance and, therefore, are responsible for their own medical bills. A significant number of our uninsured patients are admitted through our hospitals' emergency departments and often require highacuity treatment that is more costly to provide and, therefore, results in higher billings, which are the least collectible of all accounts.
Selfpay accounts receivable, which include amounts due from uninsured patients, as well as copays, coinsurance amounts and deductibles owed to us by patients with insurance, pose significant collectability problems. AtJune 30, 2022 andDecember 31, 2021 , 3% and 4%, respectively, of our net accounts receivable for our Hospital Operations segment was selfpay. Further, a significant portion of our implicit price concessions relates to selfpay amounts. We provide revenue cycle management services through Conifer, which is subject to various statutes and regulations regarding consumer protection in areas including finance, debt collection and credit reporting activities. For additional information, see Item 1, Business - Regulations Affecting Conifer's Operations, of Part I of our Annual Report. Conifer has performed systematic analyses to focus our attention on the drivers of bad debt expense for each hospital. While emergency department use is the primary contributor to our implicit price concessions in the aggregate, this is not the case at all hospitals. As a result, we have increased our focus on targeted initiatives that concentrate on nonemergency department patients as well. These initiatives are intended to promote process efficiencies in collecting selfpay accounts, as well as copay, coinsurance and deductible amounts owed to us by patients with insurance, that we deem highly collectible. We leverage a statisticalbased collections model that aligns our operational capacity to maximize our collections performance. We are dedicated to modifying and refining our processes as needed, enhancing our technology and improving staff training throughout the revenue cycle process in an effort to increase collections and reduce accounts receivable. Over the longer term, several other initiatives we have previously announced should also help address the challenges associated with serving uninsured patients. For example, our Compact with Uninsured Patients ("Compact") is designed to offer managed carestyle discounts to certain uninsured patients, which enables us to offer lower rates to those patients who historically had been charged standard gross charges. Under the Compact, the discount offered to uninsured patients is recognized as a contractual allowance, which reduces net operating revenues at the time the selfpay accounts are recorded. The uninsured patient accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for selfpay accounts and other factors that affect the estimation process. 40
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We also provide financial assistance through our charity and uninsured discount programs to uninsured patients who are unable to pay for the healthcare services they receive. Our policy is not to pursue collection of amounts determined to qualify for financial assistance; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital's eligibility for Medicaid DSH payments. These payments are intended to mitigate our cost of uncompensated care. Some states have also developed provider fee or other supplemental payment programs to mitigate the shortfall of Medicaid reimbursement compared to the cost of caring for Medicaid patients. The initial expansion of health insurance coverage under the Affordable Care Act resulted in an increase in the number of patients using our facilities with either health insurance exchange or government healthcare insurance program coverage. However, we continue to have to provide uninsured discounts and charity care due to the failure of certain states to expand Medicaid coverage and for persons living in the country who are not permitted to enroll in a health insurance exchange or government healthcare insurance program.
The following table presents our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses) of caring for our uninsured and charity patients:
Three Months Ended Six Months Ended June 30, June 30, Estimated costs for: 2022 2021 2022 2021 Uninsured patients$ 136 $ 158 $ 258 $ 326 Charity care patients 19 29 40 49 Total$ 155 $ 187 $ 298 $ 375 RESULTS OF OPERATIONS The following tables present our consolidated net operating revenues, operating expenses and operating income, both in dollar amounts and as percentages of net operating revenues, on a continuing operations basis: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Net operating revenues: Hospital Operations$ 3,645 $ 4,095 $ 7,443 $ 8,042 Ambulatory Care 771 664 1,509 1,310 Conifer 333 319 657 629 Inter-segment eliminations (111) (124) (226) (246) Net operating revenues 4,638 4,954 9,383 9,735 Grant income 94 19 100 50 Equity in earnings of unconsolidated affiliates 54 54 100 96 Operating expenses: Salaries, wages and benefits 2,126 2,280 4,308 4,481 Supplies 811 859 1,596 1,663 Other operating expenses, net 1,006 1,054 1,948 2,126 Depreciation and amortization 216 221 419 445 Impairment and restructuring charges, and acquisition-related costs 57 20 73 40 Litigation and investigation costs 18 22 38 35 Net gains on sales, consolidation and deconsolidation of (1) (15) - (15) facilities Operating income$ 553 $ 586 $ 1,201 $ 1,106 41
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Table of Contents Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Net operating revenues 100.0 % 100.0 % 100.0 % 100.0 % Grant income 2.0 % 0.4 % 1.1 % 0.5 % Equity in earnings of unconsolidated affiliates 1.2 % 1.1 % 1.1 % 1.0 % Operating expenses: Salaries, wages and benefits 45.8 % 46.0 % 45.9 % 46.0 % Supplies 17.5 % 17.4 % 17.0 % 17.1 % Other operating expenses, net 21.7 % 21.3 % 20.8 % 21.8 % Depreciation and amortization 4.7 % 4.5 % 4.5 % 4.6 % Impairment and restructuring charges, and acquisition-related costs 1.2 % 0.4 % 0.8 % 0.4 % Litigation and investigation costs 0.4 % 0.4 % 0.4 % 0.4 % Net gains on sales, consolidation and deconsolidation of - % (0.3) % - % (0.2) % facilities Operating income 11.9 % 11.8 % 12.8 % 11.4 % The following tables present our net operating revenues, operating expenses and operating income, both in dollar amounts and as percentages of net operating revenues, by operating segment on a continuing operations basis: Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 Hospital Hospital Operations Ambulatory Care Conifer Operations Ambulatory Care Conifer Net operating revenues$ 3,534 $
771$ 333 $ 7,217 $ 1,509 $ 657 Grant income 92 2 - 96 4 - Equity in earnings of unconsolidated affiliates 2 52 - 6 94 - Operating expenses: Salaries, wages and benefits 1,752 201 173 3,572 395 341 Supplies 605 205 1 1,188 406 2 Other operating expenses, net 840 100 66 1,614 205 129 Depreciation and amortization 179 28 9 346 55 18 Impairment and restructuring charges, and acquisition-related costs 42 5 10 54 8
11
Litigation and investigation costs 18 - - 26 -
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Net gains on sales, consolidation and deconsolidation of facilities (1) - - - - - Operating income$ 193 $ 286$ 74 $ 519 $ 538$ 144 Net operating revenues 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Grant income 2.6 % 0.3 % - % 1.3 % 0.3 % - % Equity in earnings of unconsolidated affiliates 0.1 % 6.7 % - % 0.1 % 6.2 % - % Operating expenses: Salaries, wages and benefits 49.6 % 26.1 % 52.0 % 49.5 % 26.2 % 51.9 % Supplies 17.1 % 26.6 % 0.3 % 16.5 % 26.9 % 0.3 % Other operating expenses, net 23.7 % 13.0 % 19.8 % 22.3 % 13.6 % 19.7 % Depreciation and amortization 5.1 % 3.6 % 2.7 % 4.8 % 3.6 % 2.7 % Impairment and restructuring charges, and acquisition-related costs 1.2 % 0.6 % 3.0 % 0.7 % 0.5 % 1.7 % Litigation and investigation costs 0.5 % - % - % 0.4 % - % 1.8 % Net gains on sales, consolidation and deconsolidation of facilities - % - % - % - % - % - % Operating income 5.5 % 37.1 % 22.2 % 7.2 % 35.7 % 21.9 % 42
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Table of Contents Three Months Ended June 30, 2021 Six Months Ended June 30, 2021 Hospital Hospital Operations Ambulatory Care Conifer Operations Ambulatory Care Conifer Net operating revenues$ 3,971 $ 664$ 319 $ 7,796 $ 1,310 $ 629 Grant income 4 15 - 28 22 - Equity in earnings of unconsolidated affiliates 5 49 - 9 87 - Operating expenses: Salaries, wages and benefits 1,941 169 170 3,798 343 340 Supplies 689 169 1 1,335 326 2 Other operating expenses, net 901 95 58 1,817 198 111 Depreciation and amortization 188 23 10 378 48 19 Impairment and restructuring charges, and acquisition-related costs 10 4 6 20 8
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Litigation and investigation costs 19 3 - 28 6
1
Net gains on sales, consolidation and deconsolidation of facilities (2) (13) - (2) (13) - Operating income$ 234 $ 278$ 74 $ 459 $ 503$ 144 Net operating revenues 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Grant income 0.1 % 2.3 % - % 0.4 % 1.7 % - % Equity in earnings of unconsolidated affiliates 0.1 % 7.4 % - % 0.1 % 6.6 % - % Operating expenses: Salaries, wages and benefits 48.9 % 25.5 % 53.3 % 48.7 % 26.2 % 54.1 % Supplies 17.4 % 25.5 % 0.3 % 17.1 % 24.9 % 0.3 % Other operating expenses, net 22.6 % 14.2 % 18.2 % 23.3 % 15.0 % 17.6 % Depreciation and amortization 4.7 % 3.5 % 3.1 % 4.8 % 3.7 % 3.0 % Impairment and restructuring charges, and acquisition-related costs 0.3 % 0.6 % 1.9 % 0.3 % 0.6 % 1.9 % Litigation and investigation costs 0.5 % 0.5 % - % 0.4 % 0.5 % 0.2 % Net gains on sales, consolidation and deconsolidation of facilities (0.1) % (2.0) % - % - % (1.0) % - % Operating income 5.9 % 41.9 % 23.2 % 5.9 % 38.4 % 22.9 % Consolidated net operating revenues decreased by$316 million and$352 million , or 6.4% and 3.6%, for the three and six months endedJune 30, 2022 , respectively, compared to the three and six months endedJune 30, 2021 , respectively. Hospital Operations net operating revenues net of intersegment eliminations decreased by$437 million and$579 million , or 11.0% and 7.4%, for the three and six months endedJune 30, 2022 , respectively, compared to the same three and sixmonth periods in 2021, respectively. These decreases were primarily due to the adverse impact of the Cybersecurity Incident and the loss of revenues in our Hospital Operations segment from the Miami Hospitals we sold inAugust 2021 , partially offset by high patient acuity and negotiated commercial rate increases. Our Hospital Operations segment also recognized grant income from federal and state grants totaling$92 million and$96 million during the three and six months endedJune 30, 2022 , respectively, which is not included in net operating revenues. Ambulatory Care net operating revenues increased by$107 million and$199 million , or 16.1% and 15.2%, for the three and six months endedJune 30, 2022 , respectively, compared to the three and six months endedJune 30, 2021 , respectively. The change in 2022 revenues for the threemonth period was driven by an increase from acquisitions of$83 million , as well as an increase in samefacility net operating revenues of$32 million due primarily to negotiated commercial rate increases. These increases were partially offset by a decrease of$8 million due primarily to the sale of the Ambulatory Care segment's urgent care centers to a third party inApril 2021 . The change in 2022 revenues for the sixmonth period was driven by an increase from acquisitions of$174 million , as well as an increase in samefacility net operating revenues of$84 million due primarily to higher surgical patient volumes and negotiated commercial rate increases. These increases were partially offset by a decrease of$59 million due primarily to the aforementioned sale of urgent care centers and the transfer of imaging centers to the Hospital Operations segment inApril 2021 . Our Ambulatory Care segment also recognized income from federal grants totaling$2 million and$4 million during the three and six months endedJune 30, 2022 , respectively, which is not included in net operating revenues. 43
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Conifer's net operating revenues increased by$14 million and$28 million , or 4.4% and 4.5%, for the three and six months endedJune 30, 2022 , respectively, compared to the three and six months endedJune 30, 2021 , respectively. Conifer's revenues from thirdparty clients, which revenues are not eliminated in consolidation, increased$27 million and$48 million , or 13.8% and 12.5%, for the three and six months endedJune 30, 2022 , respectively, compared to the same three and sixmonth periods in 2021, respectively. This increase was primarily due to contractual rate increases, new business expansion and the transition of the Miami Hospitals to thirdparty clients. The following table presents selected operating expenses of our three operating segments. Information for our Hospital Operations segment is presented on a samehospital basis, whereas information presented for our Ambulatory Care and Conifer segments is presented on a continuing operations basis. Three Months Ended Six Months Ended June 30, Increase June 30, Increase Selected Operating Expenses 2022 2021 (Decrease) 2022 2021 (Decrease) Hospital Operations - Same-Hospital: Salaries, wages and benefits$ 1,741 $ 1,828 (4.8) %$ 3,553 $ 3,570 (0.5) % Supplies 603 644 (6.4) % 1,184 1,247 (5.1) % Other operating expenses 825 820 0.6 % 1,586 1,663 (4.6) % Total$ 3,169 $ 3,292 (3.7) %$ 6,323 $ 6,480 (2.4) % Ambulatory Care: Salaries, wages and benefits$ 201 $ 169 18.9 %$ 395 $ 343 15.2 % Supplies 205 169 21.3 % 406 326 24.5 % Other operating expenses 100 95 5.3 % 205 198 3.5 % Total$ 506 $ 433 16.9 %$ 1,006 $ 867 16.0 % Conifer: Salaries, wages and benefits$ 173 $ 170 1.8 %$ 341 $ 340 0.3 % Supplies 1 1 - % 2 2 - % Other operating expenses 66 58 13.8 % 129 111 16.2 % Total$ 240 $ 229 4.8 %$ 472 $ 453 4.2 % Rent/lease expense(1): Hospital Operations$ 66 $ 69 (4.3) %$ 134 $ 141 (5.0) % Ambulatory Care 28 24 16.7 % 55 51 7.8 % Conifer 3 3 - % 6 6 - % Total$ 97 $ 96 1.0 %$ 195 $ 198 (1.5) % (1) Included in other operating expenses.
RESULTS OF OPERATIONS BY SEGMENT
Our operations are reported in three segments:
•Hospital Operations, which is comprised of acute care and specialty hospitals, imaging centers, ancillary outpatient facilities, microhospitals and physician practices;
•Ambulatory Care, which is comprised of USPI's ASCs and surgical hospitals; and
•Conifer, which provides revenue cycle management and valuebased care services to hospitals, health systems, physician practices, employers and other clients.
44 -------------------------------------------------------------------------------- Table of Contents Hospital Operations Segment The following tables present operating statistics, revenues and expenses of our hospitals and related outpatient facilities on a samehospital basis, unless otherwise indicated: Same-Hospital Same-Hospital Three Months Ended Six Months EndedJune 30 , IncreaseJune 30 , Increase Admissions,Patient Days and Surgeries 2022 2021 (Decrease) 2022 2021 (Decrease) Number of hospitals (at end of period) 60 60 - (1) 60 60 - (1) Total admissions 128,068 139,331 (8.1) % 255,850 273,451 (6.4) % Adjusted patient admissions(2) 239,031 252,469 (5.3) % 466,964 483,742 (3.5) % Paying admissions (excludes charity and uninsured) 121,823 131,813 (7.6) % 243,620 258,818 (5.9) % Charity and uninsured admissions 6,245 7,518 (16.9) % 12,230 14,633 (16.4) % Admissions through emergency department 96,136 102,617 (6.3) % 193,820 203,464 (4.7) % Paying admissions as a percentage of total admissions 95.1 % 94.6 % 0.5 % (1) 95.2 % 94.6 % 0.6 % (1)
Charity and uninsured admissions as a percentage of total admissions
4.9 % 5.4 % (0.5) % (1) 4.8 % 5.4 % (0.6) % (1)
Emergency department admissions as a percentage of total admissions
75.1 % 73.6 % 1.5 % (1) 75.8 % 74.4 % 1.4 % (1) Surgeries - inpatient 33,749 37,363 (9.7) % 66,657 71,459 (6.7) % Surgeries - outpatient 53,638 57,588 (6.9) % 104,896 107,863 (2.8) % Total surgeries 87,387 94,951 (8.0) % 171,553 179,322 (4.3) % Patient days - total 658,995 695,445 (5.2) % 1,364,618 1,426,970 (4.4) % Adjusted patient days(2) 1,192,999 1,234,640 (3.4) % 2,417,823 2,460,160 (1.7) % Average length of stay (days) 5.15 4.99 3.2 % 5.33 5.22 2.1 % Licensed beds (at end of period) 15,391 15,399 (0.1) % 15,391 15,399 (0.1) % Average licensed beds 15,382 15,402 (0.1) % 15,389 15,403 (0.1) % Utilization of licensed beds(3) 47.1 % 49.6 % (2.5) % (1) 49.0 % 51.2 % (2.2) % (1)
(1) The change is the difference between the 2022 and 2021 amounts presented. (2) Adjusted patient admissions/days represents actual patient admissions/days adjusted to
include outpatient services provided by facilities in our Hospital Operations segment
by multiplying actual patient admissions/days by the sum of gross inpatient revenues
and outpatient revenues and dividing the results by gross inpatient revenues. (3) Utilization of licensed beds represents patient days divided by number of days in the
period divided by average licensed beds.
Same-Hospital Same-Hospital Three Months Ended Six Months EndedJune 30 , IncreaseJune 30 , Increase Outpatient Visits 2022 2021 (Decrease) 2022 2021 (Decrease) Total visits 1,281,256 1,424,407 (10.0) % 2,521,642 2,647,103 (4.7) % Paying visits (excludes charity and uninsured) 1,201,750 1,323,061 (9.2) % 2,367,468 2,470,572 (4.2) % Charity and uninsured visits 79,506 101,346 (21.5) % 154,174 176,531 (12.7) % Emergency department visits 541,098 511,030 5.9 % 1,041,763 935,391 11.4 % Surgery visits 53,638 57,588 (6.9) % 104,896 107,863 (2.8) % Paying visits as a percentage of total visits 93.8 % 92.9 % 0.9 % (1) 93.9 % 93.3 % 0.6 % (1) Charity and uninsured visits as a percentage of total visits 6.2 % 7.1 % (0.9) % (1) 6.1 % 6.7 % (0.6) % (1)
(1) The change is the difference between the 2022 and 2021 amounts presented.
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Table of Contents Same-Hospital Same-Hospital Three Months Ended Six Months Ended June 30, Increase June 30, Increase Revenues 2022 2021 (Decrease) 2022 2021 (Decrease)
Total segment net operating revenues(1)
(5.2) %$ 7,150 $ 7,251 (1.4) % Selected revenue data - hospitals and related outpatient facilities: Net patient service revenues(1)(2)$ 3,314 $ 3,507 (5.5) %$ 6,792 $ 6,899 (1.6) % Net patient service revenue per adjusted patient admission(1)(2)$ 13,864 $ 13,891 (0.2) %$ 14,545 $ 14,262 2.0 % Net patient service revenue per adjusted patient day(1)(2)$ 2,778 $ 2,841 (2.2) %$ 2,809 $ 2,804 0.2 %
(1) Revenues are net of implicit price concessions. (2) Adjusted patient admissions/days represents actual patient admissions/days adjusted to
include outpatient services provided by facilities in our Hospital Operations segment
by multiplying actual patient admissions/days by the sum of gross inpatient revenues
and outpatient revenues and dividing the results by gross inpatient revenues. Same-Hospital Same-Hospital Three Months Ended Six Months EndedJune 30 , IncreaseJune 30 , Increase Total Segment Selected Operating Expenses 2022 2021 (Decrease)(1) 2022 2021 (Decrease)(1)
Salaries, wages and benefits as a percentage of net operating revenues
49.8 % 49.5 % 0.3 % 49.7 % 49.2 % 0.5 % Supplies as a percentage of net operating revenues 17.2 % 17.5 % (0.3) % 16.6 % 17.2 % (0.6) % Other operating expenses as a percentage of net operating revenues 23.6 % 22.2 % 1.4 % 22.2 % 22.9 % (0.7) %
(1) The change is the difference between the 2022 and 2021 amounts presented.
Revenues Samehospital net operating revenues decreased$192 million , or 5.2%, during the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , due in part to the adverse impact of the Cybersecurity Incident on our patient volumes, partially offset by high patient acuity and negotiated commercial rate increases. Our Hospital Operations segment also recognized grant income totaling$92 million and$4 million from federal, state and local grants in the three months endedJune 30, 2022 and 2021, respectively, which is not included in net operating revenues. Samehospital admissions and outpatient visits decreased 8.1% and 10.0%, respectively, in the three months endedJune 30, 2022 compared to the same period in 2021, due in part to the impact of the Cybersecurity Incident inApril 2022 . Samehospital net operating revenues decreased$101 million , or 1.4%, during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , primarily due to the same factors that impacted the threemonth period. Our Hospital Operations segment also recognized grant income from federal, state and local grants totaling$96 million and$28 million in the six months endedJune 30, 2022 and 2021, respectively, which is not included in net operating revenues. Samehospital admissions decreased 6.4% in the six months endedJune 30, 2022 compared to the same period in 2021. This decrease was due in part to the impacts of the Omicron variant in the first quarter of 2022 and the Cybersecurity Incident in the second quarter of 2022. Samehospital outpatient visits decreased by 4.7% during the 2022 period, due in part to the adverse impact of the Cybersecurity Incident. 46
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Table of Contents The following table presents our consolidated net accounts receivable by payer: December 31, June 30, 2022 2021 Medicare $ 141$ 155 Medicaid 54 47 Net cost report settlements receivable and valuation allowances 49 33 Managed care 1,682 1,602 Self-pay uninsured 12 21 Self-pay balance after insurance 70 70 Estimated future recoveries 141 137 Other payers 345 331 Total Hospital Operations 2,494 2,396 Ambulatory Care 346 374 Accounts receivable, net $
2,840
Collection of accounts receivable has been a key area of focus, particularly over the past several years. AtJune 30, 2022 , our Hospital Operations segment collection rate on selfpay accounts was approximately 28.2%. Our selfpay collection rate includes payments made by patients, including copays, coinsurance amounts and deductibles paid by patients with insurance. Based on our accounts receivable from uninsured patients and copays, coinsurance amounts and deductibles owed to us by patients with insurance atJune 30, 2022 , a 10% decrease or increase in our selfpay collection rate, or approximately 3%, which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to patient accounts receivable of approximately$10 million . There are various factors that can impact collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, the volume of patients through our emergency departments, the increased burden of copays and deductibles to be made by patients with insurance, and business practices related to collection efforts. These factors, many of which have been affected by the COVID19 pandemic, continuously change and can have an impact on collection trends and our estimation process. We also typically experience ongoing managed care payment delays and disputes; however, we continue to work with these payers to obtain adequate and timely reimbursement for our services. Our estimated Hospital Operations segment collection rate from managed care payers was approximately 96.1% atJune 30, 2022 . We manage our implicit price concessions using hospitalspecific goals and benchmarks such as (i) total cash collections, (ii) pointofservice cash collections, (iii) AR Days and (iv) accounts receivable by aging category. The following tables present the approximate aging by payer of our net accounts receivable from the continuing operations of our Hospital Operations segment of$2.445 billion and$2.363 billion atJune 30, 2022 andDecember 31, 2021 , respectively, excluding cost report settlements receivable and valuation allowances of$49 million and$33 million , respectively, atJune 30, 2022 andDecember 31, 2021 : Indemnity, Managed Self-Pay Medicare Medicaid Care and Other Total AtJune 30, 2022 : 0-60 days 91 % 38 % 53 % 21 % 47 % 61-120 days 5 % 27 % 16 % 14 % 16 % 121-180 days 2 % 15 % 10 % 9 % 10 % Over 180 days 2 % 20 % 21 % 56 % 27 % Total 100 % 100 % 100 % 100 % 100 % AtDecember 31, 2021 : 0-60 days 93 % 35 % 57 % 22 % 52 % 61-120 days 4 % 31 % 18 % 14 % 16 % 121-180 days 1 % 14 % 10 % 9 % 9 % Over 180 days 2 % 20 % 15 % 55 % 23 % Total 100 % 100 % 100 % 100 % 100 % Conifer continues to implement revenue cycle initiatives to improve our cash flow. These initiatives are focused on standardizing and improving patient access processes, including preregistration, registration, verification of eligibility and benefits, liability identification and collections at pointofservice, and financial counseling. These initiatives are intended to reduce denials, improve service levels to patients and increase the quality of accounts that end up in accounts receivable. 47
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Although we continue to focus on improving our methodology for evaluating the collectability of our accounts receivable, we may incur future charges if there are unfavorable changes in the trends affecting the net realizable value of our accounts receivable. AtJune 30, 2022 , we had a cumulative total of patient account assignments to Conifer of$1.870 billion related to our continuing operations. These accounts have already been written off and are not included in our receivables; however, an estimate of future recoveries from all the accounts assigned to Conifer is determined based on our historical experience and recorded in accounts receivable. Patient advocates from Conifer's Eligibility and Enrollment Services program ("EES") screen patients in the hospital to determine whether those patients meet eligibility requirements for financial assistance programs. They also expedite the process of applying for these government programs. Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending, under the EES, net of appropriate implicit price concessions. Based on recent trends, approximately 97% of all accounts in the EES are ultimately approved for benefits under a government program, such as Medicaid. The following table presents the approximate amount of accounts receivable in the EES still awaiting determination of eligibility under a government program atJune 30, 2022 andDecember 31, 2021 by aging category: June 30, 2022 December 31, 2021 0-60 days $ 71 $ 87 61-120 days 19 17 121-180 days 4 4 Over 180 days 10 7 Total $ 104 $ 115
Salaries, Wages and Benefits
Samehospital salaries, wages and benefits decreased$87 million , or 4.8%, in the three months endedJune 30, 2022 compared to the same period in 2021. This decrease was primarily attributable to reduced patient volumes and our continued focus on costefficiency measures. Lower incentive compensation and employee benefits costs also contributed to the decrease in 2022. These factors were partially offset by increased premium pay and annual merit increases for certain of our employees. Samehospital salaries, wages and benefits as a percentage of net operating revenues increased by 30 basis points to 49.8% in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , due in part to the adverse impact of the Cybersecurity Incident on our patient revenues during the period. Salaries, wages and benefits expense for the three months endedJune 30, 2022 and 2021 included stockbased compensation expense of$14 million and$12 million , respectively. Samehospital salaries, wages and benefits decreased$17 million , or 0.5%, in the six months endedJune 30, 2022 compared to the same period in 2021. This decrease was primarily attributable to the same factors that caused the decrease in the three-month period, partially offset by increased premium pay, increased contract labor costs and annual merit increases for certain of our employees. Samehospital salaries, wages and benefits as a percentage of net operating revenues increased by 50 basis points to 49.7% in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , due in part to the adverse impact of the Cybersecurity Incident on our patient revenues during the period. Salaries, wages and benefits expense for the six months endedJune 30, 2022 and 2021 included stockbased compensation expense of$26 million and$22 million , respectively. Supplies Samehospital supplies expense decreased$41 million , or 6.4%, in the three months endedJune 30, 2022 compared to the same period in 2021. The decrease was primarily due to lower patient volumes and our cost-efficiency measures, including those described below, partially offset by the increased cost of certain supplies as a result of the COVID19 pandemic and growth in our higheracuity, supplyintensive surgical services. Samehospital supplies expense as a percentage of net operating revenues decreased by 30 basis points to 17.2% in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily due to our continued focus on cost-efficiency measures. We strive to control supplies expense through product standardization, consistent contract terms and endtoend contract management, improved utilization, bulk purchases, focused spending with a smaller number of vendors and operational improvements. Samehospital supplies expense decreased$63 million , or 5.1%, in the six months endedJune 30, 2022 compared to the same period in 2021. The decrease was primarily due to the same factors that impacted the threemonth period endedJune 30, 2022 . Samehospital supplies expense as a percentage of net operating revenues decreased by 60 basis points to 16.6% 48
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in the six months ended
Other Operating Expenses, Net
Samehospital other operating expenses increased by$5 million , or 0.6%, in the three months endedJune 30, 2022 compared to the same period in 2021. Samehospital other operating expenses as a percentage of net operating revenues increased by 140 basis points to 23.6% for the three months endedJune 30, 2022 compared to 22.2% for the three months endedJune 30, 2021 , primarily due to the decrease in our patient volumes and the proportionally higher level of fixed costs (e.g., rent expense) in other operating expenses. Samehospital other operating expenses decreased by$77 million , or 4.6%, in the six months endedJune 30, 2022 compared to the same period in 2021. The changes in other operating expenses included:
•net gains from the sale of long-lived assets of
•decreased malpractice expense of
Samehospital other operating expenses as a percentage of net operating revenues decreased by 70 basis points to 22.2% in the six months endedJune 30, 2022 compared to 22.9% for the six months endedJune 30, 2021 , primarily due to the net gains from the sale of long-lived assets noted above.
Ambulatory Care Segment
Our Ambulatory Care segment is comprised of USPI's ASCs and surgical hospitals. USPI operates its surgical facilities in partnership with local physicians and, in many of these facilities, a health system partner. We hold an ownership interest in each facility, with each being operated through a separate legal entity in most cases. USPI operates facilities on a daytoday basis through management services contracts. Our sources of earnings from each facility consist of:
•management and administrative services revenues, computed as a percentage of each facility's net revenues (often net of implicit price concessions); and
•our share of each facility's net income (loss), which is computed by multiplying the facility's net income (loss) times the percentage of each facility's equity interests owned by USPI.
Our role as an owner and daytoday manager provides us with significant influence over the operations of each facility. For many of the facilities our Ambulatory Care segment operates (165 of 434 facilities atJune 30, 2022 ), this influence does not represent control of the facility, so we account for our investment in the facility under the equity method for an unconsolidated affiliate. USPI controls 269 of the facilities our Ambulatory Care segment operates, and we account for these investments as consolidated subsidiaries. Our net earnings from a facility are the same under either method, but the classification of those earnings differs. For consolidated subsidiaries, our financial statements reflect 100% of the revenues and expenses of the subsidiaries, after the elimination of intercompany amounts. The net profit attributable to owners other than USPI is classified within net income available to noncontrolling interests.
For unconsolidated affiliates, our statements of operations reflect our earnings in two line items:
•equity in earnings of unconsolidated affiliates-our share of the net income (loss) of each facility, which is based on the facility's net income (loss) and the percentage of the facility's outstanding equity interests owned by USPI; and
•management and administrative services revenues, which is included in our net operating revenues-income we earn in exchange for managing the daytoday operations of each facility, usually quantified as a percentage of each facility's net revenues less implicit price concessions.
Our Ambulatory Care segment operating income is driven by the performance of all facilities USPI operates and by USPI's ownership interests in those facilities, but our individual revenue and expense line items contain only consolidated businesses, which represent 62% of those facilities. This translates to trends in consolidated operating income that often do not correspond with changes in consolidated revenues and expenses, which is why we disclose certain statistical and financial data on a pro forma systemwide basis that includes both consolidated and unconsolidated (equity method) facilities. 49 -------------------------------------------------------------------------------- Table of Contents Results of Operations
The following table summarizes certain statement of operations items:
Three Months Ended Six Months Ended June 30, Increase June 30, Increase 2022 2021 (Decrease) 2022 2021 (Decrease) Net operating revenues$ 771 $ 664 16.1 %$ 1,509 $ 1,310 15.2 % Grant income$ 2 $ 15 (86.7) %$ 4 $ 22 (81.8) % Equity in earnings of unconsolidated affiliates$ 52 $ 49 6.1 %$ 94 $ 87 8.0 % Salaries, wages and benefits$ 201 $ 169 18.9 %$ 395 $ 343 15.2 % Supplies$ 205 $ 169 21.3 %$ 406 $ 326 24.5 % Other operating expenses, net$ 100 $ 95 5.3 %$ 205 $ 198 3.5 % Revenues Ambulatory Care net operating revenues increased by$107 million , or 16.1%, during the three months endedJune 30, 2022 compared to the same period in 2021. The change was driven by an increase from acquisitions of$83 million , as well as an increase in samefacility net operating revenues of$32 million due primarily to negotiated commercial rate increases. These increases were partially offset by a decrease of$8 million due primarily to the sale of the Ambulatory Care segment's urgent care centers to a third party inApril 2021 . Our Ambulatory Care segment also recognized grant income from federal grants totaling$2 million and$15 million during the three months endedJune 30, 2022 and 2021, respectively, which is not included in net operating revenues. Ambulatory Care net operating revenues increased by$199 million , or 15.2%, during the six months endedJune 30, 2022 compared to the same period in 2021. The change was driven by an increase from acquisitions of$174 million , as well as an increase in samefacility net operating revenues of$84 million due primarily to higher surgical patient volumes and negotiated commercial rate increases. These increases were partially offset by a decrease of$59 million due primarily to the aforementioned sale of urgent care centers and the transfer of imaging centers to the Hospital Operations segment. Our Ambulatory Care segment also recognized grant income from federal grants totaling$4 million and$22 million during the six months endedJune 30, 2022 and 2021, respectively, which is not included in net operating revenues.
Salaries, Wages and Benefits
Salaries, wages and benefits expense increased by$32 million , or 18.9%, during the three months endedJune 30, 2022 compared to the same period in 2021. Salaries, wages and benefits expense was impacted by an increase from acquisitions of$27 million , as well as an increase in samefacility salaries, wages and benefits expense of$10 million due primarily to higher surgical patient volumes. These increases were partially offset by a decrease of$5 million due primarily to the aforementioned sale of urgent care centers. Salaries, wages and benefits expense included$3 million of stockbased compensation in each of the threemonth periods endedJune 30, 2022 and 2021. Salaries, wages and benefits expense increased by$52 million , or 15.2%, during the six months endedJune 30, 2022 compared to the same period in 2021. Salaries, wages and benefits expense was impacted by an increase from acquisitions of$53 million and an increase in samefacility salaries, wages and benefits expense of$27 million due primarily to higher surgical patient volumes, partially offset by a decrease of$28 million due to the aforementioned sale of urgent care centers and the transfer of imaging centers to the Hospital Operations segment. Salaries, wages and benefits expense included$6 million of stockbased compensation expense in each of the sixmonth periods endedJune 30, 2022 and 2021.
Supplies
Supplies expense increased by$36 million , or 21.3%, during the three months endedJune 30, 2022 compared to the same period in 2021. The change was driven by an increase from acquisitions of$31 million , as well as an increase in samefacility supplies expense of$5 million due primarily to additional costs driven by the higher level of patient acuity and higher pricing of certain supplies as a result of the COVID19 pandemic. Supplies expense increased by$80 million , or 24.5%, during the six months endedJune 30, 2022 compared to the same period in 2021. The change was driven by an increase from acquisitions of$63 million , as well as an increase in samefacility supplies expense of$20 million due primarily to an increase in surgical cases at our consolidated centers, additional costs driven by the higher level of patient acuity, and higher pricing of certain supplies as a result of the COVID19 pandemic, partially offset by a decrease of$3 million due to the aforementioned sale of urgent care centers and the transfer of imaging centers to the Hospital Operations segment. 50
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Other Operating Expenses, Net
Other operating expenses increased by$5 million , or 5.3%, during the three months endedJune 30, 2022 compared to the same period in 2021. The change was driven by an increase from acquisitions of$8 million , partially offset by a decrease in samefacility other operating expenses of$1 million and a decrease of$2 million due to the sale of the Ambulatory Care segment's urgent care centers. Other operating expenses increased by$7 million , or 3.5%, during the six months endedJune 30, 2022 compared to the same period in 2021. The change was driven by an increase from acquisitions of$20 million and an increase in samefacility other operating expenses of$4 million , partially offset by a decrease of$17 million due to the aforementioned sale of urgent care centers and the transfer of imaging centers to the Hospital Operations segment.
Facility Growth
The following table summarizes the yearoveryear changes in our samefacility revenue and cases on a pro forma systemwide basis, which includes both consolidated and unconsolidated (equity method) facilities. While we do not record the revenues of unconsolidated facilities, we believe this information is important in understanding the financial performance of our Ambulatory Care segment because these revenues are the basis for calculating our management services revenues and, together with the expenses of our unconsolidated facilities, are the basis for our equity in earnings of unconsolidated affiliates. Three Months Ended Six Months Ended Ambulatory Care Facility Growth June 30, 2022 June 30, 2022 Net revenues 2.8 % 5.8 % Cases (0.9) % 3.3 % Net revenue per case 3.7 % 2.5 %
Joint Ventures with
USPI's business model is to jointly own its facilities with local physicians and, in many of these facilities, a notforprofit health system partner. Accordingly, as ofJune 30, 2022 , the majority of facilities in our Ambulatory Care segment are operated in this model.
The table below summarizes the amounts we paid to acquire various ownership interests in ambulatory care facilities:
Six
Months Ended
June 30, Increase Type of Ownership Interests Acquired 2022 2021 (Decrease) Controlling interests$ 66 $ 63 $ 3 Noncontrolling interests - 1 (1) Equity investment in unconsolidated affiliates and consolidated facilities 14 6 8 Total$ 80 $ 70 $ 10
The table below provides information about the ownership structure of the facilities operated by our Ambulatory Care segment:
Ownership Structure of Ambulatory Care FacilitiesJune 30, 2022 Owned with a health system partner 201 Owned without a health system partner 233 Total 434
The table below reflects the change in the number of facilities operated by our
Ambulatory Care segment since
Six Months EndedJune 30, 2022 Acquisitions 7 De novo 6 Dispositions/Mergers (2) Total increase in number of facilities operated 11 51 -------------------------------------------------------------------------------- Table of Contents During the six months endedJune 30, 2022 , we acquired controlling interests in three ASCs located inFlorida and one in each ofArizona andNew Hampshire . We paid cash totaling$37 million for these acquisitions, which are jointly owned with physicians. During the same period in 2022, we acquired a noncontrolling interest in one ASC located in each ofNew Jersey andTexas . Also during the six months endedJune 30, 2022 , we acquired controlling interests in nine previously unconsolidated ASCs (including seven SCD Centers), two of which are located in each ofFlorida andPennsylvania and one in each ofIndiana ,Maryland ,Michigan ,Texas andWisconsin . We paid an aggregate of$29 million to acquire controlling interests in these facilities. Following our acquisition of a controlling interest in the Texas ASC, we contributed our ownership interest in it to our subsidiaryTexas Health Ventures Group, L.L.C. We also regularly engage in the purchase of equity interests with respect to our investments in unconsolidated affiliates and consolidated facilities that do not result in a change in control. These transactions are primarily the acquisitions of equity interests in ASCs and the investment of additional cash in facilities that need capital for new acquisitions, new construction or other business growth opportunities. During the six months endedJune 30, 2022 , we invested approximately$14 million in such transactions.
Conifer Segment
Revenues
Our Conifer segment generated net operating revenues of$333 million and$319 million during the three months endedJune 30, 2022 and 2021, respectively, a portion of which was eliminated in consolidation as described in Note 18 to the accompanying Condensed Consolidated Financial Statements. The increase in Conifer's net operating revenues was$14 million , or 4.4%. Conifer's revenues from thirdparty clients, which revenues are not eliminated in consolidation, increased$27 million , or 13.8%, for the three months endedJune 30, 2022 compared to the same period in 2021. The increase was primarily attributable to contractual rate increases and new business expansion. Our Conifer segment generated net operating revenues of$657 million and$629 million during the six months endedJune 30, 2022 and 2021, respectively. The increase in Conifer's net operating revenues was$28 million , or 4.5%. Conifer revenues from thirdparty clients, which revenues are not eliminated in consolidation, increased$48 million , or 12.5%, for the six months endedJune 30, 2022 compared to the same period in 2021. The increase was primarily driven by contractual rate increases and new business expansion, as well as the transition of the five Miamiarea hospitals sold inAugust 2021 to a thirdparty client. Salaries, Wages and Benefits Salaries, wages and benefits expense for Conifer increased$3 million , or 1.8%, in the three months endedJune 30, 2022 compared to the same period in 2021, and increased$1 million , or 0.3%, in the six months endedJune 30, 2022 compared to the same period in 2021. The increase in both periods was primarily due to new business expansion, planned staffing increases and annual merit increases for certain of our employees. Salaries, wages and benefits expense included stockbased compensation expense of$1 million in each of the threemonth periods endedJune 30, 2022 and 2021, and$2 million in each of the sixmonth periods endedJune 30, 2022 and 2021.
Other Operating Expenses, Net
Other operating expenses for Conifer increased$8 million , or 13.8%, in the three months endedJune 30, 2022 compared to the same period in 2021. Other operating expenses for Conifer increased$18 million , or 16.2%, in the six months endedJune 30, 2022 compared to the same period in 2021. The increase in each period was primarily due to higher vendor fees and recruiting expenses in 2022. 52 -------------------------------------------------------------------------------- Table of Contents Consolidated
Impairment and Restructuring Charges, and Acquisition-Related Costs
The following table presents information about our impairment and restructuring charges, and acquisitionrelated costs:
Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Consolidated: Impairment charges$ 5 $ 1 $ 6 $ 1 Restructuring charges 49 18 61 34 Acquisition-related costs 3 1 6 5 Total impairment and restructuring charges, and acquisition-related costs$ 57 $ 20 $ 73 $ 40 By segment: Hospital Operations$ 42 $ 10 $ 54 $ 20 Ambulatory Care 5 4 8 8 Conifer 10 6 11 12 Total impairment and restructuring charges, and acquisition-related costs$ 57 $ 20 $ 73 $ 40 During the three and six months endedJune 30, 2022 , restructuring charges consisted of$16 million and$21 million , respectively, of employee severance costs,$3 million and$5 million , respectively, related to the transition of various administrative functions to our GBC,$21 million and$22 million , respectively, related to contract and lease termination fees, and$9 million and$13 million , respectively, of other restructuring costs. Acquisitionrelated costs consisted entirely of transaction costs during both periods. During the three and six months endedJune 30, 2021 , restructuring charges consisted of$6 million and$10 million , respectively, of employee severance costs,$6 million and$12 million , respectively, related to the transition of various administrative functions to our GBC, and$6 million and$12 million , respectively, of other restructuring costs. Acquisitionrelated costs consisted entirely of transaction costs during both periods.
Litigation and Investigation Costs
Litigation and investigation costs during the three months endedJune 30, 2022 and 2021 were$18 million and$22 million , respectively, and$38 million and$35 million during the six months endedJune 30, 2022 and 2021, respectively.
Interest Expense
Interest expense for the three and six months ended
Loss from Early Extinguishment of Debt
During the three and six months endedJune 30, 2022 , we incurred aggregate losses from early extinguishment of debt of$66 million and$109 million , respectively. These losses related to the redemption of our 7.500% senior secured first lien notes due 2025 ("2025 Senior Secured First Lien Notes") inFebruary 2022 , open market purchases of our 2023 Senior Unsecured Notes during the six months endedJune 30, 2022 and the redemption in full of the 2023 Senior Unsecured Notes inJune 2022 , in all cases in advance of the notes' maturity date. Loss from early extinguishment of debt was$31 million and$54 million for the three and six months endedJune 30, 2021 , respectively. These losses related to our retirement of approximately$1.888 billion aggregate principal amount of certain of our senior unsecured and senior secured first lien notes in advance of their maturity dates during the six months endedJune 30, 2021 . In all of the 2022 and 2021 periods, the losses from early extinguishment of debt primarily related to the difference between the purchase prices and the par value of the notes, as well as the writeoff of associated unamortized issuance costs. 53 -------------------------------------------------------------------------------- Table of Contents Income Tax Expense During the three months endedJune 30, 2022 , we recorded income tax expense of$86 million in continuing operations on pre-tax income of$265 million compared to$61 million on pre-tax income of$319 million during the prioryear period. During the six months endedJune 30, 2022 , we recorded income tax expense of$185 million in continuing operations on pretax income of$643 million compared to$106 million on pre-tax income of$586 million during the six months endedJune 30, 2021 . During the six months endedJune 30, 2022 , we recorded income tax expense of$77 million to increase the valuation allowance for interest expense carryforwards, including$39 million due to a change in the business interest expense disallowance rules in 2022.
A reconciliation between the amount of reported income tax expense and the amount computed by multiplying income from continuing operations before income taxes by the statutory federal tax rate is presented below:
Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Tax expense at statutory federal rate of 21%$ 56 $ 67 $ 135 $ 123 State income taxes, net of federal income tax 11 14 25 26
benefit
Tax benefit attributable to noncontrolling (28) (28) (57) (53) interests Nondeductible goodwill 1 7 1 7 Stock-based compensation tax benefit (1) (2) (3) (3) Changes in valuation allowance 45 - 77 - Other items 2 3 7 6 Income tax expense$ 86 $ 61 $ 185 $ 106
Net Income Available to Noncontrolling Interests
Net income available to noncontrolling interests was$141 million for the three months endedJune 30, 2022 compared to$138 million for the three months endedJune 30, 2021 . Net income available to noncontrolling interests for the 2022 period was comprised of$114 million related to our Ambulatory Care segment,$8 million related to our Hospital Operations segment, and$19 million related to our Conifer segment. Of the portion related to our Ambulatory Care segment,$5 million related to the minority interest Baylor held in USPI untilJune 30, 2022 . Net income available to noncontrolling interests was$281 million for the six months endedJune 30, 2022 compared to$263 million for the six months endedJune 30, 2021 . Net income available to noncontrolling interests for the six months endedJune 30, 2022 was comprised of$213 million related to our Ambulatory Care segment,$33 million related to our Hospital Operations segment and$35 million related to our Conifer segment. Of the portion related to our Ambulatory Care segment,$9 million related to the minority interest Baylor held in USPI untilJune 30, 2022 .
ADDITIONAL SUPPLEMENTAL NON-GAAP DISCLOSURES
The financial information provided throughout this report, including our Condensed Consolidated Financial Statements and the notes thereto, has been prepared in conformity with accounting principles generally accepted inthe United States of America ("GAAP"). However, we use certain nonGAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements, some of which are recurring or involve cash payments. We use this information in our analysis of the performance of our business, excluding items we do not consider relevant to the performance of our continuing operations. In addition, we use these measures to define certain performance targets under our compensation programs. "Adjusted EBITDA" is a nonGAAP measure we define as net income available (loss attributable) toTenet Healthcare Corporation common shareholders before (1) the cumulative effect of changes in accounting principle, (2) net loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax, (4) income tax benefit (expense), (5) gain (loss) from early extinguishment of debt, (6) other nonoperating income (expense), net, (7) interest expense, (8) litigation and investigation (costs) benefit, net of insurance recoveries, (9) net gains (losses) on sales, consolidation and deconsolidation of facilities, (10) impairment and restructuring charges and acquisitionrelated costs, (11) depreciation and amortization, and (12) income (loss) from divested and closed businesses (i.e., health plan businesses). Litigation and investigation costs do not include ordinary course of business malpractice and other litigation and related expense.
We believe the foregoing nonGAAP measure is useful to investors and analysts because it presents additional information about our financial performance. Investors, analysts, company management and our board of directors utilize this
54 -------------------------------------------------------------------------------- Table of Contents nonGAAP measure, in addition to GAAP measures, to track our financial and operating performance and compare that performance to peer companies, which utilize similar nonGAAP measures in their presentations. The human resources committee of our board of directors also uses certain nonGAAP measures to evaluate management's performance for the purpose of determining incentive compensation. We believe that Adjusted EBITDA is a useful measure, in part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to GAAP and other nonGAAP measures, as factors in determining the estimated fair value of shares of our common stock. Company management also regularly reviews the Adjusted EBITDA performance for each operating segment. We do not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance. The nonGAAP Adjusted EBITDA measure we utilize may not be comparable to similarly titled measures reported by other companies. Because this measure excludes many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly, investors are encouraged to use GAAP measures when evaluating our financial performance. The following table presents the reconciliation of Adjusted EBITDA to net income available toTenet Healthcare Corporation common shareholders (the most comparable GAAP term) for the three and six months endedJune 30, 2022 and 2021: Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021
Net income available to
(141) (138) (281) (263) Income (loss) from discontinued operations, net of tax - (1) 1 (1) Income from continuing operations 179 258 458 480 Income tax expense (86) (61) (185) (106) Loss from early extinguishment of debt (66) (31) (109) (54) Other non-operating income (expense), net - (1) - 9 Interest expense (222) (235) (449) (475) Operating income 553 586 1,201 1,106 Litigation and investigation costs (18) (22) (38) (35)
Net gains on sales, consolidation and deconsolidation of facilities
1 15 - 15
Impairment and restructuring charges, and acquisition-related costs
(57) (20) (73) (40) Depreciation and amortization (216) (221) (419) (445) Adjusted EBITDA$ 843 $ 834 $ 1,731 $ 1,611 Net operating revenues$ 4,638 $ 4,954 $ 9,383 $ 9,735
Net income available to
0.8 % 2.4 % 1.9 % 2.2 % Adjusted EBITDA as % of net operating revenues 18.2 % 16.8 % 18.4 % 16.5 % (Adjusted EBITDA margin)
LIQUIDITY AND CAPITAL RESOURCES
CASH REQUIREMENTS
There have been no material changes to our obligations to make future cash payments under scheduled contractual obligations, such as debt and lease agreements, and under contingent commitments, such as standby letters of credit and minimum revenue guarantees, as disclosed in our Annual Report, except for the matters set forth below under "Other Contractual Obligations" and the additional lease obligations and the longterm debt transactions disclosed in Notes 1 and 6, respectively, to our accompanying Condensed Consolidated Financial Statements.
Long-Term Debt
AtJune 30, 2022 , using the last 12 months of Adjusted EBITDA, our ratio of total longterm debt, net of cash and cash equivalent balances, to Adjusted EBITDA was 3.81x, or 3.92x if adjusted to include outstanding obligations arising from cash advances received from Medicare pursuant to COVID19 relief legislation. We anticipate this ratio will fluctuate from quarter to quarter based on earnings performance and other factors, including the use of our Credit Agreement as a source of liquidity and acquisitions that involve the assumption of longterm debt. We seek to manage this ratio and increase the efficiency of our balance sheet by following our business plan and managing our cost structure, including through possible asset divestitures, and 55 -------------------------------------------------------------------------------- Table of Contents through other changes in our capital structure. As part of our longterm objective to manage our capital structure, we continue to evaluate opportunities to retire, purchase, redeem and refinance outstanding debt subject to prevailing market conditions, our liquidity requirements, operating results, contractual restrictions and other factors. In the year endingDecember 31, 2023 and beyond, we may also consider share repurchases depending on market conditions and other investment opportunities. Our ability to achieve our leverage and capital structure objectives is subject to numerous risks and uncertainties, many of which are described in the ForwardLooking Statements and Risk Factors sections in Part I of our Annual Report and the Risk Factors section in Part II of our Q1'22 Report.
Interest payments, net of capitalized interest, were
Other Contractual Obligations
Baylor Put /Call Agreement-As previously discussed in our Annual Report, our put/call agreement (the "Baylor Put /Call Agreement") with Baylor contained put and call options with respect to the 5% ownership interest Baylor held in USPI. The Baylor Put/Call Agreement gave Baylor the option to annually put up to one-third of its total shares in USPI (the "Baylor Shares") over a period of three years beginning in 2021. We had the right to call the difference between the number of shares Baylor put each year and the maximum number of shares it could have put. In each of 2021 and 2022, we notified Baylor of our intention to exercise our call option to purchase 33.3% of the Baylor Shares for that year (66.6% in total). InJune 2022 , we entered into an agreement with Baylor (the "Share Purchase Agreement") to complete the purchase of the Baylor Shares we called in 2021 and 2022 and to accelerate the acquisition of the remainingBaylor Shares eligible to be put/called in 2023. Under the terms of the Share Purchase Agreement, we agreed to pay Baylor$406 million to buy its entire 5% voting ownership interest in USPI. We paid$11 million upon execution of the Share Purchase Agreement and will make 35 additional non-interest bearing monthly payments of approximately$11 million beginning inAugust 2022 . AtJune 30, 2022 , we had liabilities of$124 million recorded in other current liabilities and$253 million in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet for the purchase of these shares. Investment in the SCD Centers-USPI continues to make offers in an ongoing process to acquire a portion of the equity interests in certain of the SCD Centers from the physician owners for consideration of up to approximately$250 million . During the six months endedJune 30, 2022 , we made aggregate payments of$25 million to acquire controlling interests in seven SCD Centers. We cannot reasonably predict how many additional physician owners will accept our offers to acquire a portion of their equity, nor the timing or amount of any remaining payments. We expect to fund these payments using cash on hand. We have no off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, except for$230 million of standby letters of credit outstanding and guarantees atJune 30, 2022 .
Other Cash Requirements
Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations), equipment and information systems additions and replacements, introduction of new medical technologies, design and construction of new buildings or hospitals, and various other capital improvements, as well as commitments to make capital expenditures in connection with acquisitions of businesses. Capital expenditures were$307 million and$243 million in the six months endedJune 30, 2022 and 2021, respectively. We anticipate that our capital expenditures for continuing operations for the year endingDecember 31, 2022 will total approximately$725 million to$775 million , including$95 million that was accrued as a liability atDecember 31, 2021 . Income tax payments, net of tax refunds, were$140 million in the six months endedJune 30, 2022 compared to$34 million in the six months endedJune 30, 2021 . SOURCES AND USES OF CASH Our liquidity for the six months endedJune 30, 2022 was primarily derived from net cash provided by operating activities and cash on hand. During the six months endedJune 30, 2022 , we also received supplemental funds from federal and state grants provided under COVID19 relief legislation. We had$1.351 billion of cash and cash equivalents on hand atJune 30, 2022 to fund our operations and capital expenditures, and our borrowing availability under our credit facility was$1.500 billion based on our borrowing base calculation atJune 30, 2022 . 56
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When operating under normal conditions, our primary source of operating cash is the collection of accounts receivable. As such, our operating cash flow is impacted by levels of cash collections, as well as levels of implicit price concessions, due to shifts in payer mix and other factors. Our Credit Agreement provides additional liquidity to manage fluctuations in operating cash caused by these factors. Net cash provided by operating activities was$347 million in the six months endedJune 30, 2022 compared to$779 million in the six months endedJune 30, 2021 . Key factors contributing to the change between the 2022 and 2021 periods include the following:
•$475 million of Medicare advances recouped in the six months ended
•$104 million of cash received from grants in the six months ended
•Lower interest payments of
•Higher income tax payments of
•Decreased cash receipts of
•The timing of other working capital items.
We used net cash of$200 million and$195 million in investing activities during the six months endedJune 30, 2022 and 2021, respectively. This$5 million additional use of cash between the 2022 and 2021 periods was attributable to an increase in capital expenditures of$64 million and a$22 million increase in cash used for purchases of marketable securities. These changes were partially offset by an increase in proceeds from the sale of facilities and other assets of$85 million , primarily related to the sale of several medical office buildings in the first quarter of 2022. Net cash used in financing activities was$1.160 billion for the six months endedJune 30, 2022 compared to$836 million for the six months endedJune 30, 2021 . Financing activity during the six months endedJune 30, 2022 included payments of$2.744 billion to early retire our long-term debt, including$1.933 billion paid to redeem all$1.872 billion of aggregate principal amount outstanding on our 2023 Senior Unsecured Notes and$730 million paid to redeem all$700 million aggregate principal amount outstanding of our 2025 Senior Secured First Lien Notes. In addition, distributions to noncontrolling interest holders increased$98 million , primarily due to the distribution of$61 million for minority interest holders' portion of the proceeds received from the sale of several medical office buildings. These factors were partially offset by proceeds of$2.000 billion from the issuance of our 2030 Senior Secured First Lien Notes during the six months endedJune 30, 2022 . We record our equity securities and our debt securities classified as availableforsale at fair market value. The majority of our investments are valued based on quoted market prices or other observable inputs. We have no investments that we expect will be negatively affected by the current economic conditions such that they will materially impact our financial condition, results of operations or cash flows.
DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS
Credit Agreement-AtJune 30, 2022 , our Credit Agreement provided for revolving loans in an aggregate principal amount of up to$1.500 billion with a$200 million subfacility for standby letters of credit. InMarch 2022 , we amended the revolving credit facility to, among other things, (i) decrease the previous maximum aggregate revolving credit commitments from$1.900 billion to$1.500 billion , subject to borrowing availability, (ii) extend the scheduled maturity date fromSeptember 2024 toMarch 2027 , and (iii) replace theLondon Interbank Offered Rate (LIBOR) with the Term Secured Overnight Financing Rate ("SOFR") and Daily Simple SOFR (each, as defined in the Credit Agreement) as the reference interest rate. AtJune 30, 2022 , we had no cash borrowings outstanding under the Credit Agreement, and we had less than$1 million of standby letters of credit outstanding. Based on our eligible receivables,$1.500 billion was available for borrowing under the Credit Agreement atJune 30, 2022 . We were in compliance with all covenants and conditions in our Credit Agreement atJune 30, 2022 . 57 -------------------------------------------------------------------------------- Table of Contents Letter of Credit Facility-We have a letter of credit facility (as amended to date, the "LC Facility") that provides for the issuance, from time to time, of standby and documentary letters of credit in an aggregate principal amount of up to$200 million . The scheduled maturity date of the LC Facility isSeptember 12, 2024 . The LC Facility is subject to an effective maximum secured debt covenant of 4.25 to 1.00. AtJune 30, 2022 , we were in compliance with all covenants and conditions in the LC Facility, and we had$127 million of standby letters of credit outstanding thereunder. Senior Unsecured Notes and Senior Secured Notes-OnJune 15, 2022 , we issued$2.000 billion aggregate principal amount of our 2030 Senior Secured First Lien Notes. We will pay interest on the 2030 Senior Secured First Lien Notes semiannually in arrears onJune 15 andDecember 15 of each year, commencing onDecember 15, 2022 . As further discussed below, we used a portion of the proceeds from the issuance of the 2030 Senior Secured First Lien Notes, after payment of fees and expenses, to finance the redemption of our 2023 Senior Unsecured Notes. Through a series of openmarket transactions during the six months endedJune 30, 2022 , we repurchased$124 million aggregate principal amount outstanding of our 2023 Senior Unsecured Notes using cash on hand. Following the issuance of our 2030 Senior Secured First Lien Notes, we used a portion of the proceeds to redeem the then-remaining$1.748 billion aggregate principal outstanding of the 2023 Senior Unsecured Notes in advance of their maturity date. In total, we paid$1.933 billion during the six months endedJune 30, 2022 to retire our 2023 Senior Unsecured Notes in full and recorded aggregate losses from early extinguishment of debt of$71 million , primarily related to the difference between the purchase prices and the par value of the notes, as well as the writeoff of associated unamortized issuance costs. OnFebruary 23, 2022 , we redeemed all$700 million aggregate principal amount outstanding of our 2025 Senior Secured First Lien Notes in advance of their maturity date. We paid$730 million from cash on hand to redeem the notes. In connection with the redemption, we recorded a loss from early extinguishment of debt of$38 million in the six months endedJune 30, 2022 , primarily related to the difference between the purchase price and the par value of the notes, as well as the writeoff of associated unamortized issuance costs.
For additional information regarding our long-term debt, see Note 6 to the accompanying Condensed Consolidated Financial Statements and Note 8 to the Consolidated Financial Statements included in our Annual Report.
LIQUIDITY
We continue to experience negative impacts of the COVID19 pandemic on our business in varying degrees. During the six months endedJune 30, 2022 , we were affected by a significant acceleration in COVID19 cases associated with the Omicron variant and subvariants. Future variants could similarly emerge and cause surges in COVID19 cases, which may adversely impact the local economies of areas we serve. Any increase in the amount of or deterioration in the collectability of patient accounts receivable could adversely affect our cash flows and results of operations. If general economic conditions deteriorate or remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be impacted. We have taken, and continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and changes in our service mix and revenue mix. These actions included the sale and redemption of various senior unsecured notes and senior secured notes, which eliminated any significant debt maturities untilJuly 2024 and will reduce our future annual cash interest expense payments. In addition, we have continued cost-efficiency measures, as well as necessary cost reductions, to substantially offset incremental costs, including temporary staffing and premium pay, as well as higher supply costs for PPE. We have also sought to compensate for the COVID19 pandemic's disruption of our patient volumes and service mix by growing our services for which demand has been more resilient, including our higheracuity service lines. While the length of time that will be required for our patient volumes and mix to return to pre-pandemic levels is unknown, especially demand for loweracuity services, we believe demand for our higheracuity service lines will continue to grow. We believe these actions, together with government relief packages, supported our ability to provide essential patient services during the initial uncertainty caused by the COVID19 pandemic and continue to do so.
From time to time, we expect to engage in additional capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at that time. We believe our existing debt agreements provide flexibility for future secured or unsecured borrowings.
Our cash on hand fluctuates daytoday throughout the year based on the timing and levels of routine cash receipts and disbursements, including our book overdrafts, and required cash disbursements, such as interest payments and income tax payments, as well as cash disbursements required to respond to the COVID19 pandemic. These fluctuations result in material intra-quarter net operating and investing uses of cash that have caused, and in the future may cause, us to use our Credit Agreement as a source of liquidity. We believe that existing cash and cash equivalents on hand, borrowing availability under 58 -------------------------------------------------------------------------------- Table of Contents our Credit Agreement and anticipated future cash provided by our operating activities should be adequate to meet our current cash needs. These sources of liquidity, in combination with any potential future debt incurrence, should also be adequate to finance planned capital expenditures, payments on the current portion of our long-term debt, payments to current and former joint venture partners, including those related to put/call arrangements and our Share Purchase Agreement with Baylor, and other presently known operating needs. Long-term liquidity for debt service and other purposes will be dependent on the amount of cash provided by operating activities and, subject to favorable market and other conditions, the successful completion of future borrowings and potential refinancings. However, our cash requirements could be materially affected by the use of cash in acquisitions of businesses, repurchases of securities, the exercise of put rights or other exit options by our joint venture partners, and contractual commitments to fund capital expenditures in, or intercompany borrowings to, businesses we own. In addition, liquidity could be adversely affected by a deterioration in our results of operations, including our ability to generate sufficient cash from operations, as well as by the various risks and uncertainties discussed in this section, other sections of this report and in our Annual Report, including any costs associated with legal proceedings and government investigations. We do not rely on commercial paper or other short-term financing arrangements nor do we enter into repurchase agreements or other short-term financing arrangements not otherwise reported in our balance sheet. In addition, we do not have significant exposure to floating interest rates given that all of our current long-term indebtedness has fixed rates of interest except for borrowings under our Credit Agreement.
CRITICAL ACCOUNTING ESTIMATES
In preparing our Condensed Consolidated Financial Statements in conformity with GAAP, we must use estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may vary from those estimates.
We consider our critical accounting estimates to be those that (i) involve significant judgments and uncertainties, (ii) require estimates that are more difficult for management to determine, and (iii) may produce materially different outcomes under different conditions or when using different assumptions.
Our critical accounting estimates have not changed from the description provided in our Annual Report.
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