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Item 2. Management’s Discussion and Analysis

2024-10-24 compared with 2024-07-25 · 184 added, 163 removed, 387 unchanged (47% of the section changed)

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Our affiliates are leading providers of healthcare services, developing and operating healthcare delivery systems in 39 distinct markets across 15 states.

As of June 30, 2024, our subsidiaries own or lease 71 affiliated hospitals, with more than 11,000 beds, and operate more than 1,000 sites of care, including physician practices, urgent care centers, freestanding emergency departments, occupational medicine clinics, imaging centers, cancer centers and ambulatory surgery centers.

As of September 30, 2024, our subsidiaries own or lease 70 affiliated hospitals, with more than 11,000 beds, and operate more than 1,000 sites of care, including physician practices, urgent care centers, freestanding emergency departments, occupational medicine clinics, imaging centers, cancer centers and ambulatory surgery centers.

We generate revenues by providing a broad range of general and specialized hospital healthcare services and outpatient services to patients in the communities in which we are located.

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Acquisition and Divestiture Activity

During the six months ended June 30, 2024, we paid approximately $1 million to acquire the operating assets and related businesses of certain physician practices and clinics that operate within the communities served by our hospitals.

During the nine months ended September 30, 2024, we paid approximately $1 million to acquire the operating assets and related businesses of certain physician practices and clinics that operate within the communities served by our hospitals.

The purchase price for these transactions was primarily allocated to working capital and property and equipment.

There were no hospital divestitures completed during the three and six months ended June 30, 2024.

The following table provides a summary of hospitals that we divested (or, in the case of Lutheran Rehabilitation Hospital, in which we sold a majority interest) during the year ended December 31, 2023.

During the nine months ended September 30, 2024, as reflected in the table below, we completed the divestiture of one hospital in Tennessee.

This hospital represented annual net operating revenues in 2023 of approximately $188 million and we received total net proceeds of approximately $161 million in connection with this disposition.

The following table provides a summary of hospitals that we divested (or, in the case of Lutheran Rehabilitation Hospital, in which we sold a majority interest) during the nine months ended September 30, 2024 and the year ended December 31, 2023.

Effective Date

2024 Divestiture:

Tennova Healthcare - Cleveland

Hamilton Health Care Systems, Inc.

Cleveland, TN

August 1, 2024

2023 Divestitures:

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December 1, 2023

On February 28, 2023, we entered into a definitive agreement for the sale of substantially all of the assets of Lake Norman Regional Medical Center (123 licensed beds) in Mooresville, North Carolina, and Davis Regional Medical Center (144 licensed beds) in Statesville, North Carolina, to Novant Health, Inc., or Novant.

Following judicial developments involving efforts of the Federal Trade Commission to prevent completion of this transaction, the aforementioned definitive agreement was terminated effective June 21, 2024.

For additional information regarding termination of this definitive agreement, see the Current Report on Form 8-K filed by us on June 24, 2024.

On April 18, 2024, we entered into a definitive agreement for the sale of substantially all of the assets of Tennova Healthcare - Cleveland (351 licensed beds) in Cleveland, Tennessee, to Hamilton Health Care System, Inc.

and certain of its affiliates.

For additional information regarding this potential disposition, see the Current Report on Form 8-K filed by us on April 18, 2024.

In addition, on October 1, 2024, we completed the sale of substantially all of the assets of Davis Regional Medical Center (144 licensed beds) in Statesville, North Carolina, to Iredell Memorial Hospital, Inc.

pursuant to the terms of a definitive agreement which was entered into on August 16, 2024.

The net proceeds from this sale of approximately $13 million were received at a preliminary closing on September 30, 2024.

On July 30, 2024, we entered into a definitive agreement for the sale of substantially all of the assets of Regional Hospital of Scranton (186 licensed beds) and Moses Taylor Hospital (122 licensed beds) in Scranton, Pennsylvania as well as Wilkes-Barre General Hospital (369 licensed beds) in Wilkes-Barre, Pennsylvania, and certain related businesses to affiliates of WoodBridge Healthcare, Inc.

After giving effect to an amendment to this definitive agreement entered into on October 2, 2024 (which, among other things, reduced the purchase price payable to us by $5 million), the total purchase price payable to us at the closing will be $115 million (inclusive of a $10 million prepayment for services to be provided by us pursuant to an information transition services agreement), subject to certain purchase price adjustments.

For additional information about this potential disposition, see the Current Report on Form 8-K filed by us on July 30, 2024.

There can be no assurance that this potential disposition will be completed, or if this potential disposition is completed, the ultimate timing of the completion of this potential disposition.

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Overview of Operating Results

Net operating revenues increased from $3.115 billion for the three months ended June 30, 2023 to $3.140 billion for the three months ended June 30, 2024.

On a same-store basis, net operating revenues for the three months ended June 30, 2024 increased $141 million compared to the same period in 2023.

We had net income of $26 million during the three months ended June 30, 2024, compared to $2 million for the same period in 2023.

Net income for the three months ended June 30, 2024 included the following:

• an after-tax benefit of $27 million for gain from early extinguishment of debt,

• an after-tax charge of $10 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes, and

• an after-tax charge of $8 million resulting from impairment of certain long-lived assets that were disposed as well as divestiture related costs.

Net income for the three months ended June 30, 2023 included the following:

Net operating revenues increased from $3.086 billion for the three months ended September 30, 2023 to $3.090 billion for the three months ended September 30, 2024.

On a same-store basis, net operating revenues for the three months ended September 30, 2024 increased $150 million compared to the same period in 2023.

We had net loss of $(355) million during the three months ended September 30, 2024, compared to $(52) million for the same period in 2023.

Net loss for the three months ended September 30, 2024 included the following:

• an after-tax charge of $13 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes,

• an after-tax benefit of $3 million for the gain related to the sale of a hospital partially offset by impairment of long-lived assets that were idled, disposed of or held-for-sale, and

• an after-tax charge of $223 million resulting from the impairment of certain long-lived assets that were idled, disposed of or held-for-sale as well as divestiture related costs, partially offset by the gain related to the sale of a hospital, and

• an after-tax charge of $116 million for a change in estimate for professional liability claims accrual.

Additionally, certain of our facilities in Florida, Georgia and Tennessee have experienced an interruption in their business and incurred additional costs as a direct result of Hurricane Helene, which made landfall in late September 2024 and Hurricane Milton, which made landfall in early October 2024.

Hurricane Helene resulted in an estimated loss of operating revenues together with incremental expenses directly related to hurricane response efforts of approximately $7 million on a pre-tax basis during the three months ended September 30, 2024.

No insurance proceeds related to Hurricane Helene were received or recognized during the three months ended September 30, 2024.

Further, taking into account the timing of these events, it is expected that additional net operating revenues will be lost and incremental operating expenses will be incurred for remediation and restoration efforts in the fourth quarter of 2024 and one or more future periods.

Insurance proceeds, which are expected to cover substantially all of our costs related to these events, are expected to be received in one or more future periods.

Net loss for the three months ended September 30, 2023 included the following:

• an after-tax charge of $18 million for expense related to government and other legal matters and related costs,

• an after-tax charge of $5 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes,

• an after-tax charge of $24 million for the gain related to the sale of a hospital and the impairment of long-lived assets that were idled, disposed of or held-for-sale, and

• an after-tax charge of $1 million for restructuring charges related to the closure of businesses as well as service line closures and consolidations at certain hospitals.

Consolidated inpatient admissions for the three months ended June 30, 2024, decreased 2.8%, compared to the same period in 2023.

Consolidated adjusted admissions for the three months ended June 30, 2024, decreased 2.4%, compared to the same period in 2023.

Same-store inpatient admissions for the three months ended June 30, 2024, increased 3.0%, compared to the same period in 2023, and same-store adjusted admissions for the three months ended June 30, 2024, increased 3.2%, compared to the same period in 2023.

Net operating revenues increased from $6.2 billion for the six months ended June 30, 2023 to $6.3 billion for the six months ended June 30, 2024.

On a same-store basis, net operating revenues for the six months ended June 30, 2024 increased $311 million compared to the same period in 2023.

We had net income of $20 million during the six months ended June 30, 2024, compared to a net loss of $(18) million for the same period in 2023.

Net income for the six months ended June 30, 2024 included the following:

Consolidated inpatient admissions for the three months ended September 30, 2024, decreased 4.1%, compared to the same period in 2023.

Consolidated adjusted admissions for the three months ended September 30, 2024, decreased 3.7%, compared to the same period in 2023.

Same-store inpatient admissions for the three months ended September 30, 2024, increased 2.4%, compared to the same period in 2023, and same-store adjusted admissions for the three months ended September 30, 2024, increased 2.6%, compared to the same period in 2023.

Net operating revenues increased from $9.308 billion for the nine months ended September 30, 2023 to $9.369 billion for the nine months ended September 30, 2024.

On a same-store basis, net operating revenues for the nine months ended September 30, 2024 increased $454 million compared to the same period in 2023.

We had net loss of $(334) million during the nine months ended September 30, 2024, compared to $(70) million for the same period in 2023.

Net loss for the nine months ended September 30, 2024 included the following:

• an after-tax benefit of $27 million for gain from early extinguishment of debt,

• an after-tax charge of $19 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes, and

• an after-tax charge of $21 million resulting from impairment of long-lived assets that were idled, disposed of or held-for-sale.

Net loss for the six months ended June 30, 2023 included the following:

• an after-tax charge of $33 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes,

• an after-tax charge of $244 million resulting from the impairment of certain long-lived assets that were idled, disposed of or held-for-sale as well as divestiture related costs, partially offset by the gain related to the sale of a hospital, and

• an after-tax charge of $116 million for a change in estimate for professional liability claims accrual.

Net loss for the nine months ended September 30, 2023 included the following:

• an after-tax charge of $10 million for expense related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes,

• an after-tax charge of $26 million for expense related to government and other legal matters and related costs,

• an after-tax benefit of $17 million for the gain related to the sale of two hospitals partially offset by impairment of long-lived assets that were idled, disposed of or held-for-sale, and

• an after-tax charge of $6 million resulting from a loss on the sale of one hospital and impairment of long-lived assets that were idled, disposed of or held-for-sale, partially offset by gains for the sale of three hospitals, and

• an after-tax charge of $9 million for restructuring charges related to the closure of businesses as well as service line closures and consolidations at certain hospitals.

Consolidated inpatient admissions for the six months ended June 30, 2024, decreased 2.6%, compared to the same period in 2023.

Consolidated adjusted admissions for the six months ended June 30, 2024, decreased 3.2%, compared to the same period in 2023.

Same-store inpatient admissions for the six months ended June 30, 2024, increased 3.4%, compared to the same period in 2023, and same-store adjusted admissions for the six months ended June 30, 2024, increased 2.5%, compared to the same period in 2023.

Self-pay revenues represented approximately 1.6% and 0.8% of net operating revenues for the three months ended June 30, 2024 and 2023, respectively, and 1.5% and 0.8% for the six months ended June 30, 2024 and 2023, respectively.

The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 9.1% and 10.3% for the three months ended June 30, 2024 and 2023, respectively, and 9.6% and 10.4% for the six months ended June 30, 2024 and 2023, respectively.

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 0.9% and 1.1% for the three months ended June 30, 2024 and 2023, respectively, and 0.9% and 1.2% for the six months ended June 30, 2024 and 2023, respectively.

Consolidated inpatient admissions for the nine months ended September 30, 2024, decreased 3.1%, compared to the same period in 2023.

Consolidated adjusted admissions for the nine months ended September 30, 2024, decreased 3.4%, compared to the same period in 2023.

Same-store inpatient admissions for the nine months ended September 30, 2024, increased 3.0%, compared to the same period in 2023, and same-store adjusted admissions for the nine months ended September 30, 2024, increased 2.5%, compared to the same period in 2023.

Self-pay revenues represented approximately 1.1% and 1.5% of net operating revenues for the three months ended September 30, 2024 and 2023, respectively, and 1.4% and 1.0% for the nine months ended September 30, 2024 and 2023, respectively.

The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 9.8% and 11.5% for the three months ended September 30, 2024 and 2023, respectively, and 9.7% and 10.8% for the nine months ended September 30, 2024 and 2023, respectively.

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.0% and 1.3% for the three months ended September 30, 2024 and 2023, respectively, and 1.0% and 1.2% for the nine months ended September 30, 2024 and 2023, respectively.

Overview of Legislative and Other Governmental Developments

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The Affordable Care Act has been, and continues to be, subject to legislative and regulatory changes and court challenges.

To increase access to health insurance during the COVID-19 pandemic, the American Rescue Plan Act of 2021, or the ARPA, enhanced subsidies for individuals eligible to purchase coverage through Affordable Care Act marketplaces.

Subsequent legislation extended these enhanced subsidies through 2025.

To increase access to health insurance during the COVID-19 pandemic, the American Rescue Plan Act of 2021, or the ARPA, temporarily enhanced subsidies for individuals eligible to purchase coverage through Affordable Care Act marketplaces.

Subsequent legislation extended these enhanced subsidies, but absent further congressional action, the enhanced subsidies will expire at the end of 2025.

In addition, COVID-related legislation enacted during the early stages of the pandemic required states to maintain continuous Medicaid enrollment, among other conditions, in order to receive a temporary increase in federal funds for Medicaid expenditures.

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A number of states have opted out of the Medicaid coverage expansion provisions, but could ultimately decide to expand their programs at a later date.

Of the 15 states in which we operated hospitals as of June 30, 2024, nine states have taken action to expand their Medicaid programs.

The other six states have not, including Florida, Alabama, Tennessee, Mississippi and Texas, where we operated a significant number of hospitals as of June 30, 2024.

Of the 15 states in which we operated hospitals as of September 30, 2024, nine states have taken action to expand their Medicaid programs.

The other six states have not, including Florida, Alabama, Tennessee, Mississippi and Texas, where we operated a significant number of hospitals as of September 30, 2024.

Some states use, or have applied to use, waivers granted by CMS to implement expansion, impose different eligibility or enrollment conditions, or otherwise implement programs that vary from federal standards.

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The CMS Innovation Center has highlighted the need to accelerate the movement to value-based care and drive broader system transformation.

Throughout the acute phase of the COVID-19 pandemic that began in 2020, federal and state governments passed legislation, promulgated regulations and took other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health emergency and to provide financial relief to healthcare providers.

The public health emergency declared by the U.S.

Department of Health and Human Services, or HHS, in response to the pandemic expired in May 2023.

Although federal and state governments have terminated most of the temporary measures that were implemented to assist providers, the effects of certain of these measures, including those intended to provide financial relief during the public health emergency, continue to impact providers.

For example, the Budget Control Act of 2011 sequestration was extended several times as part of COVID-relief and subsequent legislation, and the payment reductions are currently set to continue through April 2032.

Further, the ARPA, in addition to providing funding for healthcare providers, increased the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the Pay-As-You Go Act of 2010.

The federal deficit and other federal and state budgetary pressures have affected government healthcare program expenditures, and we anticipate these effects will continue.

For example, the payment reductions required by the Budget Control Act of 2011 and subsequent legislation are currently set to continue through April 2032.

Further, the ARPA increased the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the Pay-As-You Go Act of 2010.

As a result, an additional Medicare spending reduction of up to 4% was required to take effect in January 2022.

However, Congress has delayed implementation of this payment reduction until 2025.

We anticipate that the federal deficit will continue to place pressure on government healthcare programs, and it is possible that future deficit reduction legislation will impose additional spending reductions.

We did not receive or recognize any significant level of payments or benefits under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, or other COVID-19 related stimulus and relief legislation, during the six months ended June 30, 2024, and do not expect to receive or recognize any significant level of payments or benefits under the CARES Act and other existing legislation related to COVID-19 in future periods.

It is possible that future deficit reduction legislation will impose additional spending reductions.

We did not receive or recognize any significant level of payments or benefits under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, or other COVID-19 related stimulus and relief legislation, during the nine months ended September 30, 2024, and do not expect to receive or recognize any significant level of payments or benefits under the CARES Act and other existing legislation related to COVID-19 in future periods.

Reimbursement by government programs may be affected by broad shifts in payment policy.

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This adjustment will start in calendar year 2026 and continue for approximately 16 years.

This reduction to payment rates adversely affected our results for the six months ended June 30, 2024, and the reduction to the outpatient PPS conversion factor as noted above is anticipated to adversely impact our future results.

This reduction to payment rates adversely affected our results for the nine months ended September 30, 2024, and the reduction to the outpatient PPS conversion factor as noted above is anticipated to adversely impact our future results.

In June 2024, the U.S.

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Raimondo, the U.S.

Supreme Court overruled its prior ruling in Chevron U.S.A., Inc.

Supreme Court overruled its prior ruling

in Chevron U.S.A., Inc.

Natural Resources Defense Council, Inc., which held that when a statute is ambiguous or silent, courts should not substitute their own judgments regarding the actions of those agencies so long as the agencies’ interpretation of the enabling federal statute was reasonable.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Medicare Managed Care

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We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known.

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues by an insignificant amount in each of the three- and six-month periods ended June 30, 2024 and 2023.

The payment rates under the Medicare program for hospital inpatient and outpatient acute care services are based on prospective payment systems, which depend upon a patient’s diagnosis or the clinical complexity of services provided to a patient, among other factors.

These rates are indexed for inflation annually, although increases have historically been less than actual inflation.

On August 1, 2023, CMS published the final rule to increase this index by 3.3% for hospital inpatient acute care services that are reimbursed under the prospective payment system for federal fiscal year 2024 (which began October 1, 2023).

Together with other changes to payment policies, payment rates for hospital inpatient acute care services are expected to increase approximately 3.1%.

Hospitals that do not submit required patient quality data are subject to a reduction in payments.

CMS has published the final rule establishing payment rates for federal fiscal year 2025 (which began October 1, 2024) for hospital inpatient acute care services reimbursed under the prospective system, increasing payment rates by approximately 2.9%.

This increase reflects a market basket increase of 3.4%, reduced by a 0.5 percentage point productivity adjustment.

Hospitals that do not submit required

patient quality data are subject to a reduction in payments.

We are complying with this data submission requirement.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Operating results, as a percentage of net operating revenues:

3 unchanged sentences

Impairment and (gain) loss on sale of businesses, net

Income from operations

(Loss) income from operations

Interest expense, net

1 unchanged sentence

Equity in earnings of unconsolidated affiliates

Income before income taxes

Provision for income taxes

Net income (loss)

(Loss) income before income taxes

Benefit from (provision for) income taxes

Net income attributable to noncontrolling interests

1 unchanged sentence

Systems, Inc.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Percentage increase (decrease) from prior year:

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These metrics provide useful insight to investors about the volume and acuity of services we provide, which aid in evaluating our financial results.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Net operating revenues increased to $3.140 billion for the three months ended June 30, 2024, compared to $3.115 billion for the same period in 2023.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $141 million, or 4.7%, during the three months ended June 30, 2024, compared to the same period in 2023.

On a period-over-period basis, the increase in same-store net operating revenues was primarily attributable to higher inpatient and outpatient volumes, increased reimbursement rates and higher revenues from supplemental reimbursement programs.

Non-same-store net operating revenues decreased $116 million during the three months ended June 30, 2024, compared to the same period in 2023, due to the divestiture of hospitals in 2023.

On a consolidated basis, inpatient admissions decreased by 2.8% and adjusted admissions decreased by 2.4% during the three months ended June 30, 2024, compared to the same period in 2023.

On a same-store basis, net operating revenues per adjusted admission increased 1.4%, while inpatient admissions increased by 3.0% and adjusted admissions increased by 3.2% for the three months ended June 30, 2024, compared to the same period in 2023.

Operating costs and expenses, as a percentage of net operating revenues, increased from 92.1% during the three months ended June 30, 2023 to 92.4% during the three months ended June 30, 2024.

Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, decreased from 88.5% for the three months ended June 30, 2023 to 88.1% for the three months ended June 30, 2024.

Salaries and benefits, as a percentage of net operating revenues, decreased from 42.9% for the three months ended June 30, 2023 to 42.3% for the three months ended June 30, 2024, primarily due to an increase in net operating revenues.

Supplies, as a percentage of net operating revenues, decreased from 16.2% for the three months ended June 30, 2023 to 15.4% for the three months ended June 30, 2024, primarily due to changes in the mix of services, the benefit of cost savings initiatives and an increase in net operating revenues.

Other operating expenses, as a percentage of net operating revenues, increased from 26.8% for the three months ended June 30, 2023 to 28.1% for the three months ended June 30, 2024, primarily due to increased expense for supplemental reimbursement programs and outsourced medical specialists, partially offset by decreased costs for contract labor and an increase in net operating revenues.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.6% for the three months ended June 30, 2023 to 2.3% for the three months ended June 30, 2024.

Depreciation and amortization, as a percentage of net operating revenues, remained consistent at 4.0% for both of the three-month periods ended June 30, 2024 and 2023.

Impairment and (gain) loss on sale of businesses, net was an expense of $10 million for the three months ended June 30, 2024, compared to a gain of $13 million for the same period in 2023.

The expense recognized during the three months ended June 30, 2024 was primarily to reduce the carrying value of certain assets that were disposed as well as for divestiture related costs.

The gain recognized during the three months ended June 30, 2023 related primarily to divestiture activity during the respective period as discussed more specifically under “Acquisition, Divestiture and Closure Activity” herein.

Interest expense, net, increased by $9 million to $216 million for the three months ended June 30, 2024, compared to $207 million for the same period in 2023 due primarily to financing activities in 2023.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, increased to 0.1% for the three months ended June 30, 2024 from 0.0% for the same period in 2023.

Gain from early extinguishment of debt of $26 million was recognized during the three months ended June 30, 2024 as a result of the refinancing and extinguishment of certain of our outstanding notes as discussed further in Liquidity.

There were no financing transactions during the three months ended June 30, 2023.

The net results of the above-mentioned changes resulted in income before income taxes increasing $10 million to $50 million for the three months ended June 30, 2024 from $40 million for the same period in 2023.

Our provision for income taxes for the three months ended June 30, 2024 and 2023 was $24 million and $38 million, respectively, and the effective tax rates were 48.0% and 95.0% for the three months ended June 30, 2024 and 2023, respectively.

The decrease in the provision for income taxes and the difference in our effective tax rate for the three months ended June 30, 2024, compared to the same period in 2023 was due to a decrease in nondeductible goodwill for the three months ended June 30, 2024 compared to the same period in 2023.

Net income, as a percentage of net operating revenues, was 0.8% for the three months ended June 30, 2024, compared to 0.1% for the same period in 2023.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.2% for the three months ended June 30, 2024, compared to 1.3% for the same period in 2023.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Net operating revenues increased to $3.090 billion for the three months ended September 30, 2024, compared to $3.086 billion for the same period in 2023.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $150 million, or 5.1%, during the three months ended September 30, 2024, compared to the same period in 2023.

On a period-over-period basis, the increase in same-store net operating revenues was primarily attributable to higher inpatient and outpatient volumes, increased reimbursement rates, favorable changes in payor mix and higher revenues from supplemental reimbursement programs, partially offset by lower acuity and increased patient claim denials.

Non-same-store net operating revenues decreased $146 million during the three months ended September 30, 2024, compared to the same period in 2023, due to the divestiture of hospitals in 2024 and 2023.

On a consolidated basis, inpatient admissions decreased by 4.1% and adjusted admissions decreased by 3.7% during the three months ended September 30, 2024, compared to the same period in 2023.

On a same-store basis, net operating revenues per adjusted admission increased 2.5%, while inpatient admissions increased by 2.4% and adjusted admissions increased by 2.6% for the three months ended September 30, 2024, compared to the same period in 2023.

Operating expenses, as a percentage of net operating revenues, increased from 94.4% during the three months ended September 30, 2023 to 106.6% during the three months ended September 30, 2024.

Operating expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, increased from 89.5% for the three months ended September 30, 2023 to 94.2% for the three months ended September 30, 2024.

Salaries and benefits, as a percentage of net operating revenues, increased from 43.4% for the three months ended September 30, 2023 to 44.0% for the three months ended September 30, 2024, primarily due to inflationary wage increases.

Supplies, as a percentage of net operating revenues, decreased from 15.8% for the three months ended September 30, 2023 to 15.2% for the three months ended September 30, 2024, primarily due to changes in the mix of services and the benefit of cost savings initiatives.

Other operating expenses, as a percentage of net operating revenues, increased from 27.7% for the three months ended September 30, 2023 to 32.6% for the three months ended September 30, 2024, primarily due to a change in estimate for the professional liability claims accrual and increased costs for outsourced medical specialists, partially offset by decreased costs for contract labor.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.6% for the three months ended September 30, 2023 to 2.4% for the three months ended September 30, 2024.

Depreciation and amortization, as a percentage of net operating revenues, decreased from 4.1% for three months ended September 30, 2023 to 3.8% for the three months ended September 30, 2024, primarily due to a reduction in the amortization of capitalized internal-use software.

Impairment and (gain) loss on sale of businesses, net was an expense of $267 million for the three months ended September 30, 2024, compared to $26 million for the same period in 2023.

The expense recognized during the three months ended September 30, 2024 was comprised of (i) an approximate $259 million impairment charge recorded to reduce the carrying value of four hospitals that were deemed held-for-sale based on the difference between carrying value of the hospital disposal group compared to the estimated fair value less costs to sell, and (ii) an approximate $12 million impairment charge recorded to reduce the carrying value of several assets that were idled, disposed of or held-for-sale, partially offset by of a gain of approximately $4 million related to the sale of one hospital.

The expense recognized during the three months ended September 30, 2023 related primarily to divestiture activity during the respective period as discussed more specifically under “Acquisition, Divestiture and Closure Activity” herein.

Interest expense, net, increased by $8 million to $216 million for the three months ended September 30, 2024, compared to $208 million for the same period in 2023 due primarily to financing activities in 2023 and 2024.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, remained consistent at 0.1% for both of the three-month periods ended September 30, 2024 and 2023.

The net results of the above-mentioned changes resulted in loss before income taxes increasing $386 million to $(419) million for the three months ended September 30, 2024 from $(33) million for the same period in 2023.

Our (benefit from) provision for income taxes for the three months ended September 30, 2024 and 2023 was $(64) million and $19 million, respectively, and the effective tax rates were 15.3% and (57.6)% for the three months ended September 30, 2024 and 2023, respectively.

The decrease in the (benefit from) provision for income taxes and the difference in our effective tax rate for the three months ended September 30, 2024, compared to the same period in 2023 was due to an increase in tax benefit associated with impairment and (gain) loss on sale of businesses, net for the three months ended September 30, 2024 compared to the same period in 2023.

Net loss, as a percentage of net operating revenues, was (11.5)% for the three months ended September 30, 2024, compared to (1.7)% for the same period in 2023.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.2% for both of the three-month periods ended September 30, 2024 and 2023.

Net loss attributable to Community Health Systems, Inc.

stockholders was $(13) million for the three months ended June 30, 2024, compared to $(38) million for the same period in 2023.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Net operating revenues increased to $6.279 billion for the six months ended June 30, 2024, compared to $6.223 billion for the same period in 2023.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $311 million, or 5.2%, during the six months ended June 30, 2024, compared to the same period in 2023.

Non-same-store net operating revenues decreased $255 million during the six months ended June 30, 2024, compared to the same period in 2023, due to the divestiture of hospitals in 2023.

On a consolidated basis, inpatient admissions decreased by 2.6% and adjusted admissions decreased by 3.2% during the six months ended June 30, 2024, compared to the same period in 2023.

On a same-store basis, net operating revenues per adjusted admission increased 2.6%, while inpatient admissions increased by 3.4% and adjusted admissions increased by 2.5% for the six months ended June 30, 2024, compared to the same period in 2023.

Operating costs and expenses, as a percentage of net operating revenues, decreased from 92.7% during the six months ended June 30, 2023 to 92.5% during the six months ended June 30, 2024.

Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, decreased from 89.2% for the six months ended June 30, 2023 to 88.3% for the six months ended June 30, 2024.

Salaries and benefits, as a percentage of net operating revenues, decreased from 43.5% for the six months ended June 30, 2023 to 43.0% for the six months ended June 30, 2024, primarily due to an increase in net operating revenues.

Supplies, as a percentage of net operating revenues, decreased from 16.2% for the six months ended June 30, 2023 to 15.4% for the six months ended June 30, 2024, primarily due to changes in the mix of services, the benefit of cost savings initiatives and an increase in net operating revenues.

Other operating expenses, as a percentage of net operating revenues, increased from 26.9% for the six months ended June 30, 2023 to 27.5% for the six months ended June 30, 2024, primarily due to increased expense for supplemental reimbursement programs and outsourced medical specialists, partially offset by decreased costs for contract labor and an increase in net operating revenues.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.6% for the six months ended June 30, 2023 to 2.4% for the six months ended June 30, 2024.

Depreciation and amortization, as a percentage of net operating revenues, decreased to 3.8% for the six months ended June 30, 2024 from 4.1% for the same period in 2023, primarily due to an increase in net operating revenues and a reduction in the amortization of capitalized internal-use software.

Impairment and (gain) loss on sale of businesses, net was an expense of $27 million for the six months ended June 30, 2024, compared to a gain of $35 million for the same period in 2023.

The expense recognized during the six months ended June 30, 2024 was primarily to reduce the carrying value of several assets that were idled, disposed of or held-for-sale.

The gain recognized during the six months ended June 30, 2023 related primarily to divestiture activity during the respective period as discussed more specifically under “Acquisition, Divestiture and Closure Activity” herein.

Interest expense, net, increased by $12 million to $426 million for the six months ended June 30, 2024, compared to $414 million for the same period in 2023 due primarily to financing activities in 2023.

Gain from early extinguishment of debt of $26 million was recognized during the six months ended June 30, 2024 as a result of the refinancing and extinguishment of certain of our outstanding notes as discussed further in Liquidity.

There were no financing transactions during the six months ended June 30, 2023.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, remained consistent at (0.1)% for both of the six-month periods ended June 30, 2024 and 2023.

The net results of the above-mentioned changes resulted in income before income taxes increasing $25 million to $72 million for the six months ended June 30, 2024 from $47 million for the same period in 2023.

Our provision for income taxes for the six months ended June 30, 2024 and 2023 was $52 million and $65 million, respectively, and the effective tax rates were 72.2% and 138.3% for the six months ended June 30, 2024 and 2023, respectively.

The decrease in the provision for income taxes and the difference in our effective tax rate for the six months ended June 30, 2024, compared to the same period in 2023 was due to a decrease in nondeductible goodwill for the six months ended June 30, 2024 compared to the same period in 2023.

Net income, as a percentage of net operating revenues, was 0.3% for the six months ended June 30, 2024, compared to a net loss of (0.3)% for the same period in 2023.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.2% for the six months ended June 30, 2024, compared to 1.1% for the same period in 2023.

stockholders was $(391) million for the three months ended September 30, 2024, compared to $(91) million for the same period in 2023.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Net operating revenues increased to $9.369 billion for the nine months ended September 30, 2024, compared to $9.308 billion for the same period in 2023.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $454 million, or 5.2%, during the nine months ended September 30, 2024, compared to the same period in 2023.

On a period-over-period basis, the increase in same-store net operating revenues was primarily attributable to higher inpatient and outpatient volumes, increased reimbursement rates, favorable changes in payor mix and higher revenues from supplemental reimbursement programs, partially offset by lower acuity and increased patient claim denials.

Non-same-store net operating revenues decreased $393 million during the nine months ended September 30, 2024, compared to the same period in 2023, due to the divestiture of hospitals in 2024 and 2023.

On a consolidated basis, inpatient admissions decreased by 3.1% and adjusted admissions decreased by 3.4% during the nine months ended September 30, 2024, compared to the same period in 2023.

On a same-store basis, net operating revenues per adjusted admission increased 2.6%, while inpatient admissions increased by 3.0% and adjusted admissions increased by 2.5% for the nine months ended September 30, 2024, compared to the same period in 2023.

Operating expenses, as a percentage of net operating revenues, increased from 93.2% during the nine months ended September 30, 2023 to 97.2% during the nine months ended September 30, 2024.

Operating expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, increased from 89.2% for the nine months ended September 30, 2023 to 90.3% for the nine months ended September 30, 2024.

Salaries and benefits, as a percentage of net operating revenues, decreased from 43.4% for the nine months ended September 30, 2023 to 43.3% for the nine months ended September 30, 2024.

Supplies, as a percentage of net operating revenues, decreased from 16.1% for the nine months ended September 30, 2023 to 15.4% for the nine months ended September 30, 2024, primarily due to changes in the mix of services, the benefit of cost savings initiatives and an increase in net operating revenues.

Other operating expenses, as a percentage of net operating revenues, increased from 27.1% for the nine months ended September 30, 2023 to 29.2% for the nine months ended September 30, 2024, primarily due to a change in estimate for the professional liability claims accrual, increased expense for supplemental reimbursement programs and outsourced medical specialists, partially offset by decreased costs for contract labor and an increase in net operating revenues.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.6% for the nine months ended September 30, 2023 to 2.4% for the nine months ended September 30, 2024.

Depreciation and amortization, as a percentage of net operating revenues, decreased to 3.8% for the nine months ended September 30, 2024 from 4.1% for the same period in 2023, primarily due to an increase in net operating revenues and a reduction in the amortization of capitalized internal-use software.

Impairment and (gain) loss on sale of businesses, net was an expense of $294 million for the nine months ended September 30, 2024, compared to a gain of approximately $9 million for the same period in 2023.

The expense recognized during the nine months ended September 30, 2024 was comprised of (i) an approximate $259 million impairment charge recorded to reduce the carrying value of four hospitals that were deemed held-for-sale based on the difference between carrying value of the hospital disposal group compared to the estimated fair value less costs to sell, and (ii) an approximate $39 million impairment charge recorded to reduce the carrying value of several assets that were idled, disposed of or held-for-sale, partially offset by of a gain of approximately $4 million related to the sale of one hospital.

The gain recognized during the nine months ended September 30, 2023 related primarily to divestiture activity during the respective period as discussed more specifically under “Acquisition, Divestiture and Closure Activity” herein.

Interest expense, net, increased by $22 million to $643 million for the nine months ended September 30, 2024, compared to $621 million for the same period in 2023 due primarily to financing activities in 2023 and 2024.

Gain from early extinguishment of debt of $25 million was recognized during the nine months ended September 30, 2024 as a result of the refinancing and extinguishment of certain of our outstanding notes as discussed further under "Liquidity" below.

There were no financing transactions during the nine months ended September 30, 2023.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, remained consistent at 0.1% for both of the nine-month periods ended September 30, 2024 and 2023.

The net results of the above-mentioned changes resulted in (loss) income before income taxes decreasing $361 million to a loss of $(347) million for the nine months ended September 30, 2024 from income of $14 million for the same period in 2023.

Our (benefit from) provision for income taxes for the nine months ended September 30, 2024 and 2023 was $(13) million and $84 million, respectively, and the effective tax rates were 3.7% and 600.0% for the nine months ended September 30, 2024 and 2023, respectively.

The decrease in the (benefit from) provision for income taxes and the difference in our effective tax rate for the nine months ended September 30, 2024, compared to the same period in 2023 was due to an increase in tax benefit associated with impairment and (gain) loss on sale of businesses, net for the nine months ended September 30, 2024 compared to the same period in 2023.

Net loss, as a percentage of net operating revenues, was (3.6)% for the nine months ended September 30, 2024, compared to (0.8)% for the same period in 2023.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.2% for the nine months ended September 30, 2024, compared to 1.1% for the same period in 2023.

Net loss attributable to Community Health Systems, Inc.

stockholders was $(55) million for the six months ended June 30, 2024, compared to $(89) million for the same period in 2023.

stockholders was $(446) million for the nine months ended September 30, 2024, compared to $(180) million for the same period in 2023.

Liquidity and Capital Resources

Net cash provided by operating activities increased $106 million, from approximately $91 million for the six months ended June 30, 2023, to approximately $197 million for the six months ended June 30, 2024.

Net cash provided by operating activities increased $144 million, from approximately $120 million for the nine months ended September 30, 2023, to approximately $264 million for the nine months ended September 30, 2024.

The increase in cash provided by operating activities is primarily due to increased collections of patient accounts receivable and lower cash paid for interest, partially offset by increased income tax payments.

Cash paid for interest was $360 million during the six months ended June 30, 2024, compared to $385 million for the same period in 2023.

Cash paid for income taxes, net of refunds received, resulted in a net payment of $84 million and $37 million during the six months ended June 30, 2024 and 2023.

Net cash used in investing activities was approximately $207 million for the six months ended June 30, 2024, compared to approximately $105 million for the same period in 2023.

Net cash used in investing activities during the six months ended June 30, 2024 was impacted by a decrease of $111 million in cash proceeds from dispositions of hospitals and other ancillary operations and a decrease of $29 million in cash from the net impact of the purchases and sales of available-for-sale debt and equity securities, offset by a decrease of $46 million in cash used for the purchase of property and equipment.

Our net cash provided by financing activities was approximately $11 million for the six months ended June 30, 2024, compared to approximately $14 million for the same period in 2023, a change of $3 million.

This was primarily due to the net impact of our debt borrowings and repayments during the six months ended June 30, 2024, compared to the same period in 2023.

Net working capital was approximately $1.0 billion at June 30, 2024 and $1.1 billion at December 31, 2023.

Net working capital decreased by approximately $39 million between December 31, 2023 and June 30, 2024.

The decrease is primarily due to decreases in patient accounts receivable and prepaid expenses and taxes and increases in current maturities of long-term debt, accrued interest and other current liabilities during the six months ended June 30, 2024, partially offset by increases in supplies, prepaid income taxes and other current assets and decreases in accounts payable, current operating lease liabilities and accrued liabilities for employee compensation.

Cash paid for interest was $562 million during the nine months ended September 30, 2024, compared to $583 million for the same period in 2023.

Cash paid for income taxes, net of refunds received, resulted in a net payment of $132 million and $61 million during the nine months ended September 30, 2024 and 2023.

Net cash used in investing activities was approximately $132 million for the nine months ended September 30, 2024, compared to approximately $206 million for the same period in 2023.

Net cash used in investing activities during the nine months ended September 30, 2024 was impacted by a decrease of $106 million in cash used for the purchase of property and equipment and an increase of $51 million in cash proceeds from dispositions of hospitals and other ancillary operations, partially offset by a decrease of $95 million in cash from the net impact of the purchases and sales of available-for-sale debt and equity securities.

Our net cash used in financing activities was approximately $137 million for the nine months ended September 30, 2024, compared to net cash provided by financing activities of approximately $59 million for the same period in 2023, a change of $196 million.

This was primarily due to the net impact of our debt borrowings and repayments during the nine months ended September 30, 2024, compared to the same period in 2023.

Net working capital was approximately $1.0 billion at September 30, 2024 and $1.1 billion at December 31, 2023.

Net working capital decreased by approximately $84 million between December 31, 2023 and September 30, 2024.

The decrease is primarily due to decreases in patient accounts receivable, supplies and prepaid expenses and taxes and increases in accrued interest and other current liabilities during the nine months ended September 30, 2024, partially offset by increases in prepaid income taxes and other current assets and decreases in accounts payable, current operating lease liabilities and accrued liabilities for employee compensation.

In addition to cash flows from operations, available sources of capital include amounts available under the asset-based loan (ABL) credit agreement, or the ABL Credit Agreement, and anticipated access to public and private debt markets as well as proceeds from the disposition of hospitals or other investments such as our minority equity interests in various businesses, as applicable.

Pursuant to the ABL Credit Agreement, the lenders have extended to CHS/Community Health Systems, Inc., or CHS, a revolving asset-based loan facility, or ABL Facility.

The maximum aggregate amount under the ABL Facility is $1.0 billion, subject to borrowing base capacity.

At June 30, 2024, we had outstanding borrowings of $273 million and approximately $599 million of additional borrowing capacity (after taking into consideration $67 million of outstanding letters of credit) under the ABL Facility.

The maximum aggregate amount under the ABL Facility is $1.0 billion, subject to

borrowing base capacity.

At September 30, 2024, we had outstanding borrowings of $372 million and approximately $438 million of additional borrowing capacity (after taking into consideration $66 million of outstanding letters of credit) under the ABL Facility.

The issued letters of credit were primarily in support of potential insurance-related claims and certain bonds.

Letters of credit were reduced during the six months ended June 30, 2024 by $14 million, primarily in relation to a professional liability claim that was settled and funded during the six months ended June 30, 2024.

Letters of credit were reduced during the nine months ended September 30, 2024 by $15 million, primarily in relation to a professional liability claim that was settled and funded during the nine months ended September 30, 2024.

Principal amounts outstanding under the ABL Facility, if any, will be due and payable in full on June 5, 2029.

2024 Financing Activity

On June 5, 2024, CHS completed the offering of an additional $1.225 billion aggregate principal amount of its outstanding 10.875% Senior Secured Notes due 2032, or the Tack-On Notes, at an issue price of 102.000%, plus accrued and unpaid interest from

December 22, 2023 to the closing date (which equaled approximately $60 million).

The Tack-On Notes are part of the same series as, and rank equally with, the 10⅞% Senior Secured Notes due 2032 issued in December 2023.

Proceeds from the offering of the Tack-On Notes, together with cash on hand, were used to redeem all of the remaining $1.116 billion of outstanding 8.000% Senior Secured Notes due 2026, to fund senior note repurchases in the amount of approximately $98 million resulting in the extinguishment of $130 million principal amount of the 6⅞% Senior Notes due 2028, pay related fees and expenses and for general corporate purposes.

Additionally, on June 5, 2024, the ABL Credit Agreement, as noted above, was amended and restated to, among other things, extend the maturity to June 5, 2029.

On June 5, 2024, the ABL Credit Agreement, as noted above, was amended and restated to, among other things, extend the maturity to June 5, 2029.

For additional information regarding the issuance of the Tack-On Notes and the amendment of the ABL Credit Agreement, see the Current Report on Form 8-K filed by us on June 5, 2024.

During the three months ended September 30, 2024, we extinguished approximately $143 million principal value of the 5⅝% Senior Secured Notes due 2027 through open market repurchases utilizing cash on hand.

Additional Liquidity Information

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Upon the occurrence of an event of default under the ABL Facility or indentures that govern our outstanding notes, all amounts outstanding under the ABL Facility and the indentures that govern our outstanding notes may become immediately due and payable and all commitments under the ABL Facility to extend further credit may be terminated.

As of June 30, 2024, approximately $27 million of our outstanding debt of approximately $11.5 billion is due within the next 12 months.

As of September 30, 2024, approximately $20 million of our outstanding debt of approximately $11.5 billion is due within the next 12 months.

Net proceeds from divestitures, if any, are expected to be used for general corporate purposes (including potential debt repayments and/or debt repurchases) and capital expenditures.

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However, ongoing negative economic conditions (including inflationary conditions and elevated interest rate levels) have resulted in, and may continue to result in, significant disruptions of financial and capital markets, which could reduce our ability to access capital and negatively affect our liquidity in the future.

We may elect from time to time to purchase our outstanding debt in open market purchases, privately negotiated transactions or otherwise.

As noted above, during the three months ended September 30, 2024, we extinguished a portion of a series of our outstanding notes through open market purchases, and we may elect from time to time to continue to purchase our outstanding debt, including through open market purchases, privately negotiated transactions or otherwise.

Any such debt repurchases will depend upon prevailing market conditions, our liquidity requirements, contractual restrictions, applicable securities law requirements and other factors.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the three months ended June 30, 2024, from those disclosed under “Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2023 Form 10-K.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the three months ended September 30, 2024, from those disclosed under “Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2023 Form 10-K.

Capital Resources

Cash expenditures for purchases of facilities and other related businesses were approximately $1 million for the six months ended June 30, 2024, compared to $15 million for the same period in 2023.

Our expenditures for the six months ended June 30, 2024 and 2023 were primarily related to physician practices and clinics.

Cash expenditures for purchases of facilities and other related businesses were approximately $1 million for the nine months ended September 30, 2024, compared to $35 million for the same period in 2023.

Our expenditures for the nine months ended September 30, 2024 and 2023 were primarily related to physician practices and clinics.

Capital expenditures relate primarily to expansion and renovation of existing facilities, construction of additional access points such as free-standing emergency departments and ambulatory surgery centers, investments in higher acuity service lines and information technology infrastructure, as well as routine expenditures for equipment, minor renovations and other upgrades.

Capital expenditures totaled $181 million and $227 million for the six months ended June 30, 2024 and 2023, respectively.

In addition, we have incurred costs for hurricane-related repairs and expect to incur costs for capital expenditures needed to remediate damage sustained during hurricanes Helene and Milton.

An estimate of total capital expenditures for such remedial efforts, the majority of which is expected to be covered by insurance, is not currently known.

Capital expenditures totaled $251 million and $357 million for the nine months ended September 30, 2024 and 2023, respectively.

We expect total capital expenditures of approximately $350 million to $400 million in 2024.

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Amounts we receive for treatment of patients covered by these programs are generally less than our standard billing rates.

Explicit price concessions are recorded for contractual allowances that are calculated and recorded through a combination of internally- and externally-developed data collection and analysis tools to automate the monthly estimation of required contractual allowances.

the monthly estimation of required contractual allowances.

Within these automated systems, payors’ historical paid claims data and contracted amounts are utilized to calculate the contractual allowances.

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Due to the complexities involved in these estimates, actual payments we receive could be different from the amounts we estimate and record.

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at June 30, 2024 from our estimated reimbursement percentage, net income for the six months ended June 30, 2024 would have changed by approximately $99 million, and net accounts receivable at June 30, 2024 would have changed by $127 million.

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at September 30, 2024 from our estimated reimbursement percentage, net loss for the nine months ended September 30, 2024 would have changed by approximately $99 million, and net accounts receivable at September 30, 2024 would have changed by $127 million.

Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties.

We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the periods that such adjustments become known.

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues by an insignificant amount for the three- and six-month periods ended June 30, 2024 and 2023.

Patient Accounts Receivable

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Patient accounts receivable can be impacted by the effectiveness of our collection efforts and, as described in our significant accounting policies included in Note 1 of the Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Form 10-Q, numerous factors may affect the net realizable value of accounts receivable.

If the actual collection percentage differed by 1% at June 30, 2024 from our estimated collection percentage as a result of a change in expected recoveries, net income for the six months ended June 30, 2024 would have changed by $37 million, and net accounts receivable at June 30, 2024 would have changed by $48 million.

If the actual collection percentage differed by 1% at September 30, 2024 from our estimated collection percentage as a result of a change in expected recoveries, net loss for the nine months ended September 30, 2024 would have changed by $38 million, and net accounts receivable at September 30, 2024 would have changed by $48 million.

We also continually review our overall reserve adequacy by monitoring historical cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net operating revenues and admissions by payor classification, days revenue outstanding, the composition of self-pay receivables between pure self-pay patients and the patient responsibility portion of third-party insured receivables and the impact of recent acquisitions and dispositions.

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We believe this policy accurately reflects our ongoing collection efforts and is consistent with industry practices.

We had approximately $1.8 billion at June 30, 2024 and $1.7 billion at December 31, 2023, being pursued by various outside collection agencies.

We had approximately $1.5 billion at September 30, 2024 and $1.7 billion at December 31, 2023, being pursued by various outside collection agencies.

We expect to collect less than 4%, net of estimated collection fees, of the amounts being pursued by outside collection agencies.

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Patient accounts receivable from our hospitals represent approximately 98% of our total consolidated accounts receivable.

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 58 days at both June 30, 2024 and December 31, 2023.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $17.1 billion and $16.8 billion as of June 30, 2024 and December 31, 2023, respectively.

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 58 days at both September 30, 2024 and December 31, 2023.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $17.1 billion and $16.8 billion as of September 30, 2024 and December 31, 2023, respectively.

The approximate percentage of total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) summarized by payor and aging categories is as follows:

As of June 30, 2024:

As of September 30, 2024:

% of Gross Receivables

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The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and implicit price concessions) summarized by payor-type is as follows:

September 30,

Insured receivables

Self-pay receivables

The combined total at our hospitals and clinics for the estimated implicit price concessions for self-pay accounts receivable and allowances for other self-pay discounts and contractuals, as a percentage of gross self-pay receivables, was approximately 90% at June 30, 2024 and 91% at December 31, 2023.

If the receivables that have been written-off, but where collections are still being pursued by outside collection agencies, were included in both the allowances and gross self-pay receivables specified above, the percentage of combined allowances to total self-pay receivables would have been 93% at both June 30, 2024 and December 31, 2023.

At June 30, 2024, we had approximately $4.0 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.

At September 30, 2024, we had approximately $3.9 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.

Goodwill represents the excess of the fair value of the consideration conveyed in an acquisition over the fair value of net assets acquired.

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Some of those inputs include, but are not limited to, the most recent price of our common stock and fair value of our long-term debt, our recent financial results, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income tax rates, costs of invested capital and a discount rate.

Future estimates of fair value could be adversely affected if the actual outcome of one or more of the assumptions described above changes materially in the future, including as a result of any decline in or increased volatility of our stock price and the fair value of our long-term debt, lower than expected hospital volumes and/or net operating revenues, higher market interest rates, increased operating costs or other adverse impacts on our financial results.

our long-term debt, lower than expected hospital volumes and/or net operating revenues, higher market interest rates, increased operating costs or other adverse impacts on our financial results.

Such changes impacting the calculation of our fair value could result in a material impairment charge in the future.

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The estimates are based on specific claim facts, our historical claim reporting and payment patterns, the nature and level of our hospital operations, and actuarially determined projections.

The actuarially determined projections are based on our actual claim data, including historic reporting and payment patterns, which have been gathered over the life of the Company.

As discussed below, since we purchase excess insurance on a claims-made basis that transfers risk to third-party insurers, the estimated liability for professional and general liability claims does include an amount for the losses covered by our excess insurance.

The actuarially determined projections are based on our actual claim data, including historic reporting and payment patterns.

As discussed below, since we purchase excess insurance on a claims-made basis that transfers risk to third-party insurers, the estimated liability for professional and general liability claims includes an amount for the losses covered by our excess insurance.

We also record a receivable for the expected reimbursement of losses covered by our excess insurance.

Since we believe that the amount and timing of our future claims payments are reliably determinable, we discount the amount we accrue for losses resulting from professional liability claims.

The net present value of the projected payments was discounted using a weighted-average risk-free rate of approximately 3.9% and 3.7% at June 30, 2024 and December 31, 2023, respectively.

The net present value of the projected payments was discounted using a weighted-average risk-free rate of approximately 3.8% and 3.7% at September 30, 2024 and December 31, 2023, respectively.

This liability is adjusted for new claims information in the period such information becomes known to us.

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Once the case accruals for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years and geography.

Several actuarial methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims.

Several actuarial methods are used to produce estimates of ultimate paid losses and reserves for incurred but not reported claims.

Each of these methods uses our company-specific historical claims data and other information.

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Significant assumptions are made on the basis of the aforementioned information in estimating reserves for incurred but not reported claims.

A 1% change in assumptions for either severity or frequency as of June 30, 2024 would have increased or decreased the reserve between $5 million to $15 million.

Based on these analyses, we determine our estimate of the professional liability claims.

A 1% change in assumptions for either severity or frequency as of September 30, 2024 would have increased or decreased the reserve by approximately $10 million.

Based on these analyses, we periodically review and determine our estimate of the professional liability claims.

The determination of management’s estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of management.

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However, due to the subjective nature of this estimate and the impact that previously unforeseen shifts in actual claim experience can have, future estimates of professional liability could be adversely impacted when actual paid losses develop unexpectedly based on assumptions and settlement events that were not previously known or anticipated.

During the three months ended September 30, 2024, in connection with our periodic review of the professional liability claims accrual, we, with input from our third-party actuary, considered recent increases in the amounts we have paid to resolve outstanding

professional liability claims arising in prior periods as well as recent increases in individual claim accruals for unresolved prior period claims.

The emergence in the period of adverse developments, including from social inflationary pressures, impacted our actuarially determined estimate for the resolution of professional liability claims and resulted in an upward revision to our estimate of the professional liability claims accrual in the amount of $149 million during the three months ended September 30, 2024, the majority of which increase in estimate related to divested locations.

We are primarily self-insured for professional liability claims;

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The $75 million in integrated occurrence coverage will also apply to claims reported between June 1, 2020 and June 1, 2025 for events that occurred prior to June 1, 2020 but which were not previously known or reported.

For certain policy

years prior to June 1, 2014, if the first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention will increase to $10 million per claim for any subsequent claims in that policy year until our total aggregate coverage is met.

For certain policy years prior to June 1, 2014, if the first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention will increase to $10 million per claim for any subsequent claims in that policy year until our total aggregate coverage is met.

Beginning June 1, 2018, this drop-down provision in the excess policies attaches over the $15 million per claim self-insured retention.

There were no significant changes in our estimate of the reserve for professional liability claims during the six months ended June 30, 2024.

We must make estimates in recording provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets.

We believe that future income will enable us to realize certain deferred tax assets, subject to the valuation allowance we have established.

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was $46 million at June 30, 2024.

A total of $3 million of interest and penalties is included in the amount of liability for uncertain tax positions at June 30, 2024.

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was $46 million at September 30, 2024.

A total of $4 million of interest and penalties is included in the amount of liability for uncertain tax positions at September 30, 2024.

It is our policy to recognize interest and penalties related to unrecognized benefits in our condensed consolidated statements of loss as income tax expense.

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We believe the result of this examination will not be material to our consolidated results of operations or consolidated financial position.

In addition, we have extended our federal statute of limitations through June 30, 2025 for the tax period ended December 31, 2018.

In addition, we have extended our federal statute of limitations through March 31, 2026 for the tax period ended December 31, 2018.

Recent Accounting Pronouncements

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• security breaches, cyber-attacks, loss of data, other cybersecurity threats or incidents, including those experienced with respect to our information systems or the information systems of third parties with whom we conduct business, and any actual or perceived failures to comply with legal requirements governing the privacy and security of health information or other regulated, sensitive or confidential information, or legal requirements regarding data privacy or data protection;

• the development, adoption and use of emerging technologies, including artificial intelligence and machine learning;

• any potential impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets;

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Quantitative and Qualitat ive Disclosures about Market Risk

During the three months ended June 30, 2024, there have been no material changes in the quantitative and qualitative disclosures set forth in Item 7A.

During the three months ended September 30, 2024, there have been no material changes in the quantitative and qualitative disclosures set forth in Item 7A.

Quantitative and Qualitative Disclosures about Market Risk in our 2023 Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis