What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-23 compared with 2026-04-22 · 174 added, 118 removed, 383 unchanged (43% of the section changed)

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Our affiliates are leading providers of healthcare services, developing and operating healthcare delivery systems in 32 distinct markets across 12 states.

As of March 31, 2026, our subsidiaries own or lease 65 affiliated hospitals, with more than 9,000 beds, and operate more than 900 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 June 30, 2026, our subsidiaries own or lease 60 affiliated hospitals, with more than 8,000 beds, and operate more than 800 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 three months ended March 31, 2026, we paid approximately $5 million to acquire the operating assets and related businesses of certain physician practices and clinics, as well as a controlling interest in an ambulatory surgery center.

During the six months ended June 30, 2026, we paid approximately $53 million to acquire the operating assets and related businesses of certain physician practices and clinics, as well as controlling interests in two ambulatory surgery centers.

The purchase price for these transactions will primarily be allocated to working capital, goodwill and noncontrolling interests.

During the three months ended March 31, 2026, as reflected in the table below, we completed the divestiture of three hospitals in Pennsylvania, and sold our 80% ownership in one hospital in Tennessee.

These hospitals represented annual net operating revenues in 2025 of approximately $827 million and we received total net proceeds of approximately $657 million in connection with these dispositions.

The following table provides a summary of hospitals that we divested (or, in the cases of Merit Health Biloxi and Merit Health Madison, in which we sold our 50% ownership interest, and in the cases of Tennova Healthcare - Clarksville and Cedar Park Regional Medical Center, in which we sold our 80% ownership interest) during the three months ended March 31, 2026 and the year ended December 31, 2025.

During the six months ended June 30, 2026, as reflected in the table below, we completed the divestiture of four hospitals in Arkansas, three hospitals in Pennsylvania, one hospital in Alabama, and sold our 80% ownership interest in one hospital in Tennessee.

These hospitals represented annual net operating revenues in 2025 of approximately $1.6 billion and we received total net proceeds of approximately $1.2 billion in connection with these dispositions.

The following table provides a summary of hospitals that we divested (or, in the cases of Merit Health Biloxi and Merit Health Madison, in which we sold our 50% ownership interest, and in the cases of Tennova Healthcare - Clarksville and Cedar Park Regional Medical Center, in which we sold our 80% ownership interest) during the six months ended June 30, 2026 and the year ended December 31, 2025.

Effective Date

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February 1, 2026

Crestwood Medical Center

Huntsville Hospital Health System

Huntsville, Alabama

April 1, 2026

Northwest Medical Center - Bentonville

Freeman Health System

Bentonville, Arkansas

Northwest Medical Center - Springdale

Freeman Health System

Springdale, Arkansas

Willow Creek Women’s Hospital

Freeman Health System

Johnson, Arkansas

Siloam Springs Regional Hospital

Freeman Health System

Siloam Springs, Arkansas

2025 Divestitures:

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December 1, 2025

In addition to hospitals divested in the table above, we completed the disposition of one hospital subsequent to March 31, 2026.

On January 20, 2026, we entered into a definitive agreement pursuant to which The Health Care Authority of the City of Huntsville (d/b/a Huntsville Hospital Health System) agreed to acquire substantially all of the assets, and assume certain liabilities, from us related to Crestwood Medical Center (180 licensed beds) in Huntsville, Alabama, and its associated outpatient centers and practices.

This disposition was completed effective April 1, 2026.

We received proceeds from this sale of approximately $459 million in cash, after giving effect to estimated working capital adjustments and before certain transaction expenses (subject to a post-closing working capital adjustment).

Proceeds from this disposition were received at a preliminary closing on March 31, 2026, and are recorded in other accrued liabilities in the condensed consolidated balance sheets.

For additional information about this transaction, see the Current Reports on Form 8-K filed by us with the SEC on January 20, 2026 and April 1, 2026.

In addition, on March 5, 2026, we entered into a definitive agreement pursuant to which Freeman-Oak Hill Health System (d/b/a Freeman Health System) agreed to acquire substantially all of the assets, and assume certain liabilities, from us related to Northwest Medical Center – Bentonville (128 licensed beds) in Bentonville, Arkansas, Northwest Medical Center – Springdale (222 licensed beds) in Springdale, Arkansas, Northwest Medical Center – Willow Creek Women’s Hospital (64 licensed beds) in Johnson, Arkansas, and Siloam Springs Regional Hospital (73 licensed beds) in Siloam Springs, Arkansas, and the associated outpatient centers and practices, for $112 million in cash, subject to adjustment for net working capital and any finance leases assumed.

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

For additional information about this transaction, see the Current Report on Form 8-K filed by us with the SEC on March 5, 2026.

We may give consideration to divesting certain additional hospitals and non-hospital businesses.

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In addition, we continue to receive interest from potential acquirers for certain of our hospitals and non-hospital businesses.

As such, we may sell additional hospitals and/or non-hospital businesses if we consider any such disposition to be in our best interests.

As such, we may sell additional hospitals and/or non-hospital businesses if we consider any such

disposition to be in our best interests.

We expect proceeds from any such divestitures to be used for general corporate purposes (including potential debt repayments and/or debt repurchases) and capital expenditures.

Overview of Operating Results

Net operating revenues decreased from $3.159 billion for the three months ended March 31, 2025 to $2.965 billion for the three months ended March 31, 2026.

On a same-store basis, net operating revenues for the three months ended March 31, 2026 increased $88 million compared to the same period in 2025.

We had net loss of $25 million during the three months ended March 31, 2026, compared to net income of $25 million for the same period in 2025.

Net loss for the three months ended March 31, 2026 included the following:

• an after-tax charge of $8 million for loss from early extinguishment of debt, and

• an after-tax benefit of $15 million resulting primarily from a gain from the divestiture of our controlling interest in a hospital, partially offset by (i) an impairment charge to adjust the carrying value of long-lived assets at hospitals that were divested at a price below carrying value and (ii) an impairment charge recorded to reduce the carrying value of a hospital that was deemed held-for-sale based on the difference between the carrying value of the hospital disposal group compared to the estimated fair value less the costs to sell.

Net income for the three months ended March 31, 2025 included the following:

• an after-tax charge of $7 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 $2 million resulting from a gain related to the sale of two hospitals, partially offset by a loss on the sale of our 50% ownership interest in one hospital and the impairment of certain long-lived assets that were idled, disposed or held-for-sale as well as divestiture related costs.

Consolidated inpatient admissions for the three months ended March 31, 2026, decreased 10.8%, compared to the same period in 2025.

Consolidated adjusted admissions for the three months ended March 31, 2026, decreased 10.5%, compared to the same period in 2025.

Same-store inpatient admissions for the three months ended March 31, 2026, decreased 1.3%, compared to the same period in 2025, and same-store adjusted admissions for the three months ended March 31, 2026, decreased 0.5%, compared to the same period in 2025.

Self-pay revenues represented approximately 1.1% and 0.6% for the three months ended March 31, 2026 and 2025, respectively.

The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 11.6% and 9.7% for the three months ended March 31, 2026 and 2025, respectively.

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.2% and 1.1% for the three months ended March 31, 2026 and 2025, respectively.

Net operating revenues decreased from $3.133 billion for the three months ended June 30, 2025 to $2.825 billion for the three months ended June 30, 2026.

On a same-store basis, net operating revenues for the three months ended June 30, 2026 increased $65 million compared to the same period in 2025.

We had net income of $104 million during the three months ended June 30, 2026, compared to $320 million for the same period in 2025.

Net income for the three months ended June 30, 2026 included the following:

• an after-tax charge of $4 million for loss from early extinguishment of debt,

• an after-tax charge of $2 million for employee terminations and other restructuring charges, and

• an after-tax benefit of $101 million resulting primarily from a gain from the divestiture of one hospital, partially offset by (i) a net impairment charge to adjust the carrying value of long-lived assets at a hospital that was divested at a sales price below carrying value, and (ii) an impairment charge recorded to reduce the carrying value of several assets that were idled, disposed or held-for-sale.

Net income for the three months ended June 30, 2025 included the following:

• an after-tax benefit of $139 million for gain from early extinguishment of debt, and

• an after-tax benefit of $151 million resulting from a gain related to the divestiture of two hospitals, partially offset by a loss on the divestiture of our ownership interest in a hospital and the impairment of certain long-lived assets that were idled, or disposed as well as divestiture related costs.

Consolidated inpatient admissions for the three months ended June 30, 2026, decreased 11.4%, compared to the same period in 2025.

Consolidated adjusted admissions for the three months ended June 30, 2026, decreased 11.7%, compared to the same period in 2025.

Same-store inpatient admissions for the three months ended June 30, 2026, increased 1.9%, compared to the same period in 2025, and same-store adjusted admissions for the three months ended June 30, 2026, increased 2.9%, compared to the same period in 2025.

Net operating revenues decreased from $6.292 billion for the six months ended June 30, 2025 to $5.790 billion for the six months ended June 30, 2026.

On a same-store basis, net operating revenues for the six months ended June 30, 2026 increased $135 million compared to the same period in 2025.

We had net income of $79 million during the six months ended June 30, 2026, compared to $345 million for the same period in 2025.

Net income for the six months ended June 30, 2026 included the following:

• an after-tax charge of $11 million for loss from early extinguishment of debt,

• an after-tax charge of $2 million for employee terminations and other restructuring charges, and

• an after-tax benefit of $115 million resulting primarily from gains from the divestiture of one hospital and the divestiture of a controlling interest in another hospital, partially offset by (i) a net impairment charge to adjust the carrying value of long-lived assets at hospitals that were divested at a sales price below carrying value, and (ii) an impairment charge recorded to reduce the carrying value of several assets that were idled, disposed or held-for-sale.

Net income for the six months ended June 30, 2025 included the following:

• an after-tax benefit of $139 million for gain from early extinguishment of debt, and

• an after-tax charge of $7 million for expenses related to costs associated with our multi-year initiative to modernize and consolidate technology platforms and associated processes, and

• an after-tax benefit of $148 million resulting from a gain related to the divestiture of four hospitals, partially offset by losses on the divestiture of our ownership interest in two separate hospitals and the impairment of certain long-lived assets that were idled or disposed as well as divestiture related costs.

Both consolidated inpatient admissions and adjusted admissions decreased 11.1% for the six months ended June 30, 2026, compared to the same period in 2025.

Same-store inpatient admissions for the six months ended June 30, 2026, were flat, compared to the same period in 2025, and same-store adjusted admissions for the six months ended June 30, 2026, increased 1.0%, compared to the same period in 2025.

Self-pay revenues represented approximately 1.4% and 0.6% for the three months ended June 30, 2026 and 2025, respectively, and 1.2% and 0.6% for the six months ended June 30, 2026 and 2025, respectively.

The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 18.3% and 10.7% for the three months ended June 30, 2026 and 2025, respectively, and 14.9% and 10.2% for the six months ended June 30, 2026 and 2025, respectively.

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.8% and 1.1% for the three months ended June 30, 2026 and 2025, respectively, and 1.5% and 1.1% for the six months ended June 30, 2026 and 2025, respectively.

Overview of Legislative and Other Governmental Developments

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The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or, collectively, the Affordable Care Act, expanded health insurance coverage through a combination of public program expansion and private sector health insurance reforms, but changes in the law’s implementation, subsequent legislation and regulations, state initiatives and other factors have affected or may affect the number of individuals that elect or are able to obtain public or private health insurance and the scope of such coverage, if obtained.

For example, COVID-19 relief legislation, as modified by subsequent legislation, temporarily enhanced subsidies available for individuals to purchase coverage through Affordable Care Act marketplaces through 2025, but these enhanced subsidies expired at the end of 2025.

Their expiration may significantly increase the number of people who are uninsured.

Further, CMS issued a final rule in June 2025 that standardizes and shortens the open enrollment period for individual market coverage, both on and off the Affordable Care Act marketplaces, and requires stricter income-verification measures, among other changes.

This rule is currently the subject of legal challenges.

Further, CMS issued final rules in 2025 and 2026 affecting individual market coverage that include changes such as expanding eligibility for high-deductible, low-premium plans and allowing for non-network plans to be offered on federally-facilitated marketplaces.

These rules are currently the subject of legal challenges.

Moreover, the federal budget reconciliation legislation enacted on July 4, 2025, or the 2025 Reconciliation Law, includes healthcare policy changes that are expected to decrease access to health insurance.

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Any of these developments could increase rates of uninsured and underinsured individuals and destabilize insurance markets.

The number of people with Affordable Care Act marketplace coverage has decreased since 2025 and may continue to decrease, including as a result of changes in federal policy such as the expiration of enhanced subsidies for individuals to purchase coverage through the Affordable Care Act marketplaces at the end of 2025 as noted above and enrollment integrity efforts.

Although we are unable to fully assess the impact of these developments, we believe that the decrease in Affordable Care Act marketplace coverage

adversely impacted our financial results during the three months ended June 30, 2026, and may continue to adversely impact our financial results.

Of critical importance to us is the potential impact of any changes specific to the Medicaid program, including changes resulting from legislative and administrative actions at the federal and state levels.

Federal actions may impact funding for, or the structure of, the Medicaid program and may shape provider reimbursement rates, eligibility and coverage policies and other aspects of the state Medicaid programs in a manner that could materially and adversely affect us.

For example, the 2025 Reconciliation Law includes policy changes that are expected to result in Medicaid spending reductions and changes in administration of state Medicaid programs.

The law limits eligibility for Medicaid, including by imposing work or community engagement requirements for adults in Medicaid expansion states, and limits some Medicaid financing mechanisms, including through restrictions intended to reduce the federal

matching funds received by state Medicaid programs.

For example, the 2025 Reconciliation Law includes policy changes that have resulted in and are expected to continue to result in Medicaid spending reductions and changes in administration of state Medicaid programs.

Reductions in federal matching funds and increased state obligations and administrative burden could have significant effects, such as resulting in state limitations on eligibility or coverage or changes to Medicaid expansion programs, particularly if states are unable to offset reductions.

The effects of the 2025 Reconciliation Law could be particularly significant in states that expanded Medicaid under the Affordable Care Act, especially if a significant number of individuals formerly covered under Medicaid expansion lose Medicaid eligibility but do not obtain other health insurance coverage.

Of the 13 states in which we operated hospitals as of March 31, 2026, seven states have taken action to expand their Medicaid programs.

The other six states in which we operated hospitals as of March 31, 2026, have opted out of Medicaid expansion, including Florida, Alabama, Tennessee, Mississippi and Texas, in which states we operated a significant number of hospitals as of March 31, 2026.

Of the 12 states in which we operated hospitals as of June 30, 2026, six states have taken action to expand their Medicaid programs.

The other six states in which we operated hospitals as of June 30, 2026, have opted out of Medicaid expansion, including Florida, Alabama, Tennessee, Mississippi and Texas, in which states we operated a significant number of hospitals as of June 30, 2026.

Although we are unable to fully assess the magnitude of the future impact of the 2025 Reconciliation Law, we expect the law to adversely impact our revenue and financial results as well as increase the amount of our self-pay patients, including as a result of this legislation’s limitations on Medicaid eligibility and reductions in federal Medicaid funding as noted above.

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All funds must be spent before October 1, 2032.

We are actively monitoring funding opportunities in each state in which we operate.

No funds have been obligated to or received by us during the three months ended March 31, 2026.

We are actively evaluating and pursuing various funding opportunities in each state in which we operate.

No funds have been obligated to or received by us during the three and six months ended June 30, 2026.

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

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Supreme Court decision and to achieve budget neutrality, CMS reduced payment rates for non-drug services under the outpatient PPS for calendar year 2023, and lump sum payments were distributed to affected 340B providers as the remedy for calendar years 2018 through 2022.

This reduction to payment rates adversely affected our results for the three months ended March 31, 2026.

This reduction to payment rates adversely affected our results for the three and six months ended June 30, 2026.

Moreover, in order to comply with budget neutrality requirements, HHS finalized a corresponding offset in future non-drug item and service payments for all outpatient PPS providers (except new providers) that will reduce the outpatient PPS conversion factor by 0.5% annually until the past invalidated payments are offset.

This annual 0.5% reduction began in calendar year 2026 and was expected to continue for approximately 16 years, but CMS has indicated that it may accelerate this timeline by implementing a larger reduction beginning in calendar year 2027.

This annual 0.5% reduction began in calendar year 2026 and was expected to continue for approximately 16

years, but CMS has indicated that it may accelerate this timeline by implementing a larger reduction beginning in calendar year 2027.

We anticipate that the reduction to the outpatient PPS conversion factor will adversely impact our results.

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Three Months Ended

Six Months Ended

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 both of the three-month periods ended March 31, 2026 and 2025.

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.

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The programs are generally authorized by CMS for a specified period of time and require CMS’s approval to be extended.

In addition, as noted above, the 2025 Reconciliation Law includes several changes to Medicaid financing mechanisms, including limitations on provider taxes and SDP arrangements.

In addition, as noted above, the 2025 Reconciliation Law includes several changes to Medicaid financing mechanisms, including limitations on provider taxes and state directed payment arrangements.

It is difficult to predict the ultimate impact of the legislation on these supplemental programs or whether or on what terms CMS will extend the supplemental programs in the states in which we operate.

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Three Months Ended

Six Months Ended

Operating results, as a percentage of net operating revenues:

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Interest expense, net

Loss from early extinguishment of debt

(Loss) gain from early extinguishment of debt

Equity in earnings of unconsolidated affiliates

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Provision for income taxes

Net (loss) income

Net income attributable to noncontrolling interests

Net loss attributable to Community Health

Net income attributable to Community Health

Systems, Inc.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Percentage (decrease) increase from prior year:

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Average length of stay (d)

Net loss attributable to Community Health

Net income attributable to Community Health

Systems, Inc.

Same-store percentage increase from prior year (e):

Same-store percentage increase (decrease) from prior year (e):

Net operating revenues

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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 March 31, 2026 Compared to Three Months Ended March 31, 2025

Net operating revenues decreased to $2.965 billion for the three months ended March 31, 2026, compared to $3.159 billion for the same period in 2025.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $88 million, or 3.1%, during the three months ended March 31, 2026, compared to the same period in 2025.

On a period-over-period basis, the increase in same-store net operating revenues was primarily attributable to increased reimbursement rates and supplemental reimbursement program revenue partially offset by lower volumes and an unfavorable change in payor mix.

Non-same-store net operating revenues decreased $282 million during the three months ended March 31, 2026, compared to the same period in 2025, due to the divestiture of hospitals in 2026 and 2025.

On a consolidated basis, inpatient admissions decreased by 10.8% and adjusted admissions decreased by 10.5% during the three months ended March 31, 2026, compared to the same period in 2025.

On a same-store basis, net operating revenues per adjusted admission increased 3.7%, while inpatient admissions decreased by 1.3% and adjusted admissions decreased by 0.5% for the three months ended March 31, 2026, compared to the same period in 2025.

Total operating expenses, as a percentage of net operating revenues, decreased from 91.0% during the three months ended March 31, 2025 to 90.5% during the three months ended March 31, 2026.

Operating expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, increased from 88.5% for the three months ended March 31, 2025 to 89.7% for the three months ended March 31, 2026.

Salaries and benefits, as a percentage of net operating revenues, increased from 43.4% for the three months ended March 31, 2025 to 44.6% for the three months ended March 31, 2026, primarily due to inflationary wage increases and the decrease in net operating revenues.

Supplies, as a percentage of net operating revenues, decreased from 15.5% for three months ended March 31, 2025 to 14.9% for the three months ended March 31, 2026, primarily due to the decrease in net operating revenues and changes in the mix of services.

Other operating expenses, as a percentage of net operating revenues, increased from 27.4% for the three months ended March 31, 2025 to 27.9% for the three months ended March 31, 2026, primarily due to the decrease in net operating revenues and increased supplemental reimbursement program expense.

Lease cost and rent, as a percentage of net operating revenues, increased from 2.2% for the three months ended March 31, 2025 to 2.3% for the three months ended March 31, 2026.

Depreciation and amortization, as a percentage of net operating revenues, increased from 3.3% for three months ended March 31, 2025 to 3.8% for the three months ended March 31, 2026, primarily due to the decrease in net operating revenues and the placement of additional assets into service in the current year compared to the prior year.

Impairment and (gain) loss on sale of businesses, net was income of $90 million for the three months ended March 31, 2026, compared to $24 million for the same period in 2025.

The income recognized during the three months ended March 31, 2026 was comprised of a gain of approximately $230 million related to the divestiture of our controlling interest in a hospital, partially offset by (i) an approximately $88 million net impairment charge to adjust the carrying value of long-lived assets at hospitals that were divested at a price below carrying value, and (ii) a $52 million impairment charge recorded to reduce the carrying value of a hospital that was deemed held-for-sale based on the difference between the carrying value of the hospital disposal group compared to the estimated fair value less costs to sell.

The income recognized during the three months ended March 31, 2025 was comprised of a gain of approximately $50 million related to the sale of two hospitals, partially offset by (i) an approximately $10 million impairment charge recorded to reduce the carrying value of a hospital that was deemed held-for-sale based on the difference between the carrying value of the hospital disposal group compared to the estimated fair value less costs to sell, (ii) an approximately $11 million impairment charge to adjust the carrying value of long-lived assets at a hospital that was divested at a sales price below carrying value, and (iii) an approximately $5 million impairment charge recorded to reduce the carrying value of several assets that were idled, disposed of or held-for-sale.

Interest expense, net, decreased $6 million to $213 million for the three months ended March 31, 2026 from $219 million for the three months ended March 31, 2025.

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 March 31, 2026 and 2025.

Loss from early extinguishment of debt of $8 million was recognized during the three months ended March 31, 2026, as a result of the redemption of certain of our outstanding notes as discussed further in “Liquidity and Capital Resources.” There was no loss from early extinguishment of debt during the three months ended March 31, 2025.

The net results of the above-mentioned changes resulted in income before income taxes decreasing $3 million to $64 million for the three months ended March 31, 2026, compared to $67 million for the same period in 2025.

Our provision for income taxes for the three months ended March 31, 2026 and 2025 was $89 million and $42 million, respectively, and the effective tax rates were 139.1% and 62.7% for the three months ended March 31, 2026 and 2025, respectively.

The increase in the provision for income taxes and the change in our effective tax rate for the three months ended March 31, 2026, compared to the same period in 2025 was primarily due to an increase in non-deductible goodwill related to divested hospitals.

Net (loss) income, as a percentage of net operating revenues, was a net loss of (0.8)% for the three months ended March 31, 2026, compared to net income of 0.8% for the same period in 2025.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.2% for both of the three-month periods ended three months ended March 31, 2026 and 2025.

Net loss attributable to Community Health Systems, Inc.

stockholders was $(58) million for the three months ended March 31, 2026, compared to $(13) million for the same period in 2025.

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

Net operating revenues decreased to $2.825 billion for the three months ended June 30, 2026, compared to $3.133 billion for the same period in 2025.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $65 million, or 2.4%, during the three months ended June 30, 2026, compared to the same period in 2025.

On a period-over-period basis, the increase in same-store net operating revenues was primarily attributable to increased volumes and reimbursement rates and higher supplemental reimbursement program revenue, partially offset by an unfavorable change in payor mix.

Non-same-store net operating revenues decreased $373 million during the three months ended June 30, 2026, compared to the same period in 2025, due to the divestiture of hospitals in 2026 and 2025.

On a consolidated basis, inpatient admissions decreased by 11.4% and adjusted admissions decreased by 11.7% during the three months ended June 30, 2026, compared to the same period in 2025.

On a same-store basis, net operating revenues per adjusted admission decreased 0.5%, while inpatient admissions increased by 1.9% and adjusted admissions increased by 2.9% for the three months ended June 30, 2026, compared to the same period in 2025.

Total operating expenses, as a percentage of net operating revenues, increased from 83.7% during the three months ended June 30, 2025 to 86.2% during the three months ended June 30, 2026.

Operating expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, increased from 87.9% for the three months ended June 30, 2025 to 88.5% for the three months ended June 30, 2026.

Salaries and benefits, as a percentage of net operating revenues, increased from 42.4% for the three months ended June 30, 2025 to 43.8% for the three months ended June 30, 2026, primarily due to increased hiring commensurate with lower utilization of contract labor, inflationary wage increases and the decrease in net operating revenues.

Supplies, as a percentage of net operating revenues, decreased from 15.0% for the three months ended June 30, 2025 to 14.2% for the three months ended June 30, 2026, primarily due to changes in the mix of services and the benefit of cost savings initiatives, partially offset by the decrease in net operating revenues.

Other operating expenses, as a percentage of net operating revenues, increased from 28.1% for the three months ended June 30, 2025 to 28.3% for the three months ended June 30, 2026, primarily due to the decrease in net operating revenues and higher medical specialist fees, partially offset by lower contract labor and professional liability expenses.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.4% for the three months ended June 30, 2025 to 2.2% for the three months ended June 30, 2026.

Depreciation and amortization, as a percentage of net operating revenues, increased from 3.4% for the three months ended June 30, 2025 to 3.8% for the three months ended June 30, 2026, primarily due to the decrease in net operating revenues.

Impairment and (gain) loss on sale of businesses, net was income of $172 million for the three months ended June 30, 2026, compared to $239 million for the same period in 2025.

The income recognized during the three months ended June 30, 2026 was comprised of a gain of approximately $184 million related primarily to the divestiture of one hospital, partially offset by (i) an approximately $5 million net impairment charge to adjust the carrying value of long-lived assets at a hospital that was divested at a sales price below carrying value, and (ii) an approximately $7 million impairment charge recorded to reduce the carrying value of several assets that were idled, disposed or held-for-sale.

The income recognized during the three months ended June 30, 2025 was comprised of a gain of approximately $241 million related to the divestiture of two hospitals, partially offset by an approximately $2 million impairment charge to adjust the carrying value of long-lived assets at a hospital that was divested at a sales price below carrying value.

Interest expense, net, decreased $8 million to $206 million for the three months ended June 30, 2026 from $214 million for the three months ended June 30, 2025.

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 June 30, 2026 and 2025.

Loss from early extinguishment of debt of $5 million was recognized during the three months ended June 30, 2026, as a result of the repurchase of certain of our outstanding notes as discussed further in “Liquidity and Capital Resources.” There was a gain of $138 million from early extinguishment of debt during the three months ended June 30, 2025.

The net results of the above-mentioned changes resulted in income before income taxes decreasing $258 million to $180 million for the three months ended June 30, 2026, compared to $438 million for the same period in 2025.

Our provision for income taxes for the three months ended June 30, 2026 and 2025 was $76 million and $118 million, respectively, and the effective tax rates were 42.2% and 26.9% for the three months ended June 30, 2026 and 2025, respectively.

The decrease in the provision for income taxes and the change in our effective tax rate for the three months ended June 30, 2026, compared to the same period in 2025 was primarily due to a decrease in income before income taxes, a decrease in non-deductible goodwill related to divested hospitals, and the tax effects of the federal budget reconciliation legislation which was enacted on July 4, 2025.

Net income, as a percentage of net operating revenues, was 3.7% for the three months ended June 30, 2026, compared to 10.2% for the same period in 2025.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.2% for both of the three-month periods ended June 30, 2026 and 2025.

Net income attributable to Community Health Systems, Inc.

stockholders was $70 million for the three months ended June 30, 2026, compared to $282 million for the same period in 2025.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

Net operating revenues decreased to $5.790 billion for the six months ended June 30, 2026, compared to $6.292 billion for the same period in 2025.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $135 million, or 2.5%, during the six months ended June 30, 2026, compared to the same period in 2025.

Non-same-store net operating revenues decreased $637 million during the six months ended June 30, 2026, compared to the same period in 2025, due to the divestiture of hospitals in 2026 and 2025.

On a consolidated basis, both inpatient admissions and adjusted admissions decreased by 11.1% during the six months ended June 30, 2026, compared to the same period in 2025.

On a same-store basis, net operating revenues per adjusted admission increased 1.5%, while inpatient admissions were flat, and adjusted admissions increased by 1.0% for the six months ended June 30, 2026, compared to the same period in 2025.

Total operating expenses, as a percentage of net operating revenues, increased from 87.4% during the six months ended June 30, 2025 to 88.4% during the six months ended June 30, 2026.

Operating expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, increased from 88.2% for the six months ended June 30, 2025 to 89.1% for the six months ended June 30, 2026.

Salaries and benefits, as a percentage of net operating revenues, increased from 42.9% for the six months ended June 30, 2025 to 44.1% for the six months ended June 30, 2026, primarily due to increased hiring commensurate with lower utilization of contract labor, inflationary wage increases and the decrease in net operating revenues.

Supplies, as a percentage of net operating revenues, decreased from 15.2% for the six months ended June 30, 2025 to 14.6% for the six months ended June 30, 2026, primarily due to changes in the mix of services and the benefit of cost savings initiatives, partially offset by the decrease in net operating revenues.

Other operating expenses, as a percentage of net operating revenues, increased from 27.8% for the six months ended June 30, 2025 to 28.1% for the six months ended June 30, 2026, primarily due to the decrease in net operating revenues, increased supplemental reimbursement program expense and higher medical specialist fees, partially offset by lower contract labor and professional liability expenses.

Lease cost and rent, as a percentage of net operating revenues, remained consistent at 2.3% for both of the six-month periods ended June 30, 2026 and 2025.

Depreciation and amortization, as a percentage of net operating revenues, increased from 3.4% for the six months ended June 30, 2025 to 3.8% for the six months ended June 30, 2026, primarily due to the decrease in net operating revenues and the placement of additional assets into service in the current year compared to the prior year.

Impairment and (gain) loss on sale of businesses, net was income of $262 million for the six months ended June 30, 2026, compared to $263 million for the same period in 2025.

The income recognized during the six months ended June 30, 2026 was comprised of a gain of approximately $400 million related to the divestiture of one hospital and the divestiture of a controlling interest in another hospital, partially offset by (i) an approximately $131 million net impairment charge to adjust the carrying value of long-lived assets at hospitals that were divested at a sales price below carrying value, and (ii) an approximately $7 million impairment charge recorded to reduce the carrying value of several assets that were idled, disposed or held-for-sale.

The income recognized during the six months ended June 30, 2025 was comprised of a gain of approximately $291 million related to the divestiture of four hospitals, partially offset by (i) an approximately $23 million impairment charge to adjust the carrying value of long-lived assets at two hospitals that were divested at a price below carrying value, and (ii) an approximately $5 million impairment charge recorded to reduce the carrying value of several assets that were idled, disposed or held-for-sale.

Interest expense, net, decreased $13 million to $419 million for the six months ended June 30, 2026 from $432 million for the six months ended June 30, 2025.

Loss from early extinguishment of debt of $12 million was recognized during the six months ended June 30, 2026, compared to a gain from early extinguishment of $138 million for the same period in 2025, as a result of the refinancing and extinguishment of certain of our outstanding notes as discussed further in “Liquidity and Capital Resources.”

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, 2026 and 2025.

The net results of the above-mentioned changes resulted in income before income taxes decreasing $261 million to $244 million for the six months ended June 30, 2026, compared to $505 million for the same period in 2025.

Our provision for income taxes for the six months ended June 30, 2026 and 2025 was $165 million and $160 million, respectively, and the effective tax rates were 67.6% and 31.7% for the six months ended June 30, 2026 and 2025, respectively.

The increase in the provision for income taxes and the change in our effective tax rate for the six months ended June 30, 2026, compared to the same period in 2025 was primarily due to an increase in non-deductible goodwill related to divested hospitals, partially offset by a decrease in income before taxes and the tax effects of the federal budget reconciliation legislation which was enacted on July 4, 2025.

Net income, as a percentage of net operating revenues, was 1.4% for the six months ended June 30, 2026, compared to 5.5% for the same period in 2025.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.2% for both of the six-month periods ended June 30, 2026 and 2025.

Net income attributable to Community Health Systems, Inc.

stockholders was $12 million for the six months ended June 30, 2026, compared to $269 million for the same period in 2025.

Liquidity and Capital Resources

Net cash provided by operating activities changed by $417 million, from approximately $120 million of cash provided by operating activities for the three months ended March 31, 2025, to cash used in operating activities of approximately $297 million for the three months ended March 31, 2026.

The decrease in cash provided by operating activities is primarily due to a decrease in accounts payable, an increase in patient accounts receivable and the receipt of a larger tax refund during the three months ended March 31, 2025, compared to the same period in 2026.

Cash paid for interest was $261 million during the three months ended March 31, 2026, compared to $229 million for the same period in 2025.

Cash paid for income taxes, net of refunds received, resulted in a net refund of less than $1 million and $80 million during the three months ended March 31, 2026 and 2025, respectively.

Net cash provided by investing activities was approximately $1.0 billion for the three months ended March 31, 2026, compared to approximately $444 million for the same period in 2025.

Net cash provided by investing activities during the three months ended March 31, 2026 was impacted by an increase of $545 million in cash proceeds from dispositions of hospitals and other ancillary operations and a decrease in cash used for other investments of $28 million.

Our net cash used in financing activities was approximately $274 million for the three months ended March 31, 2026, compared to approximately $170 million for the same period in 2025, a change of $104 million.

This was primarily due to the net impact of our debt borrowings and repayments during the three months ended March 31, 2026, compared to the same period in 2025.

Net working capital was approximately $1.2 billion at March 31, 2026 and approximately $1.0 billion at December 31, 2025.

Net working capital increased by approximately $180 million between December 31, 2025 and March 31, 2026.

The increase is primarily due to increases in cash, patient accounts receivable, prepaid expenses and other current assets and decreases in accounts payable, accrued liabilities for employee compensation and accrued interest during the three months ended March 31, 2026, partially offset by decreases in supplies and increases in income tax payable and other current liabilities.

Net cash used in operating activities was approximately $209 million for the six months ended June 30, 2026, compared to approximately $208 million of net cash provided by operating activities for the six months ended June 30, 2025, a change of $417 million.

The decrease in net cash provided by operating activities is primarily due to a decrease in accounts payable, an increase in patient accounts receivable and higher cash paid for interest, partially offset by lower cash paid for taxes during the six months ended June 30, 2026, compared to the same period in 2025.

Cash paid for interest was $437 million during the six months ended June 30, 2026, compared to $407 million for the same period in 2025.

Cash paid for income taxes, net of refunds received, resulted in a net payment of $61 million and $101 million during the six months ended June 30, 2026 and 2025, respectively.

Approximately $56 million and $74 million of cash paid for taxes during the six months ended June 30, 2026 and 2025, respectively, related to taxes associated with gains on divested hospitals.

Net cash provided by investing activities was approximately $1.0 billion for the six months ended June 30, 2026, compared to approximately $786 million for the same period in 2025.

Net cash provided by investing activities during the six months ended June 30, 2026 was impacted by an increase of $205 million in cash proceeds from dispositions of hospitals and other ancillary operations and a decrease in cash used for other investments of $32 million, partially offset by cash expenditures for the purchases of facilities and other related businesses of $53 million.

Our net cash used in financing activities was approximately $902 million for the six months ended June 30, 2026, compared to approximately $575 million for the same period in 2025, a change of $327 million.

This was primarily due to the net impact of our debt borrowings and repayments during the six months ended June 30, 2026, compared to the same period in 2025.

Net working capital was approximately $1.1 billion at June 30, 2026 and approximately $1.0 billion at December 31, 2025.

Net working capital increased by approximately $39 million between December 31, 2025 and June 30, 2026.

The increase is primarily due to increases in patient accounts receivable and prepaid expenses and decreases in accounts payable, accrued liabilities for employee compensation and accrued interest during the six months ended June 30, 2026, partially offset by decreases in cash, supplies, and other current assets and an increase in income tax payable.

In addition to cash flows from operations, available sources of capital include amounts available under the asset-based loan 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.

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

At March 31, 2026, we had no outstanding borrowings and approximately $824 million of additional borrowing capacity (after taking into consideration $32 million of outstanding letters of credit) under the ABL Facility.

Letters of credit were reduced during the three months ended March 31, 2026 by $2 million, primarily due to a reduction in collateral for a construction-related bond.

At June 30, 2026, we had no outstanding borrowings and approximately $751 million of additional borrowing capacity (after taking into consideration $32 million of outstanding letters of credit) under the ABL Facility.

Letters of credit were reduced during the six months ended June 30, 2026 by $2 million, primarily due to a reduction in collateral for a construction-related bond.

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

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On February 2, 2026, we exercised a special call provision to redeem 10% of the original principal amount, or approximately $223 million, of the 10.875% Senior Secured Notes due 2032, at a redemption price of 103% of the principal amount, plus accrued and unpaid interest.

A pre-tax loss from early extinguishment of debt of approximately $8 million was recognized associated with this financing activity during the three months ended March 31, 2026.

The Company used approximately $600 million of cash on hand from recent divestiture proceeds to repurchase approximately $368 million principal amount of its 4.750% Senior Secured Notes due 2031, or approximately 35% of the total outstanding principal amount, and repurchase approximately $231 million principal amount of its 10.875% Senior Secured Notes due 2032, or approximately 13% of the total outstanding principal amount, that were validly tendered and accepted for purchase pursuant to a tender offer that launched on April 22, 2026, and was completed on May 6, 2026, and to pay related fees and expenses.

Upon completion of the tender offer, approximately $689 million principal amount of the 4.750% Senior Secured Notes due 2031 remained outstanding and approximately $1.549 billion principal amount of the 10.875% Senior Secured Notes due 2032 remained outstanding.

For additional information regarding the repurchase of the 4.750% Senior Secured Notes due 2031 and 10.875% Senior Secured Notes due 2032, in connection with this tender offer, see the Current Reports on Form 8-K filed by the Company with the SEC on April 23, 2026 and May 6, 2026.

A pre-tax loss from early extinguishment of debt of approximately $5 million and $12 million was recognized associated with these financing activities during the three and six months ended June 30, 2026, respectively.

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 March 31, 2026, approximately $29 million of our outstanding debt of approximately $10.2 billion is due within the next 12 months.

As of June 30, 2026, approximately $26 million of our outstanding debt of approximately $9.6 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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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 March 31, 2026, from those disclosed under “Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2025 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 June 30, 2026, from those disclosed under “Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2025 Form 10-K.

Capital Resources

Cash expenditures for the purchases of facilities and other related businesses were $5 million for the three months ended March 31, 2026 related to cash paid for the acquisition of certain physician practices and clinics, as well as a controlling interest in an ambulatory surgery center, compared to less than $1 million for the three months ended March 31, 2025, which primarily related to cash expenditures for physician practices and clinics.

Cash expenditures for the purchases of facilities and other related businesses were $53 million for the six months ended June 30, 2026 related to cash paid for the acquisition of certain physician practices and clinics, as well as controlling interests in two ambulatory surgery centers, compared to less than $1 million for the six months ended June 30, 2025, which primarily related to cash expenditures for 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 $76 million and $85 million for the three months ended March 31, 2026 and 2025, respectively.

Capital expenditures totaled $152 million and $176 million for the six months ended June 30, 2026 and 2025, respectively.

We expect total capital expenditures of approximately $350 million to $400 million in 2026.

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The increased potential for legal challenges may result in delays in and other impacts to the agency rulemaking process.

Further, the federal and state governments may reduce the funds available under the Medicare and Medicaid programs, require repayment of previously received funds or require more stringent utilization and quality reviews of hospital facilities.

Further, the federal and state governments may reduce, withhold or defer the funds available under the Medicare and Medicaid programs, require repayment of previously received funds or require more stringent utilization and quality reviews of hospital facilities.

Additionally, there may be a continued rise in managed care programs and further restructuring of the financing and delivery of healthcare in the United States.

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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 March 31, 2026 from our estimated reimbursement percentage, net loss for the three months ended March 31, 2026 would have changed by approximately $105 million, and net patient accounts receivable at March 31, 2026 would have changed by approximately $136 million.

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

third parties.

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at June 30, 2026 from our estimated reimbursement percentage, net income for the six months ended June 30, 2026 would have changed by approximately $99 million, and net patient accounts receivable at June 30, 2026 would have changed by approximately $129 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 each of the three-month periods ended March 31, 2026 and 2025.

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 - Basis of Presentation and Significant Accounting Policies 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 patient accounts receivable.

If the actual collection percentage differed by 1% at March 31, 2026 from our estimated collection percentage as a result of a change in expected recoveries, net loss for the three months ended March 31, 2026 would have changed by approximately $36 million, and net patient accounts receivable at March 31, 2026 would have changed by approximately $47 million.

If the actual collection percentage differed by 1% at June 30, 2026 from our estimated collection percentage as a result of a change in expected recoveries, net income for the six months ended June 30, 2026 would have changed by approximately $38 million, and net patient accounts receivable at June 30, 2026 would have changed by approximately $49 million.

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

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

We had approximately $1.3 billion at March 31, 2026 and $1.4 billion at December 31, 2025, being pursued by various outside collection agencies.

We had approximately $1.4 billion at both June 30, 2026 and December 31, 2025, 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 patient accounts receivable.

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 59 days at March 31, 2026 and 54 days at December 31, 2025.

Total gross patient accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $17.9 billion and $16.9 billion as of March 31, 2026 and December 31, 2025, respectively.

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 59 days at June 30, 2026 and 54 days at December 31, 2025.

Total gross patient accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $17.5 billion and $16.9 billion as of June 30, 2026 and December 31, 2025, respectively.

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

At March 31, 2026:

At June 30, 2026:

% of Gross Receivables

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Self-pay receivables

The combined total at our hospitals and clinics for the estimated implicit price concessions for self-pay patient accounts receivable and allowances for other self-pay discounts and contractuals, as a percentage of gross self-pay receivables, was approximately 91% and 90% at March 31, 2026 and December 31, 2025, respectively.

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 March 31, 2026 and December 31, 2025.

At March 31, 2026, we had approximately $3.1 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.

At June 30, 2026, we had approximately $3.2 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.

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

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The determination of fair value in our goodwill impairment analysis is based on an estimate of fair value for the hospital operations reporting unit utilizing known and estimated inputs at the evaluation date.

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

Some of those inputs include, but are not limited to, the most recent price of our common stock, the 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.

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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 3.5% at both March 31, 2026 and December 31, 2025.

The net present value of the projected payments was discounted using a weighted-average risk-free rate of 3.5% at both June 30, 2026 and December 31, 2025.

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

Professional liability expense includes the losses resulting from professional liability claims and loss adjustment expense, as well as excess insurance premiums, and is presented within other operating expenses or, for increased losses specifically attributable to certain divestitures, within impairment and (gain) loss on sales of businesses, net in the accompanying condensed consolidated statements of loss.

Our processes for obtaining and analyzing claims and incident data are standardized across all of our businesses and have been consistent for many years.

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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 March 31, 2026 would have increased or decreased the reserve by approximately $5 million to $10 million.

A 1% change in assumptions for either severity or frequency as of June 30, 2026 would have increased or decreased the reserve by approximately $5 million to $10 million.

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

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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 three months ended March 31, 2026.

There were no significant changes in our estimate of the reserve for professional liability claims during the six months ended June 30, 2026.

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 March 31, 2026.

A total of $10 million of interest and penalties is included in the amount of liability for uncertain tax positions at March 31, 2026.

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

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was $46 million at June 30, 2026.

A total of $10 million of interest and penalties is included in the amount of liability for uncertain tax positions at June 30, 2026.

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

Recent Accounting Pronouncements

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Quantitative and Qualitat ive Disclosures about Market Risk

During the three months ended March 31, 2026, there have been no material changes in the quantitative and qualitative disclosures set forth in Item 7A.

During the three months ended June 30, 2026, 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 2025 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