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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-28 · 286 added, 414 removed, 378 unchanged (65% of the section changed)

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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.

As of September 30, 2020, we owned or leased 93 hospitals, comprised of 91 general acute care hospitals and two stand-alone rehabilitation or psychiatric hospitals.

For the hospitals that we own and operate, we are paid for our services by governmental agencies, private insurers and directly by the patients we serve.

We have been implementing a portfolio rationalization and deleveraging strategy by divesting hospitals and non-hospital businesses that are attractive to strategic and other buyers.

As discussed further below, we currently expect planned divestitures pursuant to this strategy to conclude during the fourth quarter of 2020.

As of March 31, 2021, we owned or leased 85 hospitals, comprised of 83 general acute care hospitals and two stand-alone rehabilitation or psychiatric hospitals.

We are paid for our services by governmental agencies, private insurers and directly by the patients we serve.

We previously implemented a portfolio rationalization and deleveraging strategy involving the divestiture of hospitals and non-hospital businesses which concluded on December 31, 2020 (inclusive of definitive agreements with respect to the sale of five hospitals entered into in 2020 which have closed in 2021).

However, we continue to receive interest from potential acquirers for certain of our hospitals, and may, from time to time, consider selling additional hospitals if we consider any such disposition to be in our best interests.

COVID-19 Pandemic

A novel strain of coronavirus causing the disease known as COVID-19 was first identified in Wuhan, China in December 2019, and has spread throughout the world, including across the United States.

In January 2020, the Secretary of the U.S.

Department of Health and Human Services, or HHS, declared a national public health emergency due to the novel coronavirus.

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

In an attempt to contain the spread and impact of COVID-19, authorities throughout the United States and the world have implemented measures such as travel bans and restrictions, quarantines, stay-at-home and shelter-in-place orders, the promotion of social distancing, and limitations on business activity.

This pandemic has resulted in a significant economic downturn in the United States and globally and has also led to significant disruptions and volatility in capital and financial markets.

As a provider of healthcare services, we are significantly exposed to the public health and economic effects of the COVID-19 pandemic.

A novel strain of coronavirus causing the disease known as COVID-19 was first identified in December 2019, and has spread throughout the world, including across the United States.

The Secretary of the U.S.

Department of Health and Human Services, or HHS, has renewed the agency’s declaration of a national public health emergency, which was originally declared in January 2020, due to the continued consequences of the COVID-19 pandemic.

In an attempt to contain the spread and impact of COVID-19, authorities throughout the United States and the world have continued to recommend and mandate precautions such as travel bans and restrictions, quarantines, stay-at-home and shelter-in-place orders, the promotion of social distancing, and limitations on business activity.

As vaccines have become more available, the number of COVID-19 cases have declined in the United States in recent months, certain precautions and restrictive measures have been lessened or ended, and economic conditions have improved.

As a provider of healthcare services, we are significantly affected by the public health and economic effects of the COVID-19 pandemic.

The safety of our patients, physicians, nurses, and employees in the communities in which we serve remains our primary focus.

We have been working with federal, state and local health authorities to respond to the COVID-19 pandemic cases in the communities we serve and have been taking or supporting measures to try to limit the spread of the virus and to mitigate the burden on the healthcare system, including rescheduling or cancelling elective procedures at our hospitals and other healthcare facilities.

We have been working with federal, state and local health authorities to respond to the COVID-19 pandemic in the communities we serve and have been taking or supporting measures to try to limit the spread of the virus and to mitigate the burden on the healthcare system, including, at times, rescheduling or cancelling elective procedures at our hospitals and other healthcare facilities.

In addition, some states have been requiring hospitals to maintain a reserve of personal protective equipment and mandating COVID-19 screening for new patients and certain hospital staff.

Beginning in March 2020, we experienced a substantial reduction in the number of elective surgeries, physician office visits and emergency room volumes at our hospitals and other healthcare facilities due to restrictions on elective procedures, quarantines, stay-at-home and shelter-in-place orders, the promotion of social distancing, as well as general concerns related to the risk of contracting COVID-19 from interacting with the healthcare system.

Some restrictive measures remain in place and, as of the time of this filing, some states and local governments are continuing to impose restrictions due to elevated rates of COVID-19 cases, including in select markets that we serve, which may continue to adversely impact our operating results.

In this regard, while volumes for the current year have not returned to pre-pandemic levels, they have improved from their lows in March and April 2020.

Our hospitals, medical clinics, medical personnel, and employees have been actively caring for COVID-19 patients.

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While our hospitals have not generally experienced major capacity constraints to date arising from the treatment of COVID-19 patients, there are hospitals in the United States that are located in centers of the COVID-19 outbreak and have been overwhelmed in caring for COVID-19 patients, which has prevented such hospitals from treating all patients who seek care.

Our hospitals could be subject to such conditions in the future if a major COVID-19 outbrea k occurs in a geographic region where any of our hospitals are located.

In addition, some states have been limiting hospital volume by requiring a minimum percentage of vacant beds in case of a surge in COVID-19 patients.

We have incurred, and may continue to incur, certain increased expenses arising from the COVID-19 pandemic, including additional labor, supply chain, capital and other expenditures.

Broad economic factors resulting from the COVID-19 pandemic, including high unemployment and underemployment levels and reduced consumer spending and confidence, may also affect our service mix, revenue mix, payor mix and patient volumes, as well as our ability to collect outstanding receivables.

Business closures and layoffs in the geographic areas in which we operate has led to increases in the uninsured and underinsured populations, which may continue to adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered.

We have observed deterioration in the collectability of patient accounts receivable which, if sustained, may continue to adversely affect our financial results and require an increased level of working capital.

Developments related to COVID-19 have materially affected our financial performance during 2020.

Additionally, while we are not able to fully quantify the impact that the COVID-19 pandemic will have on our financial results during the remainder of 2020 and in future periods, we expect developments related to COVID-19 to materially affect our financial performance during the remainder of 2020, and, potentially, in future periods.

Moreover, the COVID-19 pandemic may otherwise have material adverse effects on our results of operations, financial position, and/or our cash flows, particularly if negative economic and/or public health conditions in the United States continue to deteriorate or persist for a significant period of time.

The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic as well as negative economic conditions arising from the pandemic, the volume of canceled or rescheduled procedures at our facilities, the volume of COVID-19 patients cared for across our health systems, the timing and availability of effective medical treatments and vaccines, and the impact of government actions and administrative regulations on the hospital industry and broader economy, including through existing and any future stimulus efforts.

Furthermore, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which could reduce our ability to access capital and negatively affect our liquidity in the future.

As discussed below under “Legislative Overview”, we have received, and may continue to receive, payments and advances under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act , and the Paycheck Protection Program and Health Care Enhancement Act, or PPPHCE Act, which have been beneficial in partially mitigating impact of the COVID-19 pandemic on our results of operations and financial position to date.

Additionally, the federal government may consider additional stimulus and relief efforts, but we are unable to predict whether any additional stimulus measures will be enacted or their impact, if any.

We are unable to assess the extent to which anticipated negative impacts on us arising from the COVID-19 pandemic will ultimately be offset by amounts received, and benefits which we may in the future receive, under the CARES Act, the PPPHCE Act, or any future stimulus measures.

One or more of our hospitals could be subject to such conditions in the future if a major COVID-19 outbreak occurs in a geographic region where any of our hospitals are located.

We have incurred, and may continue to incur , certain increased expenses arising from the COVID-19 pand emic, including additional labor, supply chain , capital and other expenditures.

Broad economic factors resulting from the COVID-19 pandemic, including high unemployment and underemployment levels and reduced consumer spending and confidence, have affected, and may continue to affect, our service mix, revenue mix, payor mix and/or patient volumes, as well as our ability to collect outstanding receivables.

Business closures and layoffs in the geographic areas in which we operate have led to increases in the uninsured and underinsured populations, which may continue to adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered.

We have observed deterioration in the collectability of patient accounts receivable from uninsured patients compared to pre-pandemic levels which, if sustained, may continue to adversely affect our financial results and require an increased level of working capital.

Developments related to COVID-19 materially affected our results of operations during 2020, and have continued to affect the Company’s results of operations during the three months ended March 31, 2021.

During the three months ended March 31, 2021, COVID-19 contributed to a decrease in patient volumes which resulted in a decrease in same-store admissions and same-store adjusted admissions compared to the prior year period, but also impacted the mix of services provided and payor mix in a manner that positively impacted our same-store operating results compared to the prior year period.

While we are not able to fully quantify the impact that the COVID-19 pandemic will have on our future financial results, we expect developments related to COVID-19 to continue to affect our financial performance.

Moreover, the COVID-19 pandemic may otherwise have material adverse effects on our results of operations, financial position, and/or our cash flows, particularly if economic and/or public health conditions in the United States deteriorate or negative conditions persist for a significant period of time.

The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic as well as negative economic conditions arising from the pandemic, the volume of canceled or rescheduled procedures at our facilities, the volume of COVID-19 patients cared for across our health systems, the timing and availability of effective medical treatments and vaccines, the timing and effectiveness of the ongoing rollout of currently available vaccines, the spread of potentially more contagious and/or virulent forms of the virus and the impact of government actions and administrative regulation on the hospital industry and broader economy, including through existing and any future stimulus efforts.

As discussed below under “Legislative Overview”, we have received, and may continue to receive, payments and advances made available under the Coronavirus Aid, Relief, and Economic Security act, or the CARES Act, the Paycheck Protection Program and Health Care Enhancement Act, or the PPPHCE Act, the Consolidated Appropriations Act, 2021, or the CAA, and other stimulus laws, which have been beneficial in partially mitigating the impact of the COVID-19 pandemic on our results of operation and financial position to date.

The recently enacted American Rescue Plan Act of 2021, or ARPA, is another relief package with a number provisions that affect healthcare providers.

The federal government may consider additional stimulus and relief efforts but we are unable to predict whether any additional stimulus measures will be enacted or their impact, if any.

We are unable to assess the extent to which anticipated ongoing negative impacts on us arising from the COVID-19 pandemic will ultimately be offset by amounts received, and benefits which we may in the future receive, under the CARES Act, the PPPHCE Act, the CAA, the ARPA or any future stimulus measures.

Completed Divestiture and Acquisition Activity

During the nine months ended September 30, 2020, we completed the divestiture of eight hospitals, including three which closed effective January 1, 2020 (for these hospitals, we received the net proceeds at a preliminary closing on December 31, 2019).

These eight hospitals represented annual net operating revenues in 2019 of approximately $513 million and, including the net proceeds for the three hospitals that preliminarily closed on December 31, 2019, we received total net proceeds of approximately $393 million in connection with the disposition of these hospitals.

In addition, we completed the divestiture of one additional hospital on October 1, 2020 for which we received net proceeds of approximately $184 million at a preliminary closing held on September 30, 2020.

During 2019, we completed the divestiture of 12 hospitals, including two which closed effective January 1, 2019 (for these hospitals, we received the net proceeds at a preliminary closing on December 31, 2018), but not including the three hospitals noted above which closed on January 1, 2020.

These 12 hospitals represented annual net operating revenues in 2018 of approximately $1.1 billion and, excluding the net proceeds for the two hospitals that preliminarily closed on December 31, 2018, we received total net proceeds of approximately $335 million in connection with the disposition of these hospitals.

The following table provides a summary of hospitals that we divested during the nine months ended September 30, 2020 and the year ended December 31, 2019:

During the three months ended March 31, 2021, we completed the divestiture of four hospitals, including three which closed effective January 1, 2021 (for these hospitals we received net proceeds at a preliminary closing on December 31, 2020).

In addition, the divestiture of one hospital was completed on February 1, 2021 for which we received immaterial net proceeds.

These four hospitals represented annual net operating revenues in 2020 of approximately $179 million and, including the net proceeds for the three hospital divestitures that preliminarily closed on December 31, 2020, we received total net proceeds of approximately $23 million in connection with the disposition of these hospitals.

In addition, we completed the divestiture of one additional hospital on April 1, 2021 for which we received net proceeds of approximately $5 million at a preliminary closing held on March 31, 2021.

During 2020, we completed the divestiture of 13 hospitals, including three which closed effective January 1, 2020 (for these hospitals we received the net proceeds at a preliminary closing on December 31, 2019), but not including the divestiture of three hospitals noted in the prior paragraph which closed on January 1, 2021.

These 13 hospitals represented annual net operating revenues in 2019 of approximately $1.2 billion and, including the net proceeds for the divestiture of three hospitals that preliminarily closed on December 31, 2019, we received total net proceeds of approximately $845 million in connection with the disposition of these hospitals.

The following table provides a summary of hospitals that we divested during the three months ended March 31, 2021 and the year ended December 31, 2020 :

Effective Date

2021 Divestitures:

Lea Regional Medical Center

Covenant Health System

January 1, 2021

Tennova Healthcare - Tullahoma

Vanderbilt University Medical Center

Tullahoma, TN

January 1, 2021

Tennova Healthcare - Shelbyville

Vanderbilt University Medical Center

Shelbyville, TN

January 1, 2021

Northwest Mississippi Medical Center

Delta Health System

Clarksdale, MS

February 1, 2021

2020 Divestitures:

Berwick Hospital Center

Fayette Holdings, Inc.

December 1, 2020

Brownwood Regional Medical Center

Hendrick Health System

Brownwood, TX

October 27, 2020

Abilene Regional Medical Center

Hendrick Health System

October 27, 2020

San Angelo Community Medical Center

Shannon Health System

San Angelo, TX

October 24, 2020

Bayfront Health St.

Orlando Health, Inc.

Petersburg, FL

October 1, 2020

Hill Regional Hospital

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January 1, 2020

2019 Divestitures:

Bluefield Regional Medical Center

Princeton Community Hospital Association

Bluefield, WV

October 1, 2019

Lake Wales Medical Center

Adventist Health System

Lake Wales, FL

September 1, 2019

Heart of Florida Regional Medical Center

Adventist Health System

Davenport, FL

September 1, 2019

College Station Medical Center

Joseph Regional Health Center

College Station, TX

August 1, 2019

Tennova Healthcare - Lebanon

Vanderbilt University Medical Center

August 1, 2019

Chester Regional Medical Center

Medical University Hospital Authority

March 1, 2019

Carolinas Hospital System - Florence

Medical University Hospital Authority

March 1, 2019

Springs Memorial Hospital

Medical University Hospital Authority

Lancaster, SC

March 1, 2019

Carolinas Hospital System - Marion

Medical University Hospital Authority

March 1, 2019

Memorial Hospital of Salem County

Community Healthcare Associates, LLC

January 31, 2019

Mary Black Health System - Spartanburg

Spartanburg Regional Healthcare System

Spartanburg, SC

January 1, 2019

Mary Black Health System - Gaffney

Spartanburg Regional Healthcare System

January 1, 2019

In addition, we have completed the following dispositions on or after October 1, 2020:

On October 1, 2020, we sold substantially all of the assets of Bayfront Health St.

Petersburg (480 licensed beds) in St.

Petersburg, Florida to affiliates of Orlando Health, Inc., pursuant to the terms of a definitive agreement which was entered into on June 25, 2020, as referenced above.

The net proceeds from this sale were received at a preliminary closing on September 30, 2020.

On October 24, 2020, we sold substantially all of the assets of San Angelo Community Medical Center (171 licensed beds) in San Angelo, Texas, to subsidiaries of Shannon Health System pursuant to the terms of a definitive agreement which was entered into on April 20, 2020.

On October 27, 2020, we sold substantially all of the assets of each of Abilene Regional Medical Center (231 licensed beds) in Abilene, Texas, and Brownwood Regional Medical Center (188 licensed beds) in Brownwood, Texas, to subsidiaries of Hendrick Health System pursuant to the terms of a definitive agreement which was entered into on April 27, 2020.

Together, proceeds of approximately $265 million were received in October 2020 for the facilities sold on October 24 and October 27, 2020.

In addition to the divestiture of the hospitals in 2019 and 2020 noted above, we have entered into definitive agreements to sell a total of four hospitals.

The following sets forth the definitive agreements to sell hospitals that we have entered into since July 1, 2020:

On September 8, 2020, we entered into a definitive agreement for the sale of substantially all of the assets of Lea Regional Medical Center (68 licensed beds) in Hobbs, New Mexico, to affiliates of Covenant Health System.

On September 30, 2020, we entered into a definitive agreement for the sale of substantially all of the assets of each of Tennova Healthcare - Tullahoma (135 licensed beds) in Tullahoma, Tennessee, and Tennova Healthcare – Shelbyville (60 licensed beds) in Shelbyville, Tennessee, to Vanderbilt University Medical Center.

On October 8, 2020, we entered into a definitive agreement for the sale of the Company’s ownership interest in Berwick Hospital Center (90 licensed beds) in Berwick, Pennsylvania, to affiliates of Sant Partners, LLC.

On October 12, 2020, we entered into a definitive agreement for the sale of 50% ownership interest in Merit Health Biloxi (153 licensed beds) and its associated healthcare businesses in Biloxi, Mississippi to Memorial Properties, Inc., an affiliate of Memorial Hospital of Gulfport.

This transaction is expected to be completed in the fourth quarter of 2020.

Merit Health Biloxi and its associated healthcare businesses will remain consolidated entities of the Company.

There can be no assurance that these potential divestitures subject to definitive agreements will be completed, or if they are completed, the ultimate timing of the completion of these divestitures.

We continue to receive interest from potential acquirers for certain of our hospitals, and may, from time to time, consider selling additional hospitals if we consider any such disposition to be in our best interests.

We expect to use proceeds from divestitures for general corporate purposes and capital expenditures.

During the nine months ended September 30, 2020, we paid approximately $1 million to acquire the operating assets and related businesses of certain physician practices, clinics and other ancillary businesses that operate within the communities served by our hospitals.

We allocated the purchase price to property and equipment, working capital and goodwill.

Effective September 30, 2020 we finalized an agreement to terminate the lease and cease operations of Shands Lake Shore Regional Medical Center (99 licensed beds) in Lake City, Florida, including transferring leased assets back to the landlord, the Lake Shore Hospital Authority.

We recorded an impairment charge of approximately $3 million during the three months ended September 30, 2020 in conjunction with exiting the lease to operate this hospital.

On April 1, 2021, we sold substantially all of the assets of AllianceHealth Midwest (255 licensed beds) in Midwest City, Oklahoma, to affiliates of SSM Health Care of Oklahoma.

The proceeds from this sale were received at a preliminary closing on March 31, 2021.

While the Company’s formal portfolio rationalization program concluded as of December 31, 2020 (inclusive of definitive agreements entered into in 2020 for the sale of five hospitals which have been completed in 2021), we continue to receive interest from potential acquirers for certain of our hospitals, and may, from time to time, consider selling additional hospitals 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 and capital expenditures.

During the three months ended March 31, 2021, we paid approximately $4 million to acquire the operating assets and related businesses of certain physician practices, clinics and other ancillary businesses that operate within the communities served by our hospitals.

We allocated the purchase price to property and equipment, working capital, noncontrolling interests and goodwill.

Overview of Operating Results

Our net operating revenues for the three months ended September 30, 2020 decreased $120 million to approximately $3.1 billion compared to approximately $3.2 billion for the three months ended September 30, 2019, primarily as a result of hospitals divested during 2019 and 2020, and developments related to COVID-19 as highlighted above.

On a same-store basis, net operating revenues for the three months ended September 30, 2020 increased $87 million.

We had net income of $ 128 million during the three months ended September 30, 2020 , compared to $ 2 million for the three months ended September 30, 2019 .

Net income for the three months ended September 30, 2020 included the following:

an after-tax charge of $1 million for the impairment of goodwill and long-lived assets of hospitals sold or held for sale based on their estimated fair values, net of gains recognized upon the sale of certain facilities,

an after-tax charge of $8 million for employee termination benefits and other restructuring costs, and

an after-tax benefit of $100 million for gain on early extinguishment of debt.

Net income for the three months ended September 30, 2019 included the following:

an after-tax charge of $21 million for government and other legal settlements, net of related legal expenses,

an after-tax charge of less than $1 million for employee termination benefits and other restructuring costs,

after-tax income of $1 million from a reduction of the valuation allowance on the outstanding balance of a promissory note from the buyer of a hospital,

an after-tax charge of $1 million for loss from early extinguishment of debt,

an after-tax charge of $19 million for a change in estimate for professional liability claims accrual, which charge resulted from a further revision to the estimate for professional liability claims accrual related to claims incurred in 2016 and prior years recognized during the three months ended June 30, 2019,

an after-tax charge of $2 million for the impairment of goodwill and long-lived assets of hospitals sold or held for sale based on their estimated fair values, net of gains recognized upon the sale of certain facilities,

an after-tax charge of $6 million for legal expenses related to the settlement of certain Health Management Associates, Inc., or HMA, legal proceedings entered into with the U.S.

Department of Justice during the three months ended September 30, 2018, or the HMA Legal Matters, and

discrete tax benefits of (i) $48 million for a reduction in the valuation allowance recognized on IRC Section 163(j) interest carryforward and (ii) $15 million for tax credits claimed in lieu of deductions for the HMA Legal Matters.

Consolidated inpatient admissions for the three months ended September 30, 2020, decreased 13.0%, compared to the three months ended September 30, 2019.

Consolidated adjusted admissions for the three months ended September 30, 2020, decreased 18.0%, compared to the three months ended September 30, 2019.

Same-store inpatient admissions for the three months ended September 30, 2020, decreased 6.2%, compared to the three months ended September 30, 2019, and same-store adjusted admissions for the three months ended September 30, 2020, decreased 11.5%, compared to the three months ended September 30, 2019.

These same-store decreases primarily resulted from the impact of the COVID-19 pandemic.

Our net operating revenues for the nine months ended September 30, 2020 decreased $1.3 billion to approximately $8.7 billion compared to approximately $9.9 billion for the nine months ended September 30, 2019, primarily as a result of developments related to COVID-19 as highlighted above, and hospitals divested during 2019 and 2020.

On a same-store basis, net operating revenues for the nine months ended September 30, 2020 decreased $579 million, also primarily as a result of the COVID-19 pandemic.

We had net income of $254 million during the nine months ended September 30, 2020, compared to a net loss of $244 million for the nine months ended September 30, 2019.

Net income for the nine months ended September 30, 2020 included the following:

Our net operating revenues for the three months ended March 31, 2021 decreased $12 million to approximately $3.013 billion compared to approximately $3.025 billion for the three months ended March 31, 2020, primarily as a result of hospitals divested during 2020, and developments related to COVID-19 as highlighted above.

On a same-store basis, net operating revenues for the three months ended March 31, 2021 increased $269 million.

We had a net loss of $35 million during the three months ended March 31, 2021, compared to net income of $34 million for the three months ended March 31, 2020.

Net loss for the three months ended March 31, 2021 included the following:

an after-tax charge of $93 million associated with a loss on the early extinguishment of debt,

an after-tax benefit of $64 million for the recognition of pandemic relief funds,

an after-tax charge of $17 million to adjust the carrying value of long-lived assets at several hospitals that were sold at a sales price below carrying value, net of gains recognized upon the sale of certain facilities.

Net income for the three months ended March 31, 2020 included the following:

an after-tax charge of $1 million for government and other legal settlements and related costs,

an after-tax benefit of $97 million for gain on early extinguishment of debt,

an after-tax charge of $58 million for the impairment of goodwill and long-lived assets of hospitals sold or held for sale based on their estimated fair values, net of gains recognized upon the sale of certain facilities,

an after-tax charge of $12 million for employee termination benefits and other restructuring costs,

an after-tax charge of $1 million for legal expenses related to the settlement of the HMA Legal Matters, and

income of approximately $ 240 million due to discrete tax benefits related to the release of federal and state valuation allowances on IRC Section 163(j) interest carryforwards as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act that was enacted during the nine months ended September 30, 2020 .

Net loss for the nine months ended September 30, 2019 included the following:

an after-tax charge of $28 million for government and other legal settlements, net of related legal expenses,

an after-tax charge of $68 million for the impairment of goodwill and long-lived assets of hospitals sold or held for sale based on their estimated fair values, net of gains recognized upon the sale of certain facilities,

an after-tax charge of $1 million for employee termination benefits and other restructuring costs,

an after-tax charge of $16 million to reserve the outstanding balance of a promissory note outstanding that was received as part of the purchase price from the sale of two hospitals in 2017, net of income from a reduction of the valuation allowance on the outstanding balance of a promissory note from the buyer of another hospital,

an after-tax charge of $72 million for a change in estimate for professional liability claims accrual related to claims incurred in 2016 and prior years,

an after-tax charge of $3 million for loss from early extinguishment of debt,

an after-tax charge of $8 million for legal expenses related to the settlement of the HMA Legal Matters, and

discrete tax benefits of (i) $48 million for a reduction in the valuation allowance recognized on IRC Section 163(j) interest carryforwards and (ii) $15 million for tax credits claimed in lieu of deductions for the HMA Legal Matters.

Consolidated inpatient admissions for the nine months ended September 30, 2020, decreased 16.6%, compared to the nine months ended September 30, 2019.

Consolidated adjusted admissions for the nine months ended September 30, 2020, decreased 20.0%, compared to the nine months ended September 30, 2019.

Same-store inpatient admissions for the nine months ended September 30, 2020, decreased 9.8%, compared to the nine months ended September 30, 2019, and same-store adjusted admissions for the nine months ended September 30, 2020, decreased 13.5%, compared to the nine months ended September 30, 2019.

an after-tax charge of $35 million for the impairment of long-lived assets of hospitals sold or held for sale based on their estimated fair values,

an after-tax charge of $1 million for legal expenses related to the final global resolution and settlement of certain Health Management Associates, Inc., or HMA, legal proceedings entered into with the U.S.

Department of Justice during the three months ended September 30, 2018, or the HMA Legal Matters, and

income of approximately $240 million due to discrete tax benefits related to the release of federal and state valuation allowances on IRC Section 163(j) interest carryforwards as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act that was enacted during the three months ended March 31, 2020.

Consolidated inpatient admissions for the three months ended March 31, 2021, decreased 14.0%, compared to the three months ended March 31, 2020.

Consolidated adjusted admissions for the three months ended March 31, 2021, decreased 15.8%, compared to the three months ended March 31, 2020.

Same-store inpatient admissions for the three months ended March 31, 2021, decreased 4.9%, compared to the three months ended March 31, 2020, and same-store adjusted admissions for the three months ended March 31, 2021, decreased 7.2%, compared to the three months ended March 31, 2020.

These same-store decreases primarily resulted from the impact of the COVID-19 pandemic.

Self-pay revenues represented approximately 0.5% and 0.8% of net operating revenues for the three months ended September 30, 2020 and 2019, respectively, and (0.1)% and 1.0% for the nine months ended September 30, 2020 and 2019, respectively.

The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 9.1% and 3.9% for the three months ended September 30, 2020 and 2019, respectively, and 8.7% and 4.1% for the nine months ended September 30, 2020 and 2019, respectively.

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.1% and 0.5% for the three months ended September 30, 2020 and 2019, respectively, and 1.0% and 0.5% for the nine months ended September 30, 2020 and 2019, respectively.

Self-pay revenues represented approximately 0.5% and 1.0% of net operating revenues for the three months ended March 31, 2021 and 2020, respectively.

The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 7.6% and 5.5% for the three months ended March 31, 2021 and 2020, respectively.

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 0.9% and 0.6% for the three months ended March 31, 2021 and 2020, respectively.

Legislative Overview

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The Affordable Care Act also made a number of changes to Medicare and Medicaid, such as a productivity offset to the Medicare market basket update and reductions to the Medicare and Medicaid disproportionate share hospital, or DSH, payments.

However, the future of the Affordable Care Act is uncertain.

Since the 2016 presidential election, significant changes have been made to the Affordable Care Act, its implementation, and its interpretation, and the current presidential administration and certain members of Congress have stated their intent to repeal or make additional significant changes to the law.

However, reductions to DSH payments have been delayed by the CAA through 2023.

The future of the Affordable Care Act is uncertain.

The law has been subject to legislative and regulatory changes and court challenges and, although the current presidential administration has indicated its intent to protect the Affordable Care Act, it is possible that there may be continued changes to the law, its implementation or its interpretation.

For example, final rules issued in 2018 expand availability of association health plans and allow the sale of short-term, limited-duration health plans, neither of which are required to cover all of the essential health benefits mandated by the Affordable Care Act.

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In December 2019, the Fifth Circuit Court of Appeals upheld this decision with respect to the individual mandate, but remanded for further consideration of how this affects the rest of the law.

Pending the appeals process, the law remains in effect.

In November 2020, the U.S.

Supreme Court heard oral arguments regarding this case.

Pending a decision, the law remains in effect.

The elimination of the individual mandate penalty and other changes may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased.

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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 16 states in which we operated hospitals as of September 30, 2020, nine states have taken action to expand their Medicaid programs.

At this time, the other seven states have not, including Florida, Alabama, Tennessee and Texas, where we operated a significant number of hospitals as of September 30, 2020.

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

CMS administrators have indicated that they are increasing state flexibility in the administration of Medicaid programs.

For example, CMS has granted a limited number of state applications for waivers that allow a state to condition Medicaid enrollment on work or other community engagement.

Several states have similar applications pending.

Of the 16 states in which we operated hospitals as of March 31, 2021, nine states have taken action to expand their Medicaid programs.

At this time, the other seven states have not, including Florida, Alabama, Tennessee and Texas, where we operated a significant number of hospitals as of March 31, 2021.

Some states use, or have applied to use, waivers granted by the Centers for Medicare and Medicaid Services, or CMS, to implement expansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards.

We believe that the Affordable Care Act has had a positive impact on net operating revenues and income as the result of the expansion of private sector and Medicaid coverage that has occurred.

However, other provisions of the Affordable Care Act, such as requirements related to employee health insurance coverage and changes to Medicare and Medicaid reimbursement, have increased our operating costs or adversely impacted the reimbursement we receive.

Legislative and executive branch efforts related to healthcare reform could result in increased prices for consumers purchasing health insurance coverage or the sale of insurance plans that contain gaps in coverage, which could destabilize insurance markets and impact the rates of uninsured or underinsured adults.

Some current initiatives and proposals, including those aimed at price transparency and out-of-network charges, may impact prices and the relationships between hospitals and insurers.

Legislative and executive branch efforts related to healthcare reform could result in increased prices for consumers purchasing health insurance coverage, or destabilize insurance markets.

Some current initiatives, requirements and proposals, including those aimed at price transparency and out-of-network charges, may impact prices and the relationships between hospitals and insurers.

In addition, members of Congress have proposed measures that would expand government-sponsored coverage, including single-payor models .

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One of the primary sources of relief for healthcare providers is the CARES Act, an economic stimulus package signed into law on March 27, 2020.

The PPPHCE Act, an expansion of the CARES Act that includes additional emergency appropriations, was signed into law on April 24, 2020 .

Together, the CARES Act and the PPPHCE Act include $1 75 billion in funding to be distributed through the PHSSEF to eligible providers, including public entities and Medicare- and/or Medicaid-enrolled providers.

The PPPHCE Act and the CAA, both expansions of the CARES Act that include additional emergency appropriations, were signed into law on April 24, 2020 and December 27, 2020, respectively.

The ARPA, another relief package with numerous provisions that affect healthcare providers, was enacted on March 11, 2021.

In total, these stimulus laws authorize over $178 billion in funding to be distributed through the PHSSEF to eligible providers, including public entities and Medicare- and/or Medicaid-enrolled providers.

PHSSEF payments are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic and are not required to be repaid, provided that recipients attest to and comply with certain terms and conditions, including limitations on balance billing, not using PHSSEF funds to reimburse expenses or losses that other sources have been or are obligated to reimburse and audit and reporting requirements.

In addition, the CARES Act expanded the Medicare Accelerated and Advance Payment Program to increase cash flow to providers impacted by the COVID-19 pandemic.

Inpatient acute care hospitals may request accelerated payment of up to 100% of their Medicare payment amount for a six-month period.

Inpatient acute care hospitals were able to request accelerated payment of up to 100% of their Medicare payment amount for a six-month period.

The Medicare Accelerated and Advanced Payment Program payments are advances that providers must repay.

As of September 30, 2020, the program required CMS to begin recouping payments 120 days after receipt by the provider although no payments were recouped during the three or nine months ended September 30, 2020.

Effective October 1, 2020, the program was amended such that providers are required to repay accelerated payments beginning one year after the payment was issued.

Providers are required to repay accelerated payments beginning one year after the payment was issued.

After such one-year period, Medicare payments owed to providers will be recouped according to the repayment terms.

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At the end of the eleven-month period, recoupment will increase to 50% for six months.

At the end of the six months (29 months from the receipt of the initial accelerated payment) , Medicare will issue a letter for full repayment of any remaining balance, as applicable.

At the end of the six months (or 29 months from the receipt of the initial accelerated payment), Medicare will issue a letter for full repayment of any remaining balance, as applicable.

In such event, if payment is not received within 30 days, interest will accrue at the annual percentage rate of four percent (4%) from the date the letter was issued, and will be assessed for each full 30-day period that the balance remains unpaid.

Effective October 8, 2020, CMS is no longer accepting new applications from Medicare Part A providers, such as hospitals, for accelerated payments and it has suspended the advance payment program for physicians and other Medicare Part B health care providers.

The CARES Act also includes other provisions offering financial relief, for example suspending the Medicare sequestration payment adjustment from May 1, 2020 through December 31, 2020, which would have otherwise reduced payments to Medicare providers by 2% (although it extends sequestration through 2030), delaying scheduled reductions to Medicaid DSH payments, providing a 20% add-on to the inpatient PPS DRG rate for COVID-19 patients for the duration of the public health emergency , and permitting the deferral of payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

During the three and nine months ended September 30, 2020, we received approximately $155 million and $719 million, respectively, in payments through the PHSSEF and various state and local programs, net of amounts that have been or will be repaid to HHS related to entities that are held-for-sale or that were previously divested.

Approximately $448 million of the PHSSEF payments were recognized as a reduction in operating costs and expenses during the six months ended June 30, 2020, based on the terms and conditions of such payments as set forth by HHS at such time.

Subsequently, on September 19, 2020, HHS issued a Post-Payment Notice of Reporting Requirements, or the September 19, 2020 Notice, which, among various changes, substantially altered the definition of lost revenues eligible to be claimed in a manner less favorable to recipients of PHSSEF funds.

During the three months ended September 30, 2020, our estimate of the amount of payments received through the PHSSEF or state and local programs for which we are reasonably assured of meeting the underlying terms and conditions was updated based on, among other things, the September 19, 2020 Notice, our results of operations during such period and the receipt of additional payments during such period.

Taking into account these countervailing factors, we believe that the amount previously recognized of approximately $448 million remains an appropriate estimate as of September 30, 2020.

However, if the facts and circumstances that serve as the basis of our estimate as of September 30, 2020 had been applied to the estimate as of June 30, 2020, taking into account the September 19, 2020 Notice, we estimate that the pandemic relief funds recognized as a reduction to operating costs and expenses would have been reduced by approximately $66 million as of June 30, 2020.

PHSSEF and state and local program payments recognized to-date did not impact net operating revenues, and had a positive impact on net income attributable to Community Health Systems, Inc.

common stockholders during the nine months ended September 30, 2020, in the amount of $337 million.

Amounts received through the PHSSEF or state and local programs that have not yet been recognized as a reduction in operating costs and expenses or otherwise have not been refunded to HHS as of September 30, 2020 are included within accrued liabilities-other in the condensed consolidated balance sheet, and such unrecognized amounts may be recognized as a reduction in operating costs and expenses in future periods if the underlying conditions for recognition are met.

Subsequent to September 30, 2020, on October 22, 2020, HHS issued an updated Post-Payment Notice of Reporting Requirements and a Reporting Requirements Policy Update, together, the October 22, 2020 Notice, which, among other changes, amends the definition of lost revenues as set forth in the September 19, 2020 Notice in a manner more favorable to recipients of PHSSEF funds.

Our evaluation of the October 22, 2020 Notice is ongoing and the amount by which the approximate $271 million of PHSSEF and other unrecognized relief payments as of September 30, 2020 may be recognized as a result of the October 22, 2020 Notice is not yet known.

As evidenced by the October 22, 2020 Notice, HHS’ interpretation of the underlying terms and conditions of such PHSSEF payments, including auditing and reporting requirements, continues to evolve.

The CARES Act and related legislation include other provisions offering financial relief, for example suspending the Medicare sequestration payment adjustment from May 1, 2020 through December 31, 2021, which would have otherwise reduced payments to Medicare providers by 2% as required by the Budget Control Act of 2011 (but also extending sequestration through 2030).

These laws also delay scheduled reductions to Medicaid DSH payments, provide a 20% add-on to the inpatient PPS DRG rate for COVID-19 patients for the duration of the public health emergency, and permit the deferral of payment of the employer portion of social security

taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

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

As a result, absent congressional action, Medicare spe nding will be reduced by up to four percentage points in fiscal year 2022, in addition to the existing sequestration requirements of the Budget Control Act of 2011.

Through March 31, 2021, we have received approximately $708 million in payments through the PHSSEF and various state and local programs on a cumulative basis since their enactment of which approximately $705 million was received during the year ended December 31, 2020 and the balance of which was received during the three months ended March 31, 2021.

The estimate of the amount of payments received through the PHSSEF or state and local programs for which we are reasonably assured of meeting the underlying terms and conditions is based on, among other things, the CARES Act, the CAA, various Post-Payment Notice of Reporting Requirements issued by HHS during the period, responses to frequently asked questions as published by HHS, expenses incurred attributable to coronavirus and our results of operations during such period as compared to our 2020 budget.

The PHSSEF and state and local program payments recognized to-date did not impact net operating revenues, and had a positive impact on net income attributable to Community Health Systems, Inc.

common stockholders during the three months ended March 31, 2021, in the amount of $62 million.

No amounts were recognized during the three months ended March 31, 2020.

Amounts received through the PHSSEF or state and local programs that have not yet been recognized as a reduction in operating costs and expenses or otherwise have not been refunded to HHS are included within accrued liabilities-other in the condensed consolidated balance sheet, and such unrecognized amounts may be returned to HHS in one or more future periods when a procedure for doing so is established by HHS or may be recognized as a reduction in operating costs and expenses in future periods if the underlying conditions for recognition are reasonably assured of being met.

HHS’ interpretation of the underlying terms and conditions of such PHSSEF payments, including auditing and reporting requirements, continues to evolve.

Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such PHSSEF payments may result in changes in our estimate of amounts for which the terms and conditions are reasonably assured of being met, and any such changes may be material.

Additionally, any such changes may result in our inability to recognize additional PHSSEF payments or may result in the derecognition of amounts previously recognized, which (in any such case) may be material.

In addition, to the extent that any unrecognized PHSSEF payments that have been or may be received by the Company do not qualify for reimbursement based on future operations, we may be required to return such unrecognized payments to HHS following the end of the COVID-19 pandemic or other future time as may be determined by HHS guidance.

In addition, to the extent that any unrecognized PHSSEF payments that have been or may be received by us do not qualify for reimbursement based on future operations, we may be required to return such unrecognized payments to HHS following the end of the COVID-19 pandemic or other future time as may be determined by HHS guidance.

With respect to the Medicare Accelerated and Advanced Payment Program, we received Medicare accelerated payments of approximately $1.2 billion in April 2020.

No additional Medicare accelerated payments have been received by us since such time, including during the three months ended September 30, 2020, and approximately $22 million of amounts previously received was repaid to CMS or assumed by buyers during the three months ended September 30, 2020 related to divested entities.

No additional Medicare accelerated payments have been received by us since such time and approximately $18 million and $77 million of amounts previously received were repaid to CMS or assumed by buyers related to hospitals we divested during the three months ended March 31, 2021 and the year ended December 31, 2020, respectively.

As a result of CMS no longer accepting new applications for accelerated payments, we do not expect to receive additional Medicare accelerated payments.

Net of amounts that have been or will be repaid to CMS or assumed by buyers related to divested entities, approximately $1.1 billion remains outstanding as of September 30, 2020 within accrued liabilities-other in the condensed consolidated balance sheet.

Effective October 1, 2020, the repayment terms for Medicare accelerated payments were changed such that providers are required to repay the accelerated payments beginning one year after the payment was issued.

If the program requirements enacted on October 1, 2020 had been effective as of September 30, 2020, we estimate that approximately $873 million of the amount outstanding would have been classified as a long-term liability.

Due to the recent enactment of the CARES Act and the PPPHCE Act, there is still a high degree of uncertainty surrounding their implementation, and the public health emergency continues to evolve.

As of March 31, 2021 approximately $546 million of Medicare accelerated payments are reflected within accrued liabilities-other in the condensed consolidated balance sheet while the remaining approximately $517 million is included within other long-term liabilities.

In April 2021, CMS began recouping Medicare accelerated payments previously received by the Company.

Due to the recent enactment of the CARES Act and other stimulus legislation, there is still a high degree of uncertainty surrounding their implementation, and the public health emergency continues to evolve.

Some of the measures allowing for flexibility in delivery of care and various financial supports for health care providers are available only for the duration of the public health emergency, and it is unclear whether or for how long the public health emergency declaration will be extended.

The current declaration expires January 21, 2021.

The current declaration expires July 20, 2021.

The HHS Secretary may choose to renew the declaration for successive 90-day periods for as long as the emergency continues to exist and may terminate the declaration whenever he determines that the public health emergency no longer exists, but has indicated that the public health emergency will likely extend through 2021 and that HHS will provide states with 60 days’ notice prior to termination of the declaration.

The federal government may consider additional stimulus and relief efforts, but we are unable to predict whether additional stimulus measures will be enacted or their impact on us.

There can be no assurance as to the total amount of financial and other types of assistance we will receive under the CARES Act, PPPHCE Act or future measures, if any, and it is difficult to predict the impact of such measures on our operations or how they will affect operations of our competitors.

There can be no assurance as to the total amount of financial and other types of assistance we will receive under the CARES Act, other enacted stimulus legislation, or future measures, if any, and it is difficult to predict the impact of such measures on our operations or how they will affect operations of our competitors.

Further, there can be no assurance that the terms of provider relief funding or other programs will not change or be interpreted in ways that affect our funding or eligibility to participate or our ability to comply with applicable requirements and retain amounts received.

We continue to assess the potential impact of the CARES Act, the PPPHCE Act, the potential impact of future stimulus measures, if any, and the impact of other laws, regulations, and guidance related to COVID-19 on our business, results of operations, financial condition and cash flows.

We continue to assess the potential impact of the CARES Act and other enacted stimulus legislation, the potential impact of future stimulus measures, if any, and the impact of other laws, regulations, and guidance related to COVID-19 on our business, results of operations, financial condition and cash flows.

In June 2019, the U.S.

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Allina Health Services that HHS failed to comply with statutory notice and comment rulemaking procedures before announcing an earlier policy related to DSH payments made under Medicare to hospitals.

Following this ruling, unless the HHS is able to successfully assert another legal basis for this policy, one potential outcome is the federal government could be required to reimburse hospitals, including our affiliated hospitals, for DSH Medicare payments which otherwise would have been payable over certain prior time periods absent the enactment of this policy.

In response to this adverse ruling, CMS proposed a new rule in August 2020 in an attempt to retroactively cure the underlying procedural

errors cited by the U.S.

Supreme Court as the basis in their decision.

CMS’ action has introduced uncertainty regarding the potential outcomes of this case and such action is widely expected to result in further litigation.

If HHS or CMS are unsuccessful in their attempt to assert the proposed rule or another legal basis for their policy, one potential outcome is the federal government could be required to reimburse hospitals, including our affiliated hospitals, for Medicare DSH payments which otherwise would have been payable over certain prior time periods absent the enactment of this policy.

While the ruling in this case was specific to the DSH payments calculated for federal fiscal year 2012 for the plaintiff hospitals, we believe that prior time periods with the potential for higher DSH payments because of the precedent of this ruling could include federal fiscal years 2005 to 2013.

There continues to be uncertainty regarding the extent to which, if any, DSH Medicare payments will be remitted to our affiliated hospitals as the result of this ruling, and if so the timing of any such payments.

However, we anticipate that if it is ultimately determined that our affiliated hospitals are entitled to receive such DSH Medicare payments for these prior time periods, these payments could have a material positive impact on a non-recurring basis in any future period in which net income is recognized in respect thereof as well as on our cash flows from operations in any future period in which these payments are received.

As a result of our current levels of cash, funds we have received and may in the future receive under the CARES Act, the PPPHCE Act, or any future stimulus measures, available borrowing capacity, long-term outlook on our debt repayments, the refinancing of certain of our notes, proceeds fr om the sale of hospitals and the continued projection of our ability to generate cash flows, we anticipate that we will be able to invest the necessary capital in our business over the next twelve months.

There continues to be uncertainty regarding the extent to which, if any, Medicare DSH payments will be remitted to our affiliated hospitals as the result of this ruling, and if so the timing of any such payments.

However, we anticipate that if it is ultimately determined that our affiliated hospitals are entitled to receive such Medicare DSH payments for these prior time periods, these payments could have a material positive impact on a non-recurring basis in any future period in which net income is recognized in respect thereof as well as on our cash flows from operations in any future period in which these payments are received.

As a result of our current levels of cash, funds we have received and may in the future receive under the CARES Act.

Other enacted stimulus legislation and any future stimulus measures, available borrowing capacity, long-term outlook on our debt repayments, the refinancing of certain of our notes, proceeds from the sale of hospitals and the continued projection of our ability to generate cash flows, we anticipate that we will be able to invest the necessary capital in our business over the next twelve months.

We believe there continues to be ample opportunity to strengthen our market share in substantially all of our markets by decreasing the need for patients to travel outside their communities for healthcare.

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The data for the periods presented are not strictly comparable due to the effect that hospital acquisitions and divestitures have had on these statistics.

Three Months Ended

Nine Months Ended

September 30,

Three Months Ended March 31,

Managed Care and other third-party payors

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The Affordable Care Act has increased the number of insured patients in states that have expanded Medicaid, which in turn, has reduced the percentage of revenues from self-pay patients.

However, it is unclear whether the trend of increased coverage will continue, due in part to the impact of the COVID-19 pandemic and the elimination of the financial penalty associated with the individual mandate, effective January 1, 2019.

Further, the Affordable Care Act imposes significant reductions in amounts the government pays Medicare managed care plans.

An executive order issued in October 2019 seeks to accelerate this shift away from traditional fee-for-service Medicare to Medicare managed care.

The trend toward increased enrollment in Medicare and Medicaid managed care may adversely affect our operating revenue.

However, it is unclear whether the trend of increased coverage will continue.

In addition, there has been a trend toward increased enrollment in Medicare and Medicaid managed care, which may adversely affect our operating revenue.

The Affordable Care Act imposes significant reductions in amounts the government pays Medicare managed care plans.

Further, an executive order issued in October 2019 seeks to accelerate the shift away from traditional fee-for-service Medicare to Medicare managed care.

We may also be impacted by regulatory requirements imposed on insurers, such as minimum medical-loss ratios and specific benefit requirements.

Furthermore, in the normal course of business, managed care programs, insurance companies and employers actively negotiate the amounts paid to hospitals.

Our relationships with payors may be impacted by price transparency initiatives and out-of-network billing proposals.

Our relationships with payors may be impacted by price transparency initiatives and out-of-network billing restrictions.

There can be no assurance that we will retain our existing reimbursement arrangements or that these third-party payors will not attempt to further reduce the rates they pay for our services.

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

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

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net income (loss) by an insignificant amount in each of the three and nine-month periods ended September 30, 2020 and 2019.

We account for adjustments to previous program reimbursement

estimates as contractual allowance adjustments and report them in the periods that such adjustments become known.

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net (loss) income by an insignificant amount in each of the three-month periods ended March 31, 2021 and 2020.

The payment rates under the Medicare program for hospital inpatient and outpatient acute care services are based on a prospective payment system, depending upon the diagnosis of a patient’s condition.

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

On September 18 , 20 20 , CMS issued the final rule to increase this index by 2 .

4 % for hospital inpatient acute care services that are reimbursed under the prospective payment system, beginning October 1, 20 20 .

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

On September 18, 2020, CMS issued the final rule to increase this index by 2.4% for hospital inpatient acute care services that are reimbursed under the prospective payment system, beginning October 1, 2020.

The final rule also provides for a 0.5 percentage point increase in accordance with MACRA, which, together with other changes to payment policies is expected to yield an average 2.9% increase in reimbursement for hospital inpatient acute care services.

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

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

Nine Months Ended

September 30,

Operating results, as a percentage of net operating revenues:

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Interest expense, net

Gain (loss) from early extinguishment of debt

Loss from early extinguishment of debt

Equity in earnings of unconsolidated affiliates

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(Provision for) benefit from income taxes

Net income (loss)

Net (loss) income

Net income attributable to noncontrolling interests

Net income (loss) attributable to Community Health

Net (loss) income attributable to Community Health

Systems, Inc.

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Percentage (decrease) increase from prior year:

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Average length of stay (d)

Net income (loss) attributable to Community Health

Net (loss) income attributable to Community Health

Systems, Inc.

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Adjusted admissions (c)

Operating expenses include salaries and benefits, supplies, other operating expenses, government and other legal settlements and related costs, lease cost and rent, net of the reduction in operating expenses through September 30, 2020, resulting from the receipt and recognition of pandemic relief funds.

Operating expenses include salaries and benefits, supplies, other operating expenses, government and other legal settlements and related costs, lease cost and rent, net of the reduction in operating expenses through March 31, 2021, resulting from the recognition of pandemic relief funds.

Admissions represents the number of patients admitted for inpatient treatment.

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Average length of stay represents the average number of days inpatients stay in our hospitals.

Includes acquired hospitals to the extent we operated them in both periods and excludes information for the hospitals sold or closed during 2019 and the nine months ended September 30, 2020.

Excludes information for the hospitals sold or closed during 2020 and the three months ended March 31, 2021.

Items (b) – (e) are metrics used to manage our performance.

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

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Net operating revenues decreased by 3.7% to approximately $3.1 billion for the three months ended September 30, 2020, from approximately $3.2 billion for the three months ended September 30, 2019.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $87 million, or 2.9%, during the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Net operating revenues decreased by 0.4% to approximately $3.013 billion for the three months ended March 31, 2021, from approximately $3.025 billion for the three months ended March 31, 2020.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $269 million, or 9.8%, during the three months ended March 31, 2021, as compared to the three months ended March 31, 2020.

The increase in same-store net operating revenues was primarily due to COVID-19 pandemic-induced changes in the mix of services provided and payor mix compared to the prior period, partially offset by a decline in volumes resulting from the COVID-19 pandemic.

Non-same-store net operating revenues decreased $208 million during the three months ended September 30, 2020, in comparison to the prior year period, with the decrease attributable primarily to the divestiture of hospitals during 2019 and 2020 as well as the impact of the COVID-19 pandemic.

On a consolidated basis, inpatient admissions decreased by 13.0% during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Also on a consolidated basis, adjusted admissions decreased by 18.0% during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

On a same-store basis, net operating revenues per adjusted admission increased 16.2%, while inpatient admissions decreased by 6.2% and adjusted admissions decreased by 11.5% for the three months ended September 30, 2020, compared to the three months ended September 30, 2019.

Operating costs and expenses, as a percentage of net operating revenues, decreased from 94.3% during the three months ended September 30, 2019 to 90.9% during the three months ended September 30, 2020.

Salaries and benefits, as a percentage of net operating revenues, decreased from 45.3% for the three months ended September 30, 2019 to 43.7% for the three months ended September 30, 2020.

Supplies, as a percentage of net operating revenues, increased from 16.2% for the three months ended September 30, 2019 to 16.7% for the three months ended September 30, 2020.

Other operating expenses, as a percentage of net operating revenues, decreased from 24.9% for the three months ended September 30, 2019 to 23.6% for the three months ended September 30, 2020.

Expense related to government and other legal settlements and related costs, as a percentage of net operating revenues, decreased from 0.8% for the three months ended September 30, 2019 to less than 0.1% during the three months ended September 30, 2020.

Lease cost and rent, as a percentage of net operating revenues, increased from 2.4% for the three months ended September 30, 2019 to 2.7% for the three months ended September 30, 2020.

The increases in supplies and lease cost and rent, as a percentage of net operating revenues, during the three months ended September 30, 2020 compared to September 30, 2019 is primarily due to the impact of the COVID-19 pandemic.

Non-same-store net operating revenues decreased $281 million during the three months ended March 31, 2021, in comparison to the prior year period, with the decrease attributable primarily to the divestiture of hospitals during 2020 and 2021.

On a consolidated basis, inpatient admissions decreased by 14.0% during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Also on a consolidated basis, adjusted admissions decreased by 15.8% during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

On a same-store basis, net operating revenues per adjusted admission increased 18.3%, while inpatient admissions decreased by 4.9% and adjusted admissions decreased by 7.2% for the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

Operating costs and expenses, as a percentage of net operating revenues, decreased from 96.4% during the three months ended March 31, 2020 to 89.2% during the three months ended March 31, 2021.

Salaries and benefits, as a percentage of net operating revenues, decreased from 46.4% for the three months ended March 31, 2020 to 43.2% for the three months ended March 31, 2021.

Supplies, as a percentage of net operating revenues, decreased from 16.5% for the three months ended March 31, 2020 to 16.3% for the three months ended March 31, 2021.

Other operating expenses, as a percentage of net operating revenues, increased from 24.4% for the three months ended March 31, 2020 to 24.5% for the three months ended March 31, 2021.

Expense related to government and other legal settlements and related costs, as a percentage of net operating revenues, decreased from 0.1% for the three months ended March 31, 2020 to less than 0.1% during the three months ended March 31, 2021.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.7% for the three months ended March 31, 2020 to 2.6% for the three months ended March 31, 2021.

Pandemic relief funds, as a percentage of net operating revenues, was (2.7)% for the three months ended March 31, 2021, compared to 0% for the three months ended March 31, 2020.

The decrease in salaries and benefits, as a percentage of net operating revenues, during the three months ended March 31, 2021 compared to March 31, 2020 is primarily due to the reduction in personnel associated with divestitures.

The increase in pandemic relief funds (reflected as a reduction to operating costs and expenses), as a percentage of net operating revenues, during the three months ended March 31, 2021 compared to March 31, 2020 is due to pandemic relief funds not having been received during the three months ended March 31, 2020.

Depreciation and amortization, as a percentage of net operat ing revenues, de creased from 4.

7 % for the three months ended September 30, 2019 to 4.4 % for the three months ended September 30, 2020 , primarily due to ceasing depreciation on property and equipment at hospitals sold or held for sale .

Impairment and (gain) loss on sale of businesses was $(7) million for the three months ended September 30, 2020, compared to $(1) million for the three months ended September 30, 2019.

For the three months ended September 30, 2020, a net gain resulted from the sale of a facility during the period offset by impairment of facilities held-for-sale or for which we are in discussions with potential buyers for the divestiture of a facility at a sales price that indicates a fair value below carrying value.

The net gain for the three months ended September 30, 2019 relates to sales of facilities during the period offset by impairment charges resulting from final working capital settlements for divestitures completed in the nine months ended September 30, 2019.

Interest expense, net, decreased by $ 2 million to $ 257 million for the three months ended September 30, 2020 compared to $259 million for the three months ended September 30, 2019.

This was primarily due to our debt refinancing activity during the three months ended September 30, 2020 as discussed further in Capital Resources.

Gain from early extinguishment of debt of $115 million was recognized during the three months ended September 30, 2020, as a result of extinguishment of a portion of certain series of our outstanding notes through open market repurchases.

Loss from early extinguishment of debt of less than $1 million was recognized during the three months ended September 30, 2019, as a result of the Credit Facility amendment and repayment of the term loans under the Credit Facility.

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, 2020 and 2019.

The net results of the above-mentioned changes resulted in income (loss) before income taxes increasing $220 million from a loss of $72 million before income taxes for the three months ended September 30, 2019 to income before income taxes of $148 million for the three months ended September 30, 2020.

Our provision for income taxes for the three months ended September 30, 2020 was $20 million compared to a benefit from income taxes of $74 million for the three months ended September 30, 2019.

Our effective tax rates were 13.5% and 102.8% for the three months ended September 30, 2020 and 2019, respectively.

The difference in our effective tax rate for the three months ended September 30, 2020, when compared to the three months ended September 30, 2019, was primarily due to discrete tax benefits for (i) a reduction in the valuation allowance recognized on IRC Section 163(j) interest carryforwards and (ii) tax credits claimed in lieu of deductions for the HMA Legal Matters recognized during the three months ended September 30, 2019.

Net income, as a percentage of net operating revenues, was 0.1% for the three months ended September 30, 2019 compared to 4.1% for the three months ended September 30, 2020.

Net income attributable to noncontrolling interests, as a percentage of net operating revenues, decreased from 0.6% for the three months ended September 30, 2019 to 0.5% for the three months ended September 30, 2020.

Net income attributable to Community Health Systems, Inc.

was $112 million for the three months ended September 30, 2020, compared to a net loss attributable to Community Health Systems, Inc.

of $17 million for the three months ended September 30, 2019.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Net operating revenues decreased by 12.6% to approximately $8.7 billion for the nine months ended September 30, 2020, from approximately $9.9 billion for the nine months ended September 30, 2019.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods decreased $579 million, or 6.3%, during the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019.

The decrease in same-store net operating revenues was primarily due to a decline in volumes resulting from the COVID-19 pandemic.

Non-same-store net operating revenues decreased $675 million during the nine months ended September 30, 2020, in comparison to the prior year period, with the decrease attributable primarily to the impact of the COVID-19 pandemic as well as the divestiture of hospitals during 2019 and 2020.

On a consolidated basis, inpatient admissions decreased by 16.6% during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Also on a consolidated basis, adjusted admissions decreased by 20.0% during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

On a same-store basis, net operating revenues per adjusted admission increased 8.3%, while inpatient admissions decreased by 9.8% and adjusted admissions decreased by 13.5% for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.

Operating costs and expense s, as a percentage of net operati ng revenues, de creased from 95.

1 % during the nine months ended September 30, 2019 to 92.0 % during the nine months ended September 30, 2020 .

Operating costs and expense s, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operati ng revenues, de creased from 89.8 % for the nine months ended September 30, 2019 to 86.5 % for the nine months ended September 30, 2020 due to the recognition of approximately $ 448 million of PHSSEF payments as a reduction of operating costs and expense s during the nine months ended September 30, 2020 .

Salaries and benefits increased as a percentage of net operating revenues from 45.

3 % for the nine months ended September 30, 2019 to 46.8 % for the nine months ended September 30, 2020.

Supplies, as a percentage of net operating revenues, increased from 16.4% for the nine months ended September 30, 2019 to 16.6 % for the nine months ended September 30, 2020.

Other operating expenses, as a percentage of net operati ng revenues, increased from 25.

3 % for the nine months ended September 30, 2019 to 25.4 % for the nine months ended September 30, 2020 .

Expense related to government and other legal settlements and related costs, as a percenta ge of net operating revenues, de creased from 0.4% for the nine months ended September 30, 2019 to less than 0.1 % for the nine months ended September 30, 2020 primarily due to the net impact of several lawsuits settled in principle in 2019 and related legal expenses.

Lease cost and rent, as a percentage of net operating revenues, increased from 2.

4 % for the nine months ended September 30, 2019 to 2.9 % for the nine months ended September 30, 2020 .

The increases in salaries and benefits, supplies, other operating expenses and lease cost and rent, as a percentage of net operating revenues, during the nine months ended September 30, 2020 compared to September 30, 2019 is primarily due to the impact of the COVID-19 pandemic.

Depreciation and amortization, as a percentage of net operating revenues, increased from 4.6% for the nine months ended September 30, 2019 to 4.9% for the nine months ended September 30, 2020, primarily due to a decrease in net operating revenues as a result of the COVID-19 pandemic.

Impairment and (gain) loss on sale of businesses was $48 million for the nine months ended September 30, 2020, compared to $70 million for the nine months ended September 30, 2019.

For the nine months ended September 30, 2020, gains on facilities sold on January 1, 2020 and July 1, 2020 were offset by impairment of facilities held-for-sale or for which we are in discussions with potential buyers for the divestiture of a facility at a sales price that indicates a fair value below carrying value.

The impairment and net loss on facilities during nine months ended September 30, 2019 relates to impairment of the long-lived assets and reporting unit goodwill allocated to hospitals sold during the period partly offset by gains on the sale of facilities during the three months ended September 30, 2019.

Interest expense, net, decreased by $ 3 million to $ 779 million for the nine months ended September 30, 2020 compared to $782 million for the nine months ended September 30, 2019.

This was primarily due to our debt refinancing activity during the nine months ended September 30, 2020 as discussed further in Capital Resources.

Gain from early extinguishment of debt of $111 million was recognized during the nine months ended September 30, 2020, as a result of extinguishment of a portion of our certain series of outstanding notes through open market repurchases.

Loss from early extinguishment of debt of $31 million was recognized during the nine months ended September 30, 2019, as a result of the Credit Facility amendment and repayment of the term loans under the Credit Facility.

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, 2020 and 2019.

The net results of the above-mentioned changes resulted in income (loss) before income taxes increasing $348 million from a loss of $315 million for the nine months ended September 30, 2019 to income of $33 million for the nine months ended September 30, 2020.

Our benefit from income taxes for the nine months ended September 30, 2020 was $221 million and $71 million for the nine months ended September 30, 2020 and 2019, respectively.

Our effective tax rates were (669.7)% and 22.5% for the nine months ended September 30, 2020 and 2019, respectively.

The difference in our effective tax rate for the nine months ended September 30, 2020, when compared to the nine months ended September 30, 2019, was primarily due to changes in tax benefits as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act that was enacted during the three months ended March 31, 2020 .

Net income (loss), as a percentage of net operating revenues, was (2.5)% for the nine months ended September 30, 2019 compared to 2.9% for the nine months ended September 30, 2020.

Net income attributable to noncontrolling interests, as a percentage of net operating revenues, increased from 0.5% for the nine months ended September 30, 2019 to 0.6% for the nine months ended September 30, 2020.

Net income attributable to Commun ity Health Systems, Inc.

was $ 200 million for the nine months ended September 30, 2020 , compared to a net loss attributable to Comm unity Health Systems, Inc.

of $ 302 million for the nine months ended September 30, 2019 .

8 % for the three months ended March 31, 2020 to 4.6 % for the three months ended March 31, 2021 , primarily due to ceasing depreciation on property and equipment at hospitals sold or held for sale .

Impairment and (gain) loss on sale of businesses, net was $21 million for the three months ended March 31, 2021, compared to $45 million for the three months ended March 31, 2020, related primarily to divestitures in each respective period.

Interest expense, net, decreased by $ 31 million to $ 231 million for the three months ended March 31, 2021 compared to $262 million for the three months ended March 31, 2020.

This was primarily due to our debt refinancing activities in 2020 and 2021 as discussed further in Capital Resources.

Loss from early extinguishment of debt of $71 million was recognized during the three months ended March 31, 2021, as a result of the refinancing of certain of our outstanding notes as discussed further in Capital Resources.

Loss from early extinguishment of debt of $4 million was recognized during the three months ended March 31, 2020, as a result of the refinancing of certain of our outstanding notes.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, was (0.3%) for both of the three months ended March 31, 2021 and 2020.

The net results of the above-mentioned changes resulted in income before income taxes increasing $183 million from a $149 million net loss for the three months ended March 31, 2020 to net income of $34 million for the three months ended March 31, 2021.

Our provision for income taxes for the three months ended March 31, 2021 was $69 million compared to a benefit from income taxes of $183 million for the three months ended March 31, 2020.

Our effective tax rates were 202.9% and 122.8% for the three months ended March 31, 2021 and 2020, respectively.

The difference in our effective tax rate for the three months ended March 31, 2021, compared to the three months ended March 31, 2020, was primarily due to an increase in the valuation allowance recognized on IRC Section 163(j) interest carryforwards created as a result of financing transactions completed during the three months ended March 31, 2021.

The effective tax rate for the three months ended March 31, 2020 reflects discrete tax benefits of approximately $240 million related to the release of federal and state valuation allowances on IRC Section 163(j) interest carryforwards as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act that was enacted during the three months ended March 31, 2020

Net (loss) income, as a percentage of net operating revenues, was (1.2)% for the three months ended March 31, 2021 compared to 1.1% for the three months ended March 31, 2020.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 0.9% for the three months ended March 31, 2021, compared to 0.5% for the three months ended March 31, 2020.

Net loss attributable to Community Health Systems, Inc.

was $(64) million for the three months ended March 31, 2021, compared to net income of $18 million for the three months ended March 31, 2020.

Liquidity and Capital Resources

Net cash provided by operating activities increased $1.9 billion, from approximately $191 million for the nine months ended September 30, 2019, to approximately $2.1 billion for the nine months ended September 30, 2020.

The increase in cash provided by operating activities is primarily the result of the receipt of PHSSEF funds under the CARES Act and PPPHCE Act as well as Medicare accelerated payments during the nine months ended September 30, 2020.

Total cash paid for interest during the nine months ended September 30, 2020 decreased to approximately $765 million compared to $810 million for the nine months ended September 30, 2019.

Cash paid for income taxes, net of refunds received, resulted in a net payment of $2 million and a net refund of $3 million during the nine months ended September 30, 2020 and 2019, respectively.

Our net cash provided by investing activities was approximately $9 million for the nine months ended September 30, 2020, compared to net cash used in investing activities of approximately $103 million for the nine months ended September 30, 2019, an increase of approximately $112 million.

The cash provided by investing activities during the nine months ended September 30, 2020 was primarily impacted by a decrease in cash used for other investments (primarily from internal-use software expenditures and physician recruiting costs) of $110 million, a decrease in the cash used in the acquisition of facilities and other related equipment of $12 million as a result of fewer physician practice, clinic and other ancillary business acquisitions in the first nine months of 2020 compared to the same period in 2019, a decrease in cash used in the purchase of property and equipment of $5 million, an increase in cash provided by the proceeds from the sale of property and equipment of approximately $3 million, offset by a decrease in proceeds provided by divestitures of hospitals and other ancillary operations of $16 million as a result of fewer hospital divestitures in the first nine months of 2020 (including the receipt of the net proceeds for one hospital divested effective October 1, 2020 at a preliminary closing on September 30, 2020) compared to the same period in 2019 (including the receipt of the net proceeds for three hospitals divested effective January 1, 2020 at a preliminary closing on December 31, 2019), and a decrease to the net impact of the purchases and sales of available-for-sale securities and equity securities of $2 million.

Our net cash used in financing activities was $504 million for the nine months ended September 30, 2020, compared to approximately $127 million for the nine months ended September 30, 2019, an increase of approximately $377 million.

The increase in cash used in financing activities, in comparison to the prior year period, was primarily due to the net effect of our debt repayment, refinancing activity, and cash paid for deferred financing costs and other debt-related costs.

During the nine months ended September 30, 2020, we received approximately $719 million in payments through the PHSSEF and various state and local programs, net of amounts that have or will be repaid to HHS related to entities that are held-for-sale or that were previously divested, including $155 million in such payments received during the three months ended September 30, 2020.

We previously recognized approximately $448 million of the PHSSEF payments eligible to be claimed as a reduction in operating costs and expenses during the six months ended June 30, 2020.

Although payments were received during the three months ended September 30, 2020, the net effect of changes in our estimate due to the September 19, 2020 Notice, our results of operations during such period and the receipt of additional payments, resulted in no additional pandemic relief funds being recognized during the period as described in greater detail above.

PHSSEF and state and local program payments recognized to-date did not impact net operating revenues, and had a positive impact on net income attributable to Community Health Systems, Inc.

common stockholders during the nine months ended September 30, 2020, in the amount of $337 million.

Amounts received through the PHSSEF or state and local programs that had not yet been recognized as a reduction in operating costs and expenses or otherwise refunded to HHS as of September 30, 2020 totaled approximately $271 million.

Such amount is included within accrued liabilities-other in the condensed consolidated balance sheet, and such unrecognized amounts may be recognized as a reduction in operating costs and expenses in future periods if the underlying conditions for recognition are met.

As evidenced by the October 22, 2020 Notice, HHS’ interpretation of the underlying terms and conditions of such PHSSEF payments, including auditing and reporting requirements, continues to evolve.

Additional guidance or new and amended interpretations of existing guidance on the terms and conditions of such PHSSEF payments may result in our inability to recognize certain PHSSEF payments, changes in the estimate of amounts recognized, or the derecognition of amounts previously recognized, which (in any such case) may be material.

As a way to increase cash flow to Medicare providers impacted by the COVID-19 pandemic, the CARES Act expanded the Medicare Accelerated and Advance Payment Program.

Inpatient acute care hospitals may request accelerated payments of up to 100% of their anticipated Medicare payment amount for a six-month period (not including Medicare Advantage payments), although CMS is reevaluating pending and new applications from Medicare Part A providers, including hospitals, in light of direct payments made available through PHSSEF, and has suspended the advance payment program for physicians and other Medicare Part B providers.

CMS will base payment amounts for inpatient acute care hospitals on the provider’s Medicare fee-for-service reimbursements in the

last six months of 2019.

As of September 30, 2020, the program terms required repayment to begin within 120 days of receipt although no amounts were recouped by CMS during the three or nine months ended September 30, 2020 .

Effective October 1, 2020, the program requirements were changed such that accelerated payments are interest free for inpatient acute care hospitals for 29 months, and CMS must begin recoup ing the payments one year after receipt by the provider .

Once recoupment begins, CMS will withhold 25% of Medicare fee-for-service payments during the first 11 months and 50% of Medicare fee-for-service payments during the subsequent six months.

The program currently requires the provider to repay any outstanding balance remaining after 29 months or pay interest of 4 % per annum on any outstanding balance .

We received Medicare accelerated payments of approximately $1.2 billion in April 2020.

No additional Medicare accelerated payments have been received by the Company since such time.

Net of amounts that have or will be repaid to CMS or assumed by buyers related to divested entities, approximately $1.1 billion of Medicare accelerated payments remained outstanding as of September 30, 2020 and are reflected within accrued liabilities-other in the condensed consolidated balance sheet.

Net cash provided by operating activities increased $44 million, from approximately $57 million for the three months ended March 31, 2020, to $101 million for the three months ended March 31, 2021.

The increase was primarily attributable to the timing and amount of interest payments.

Cash paid for interest was $203 million during the three months ended March 31, 2021 compared to $264 million for the three months ended March 31, 2020.

Cash paid for income taxes, net of refunds received, resulted in a net payment of less than $1 million, and a net refund of approximately $2 million during the three months ended March 31, 2021 and 2020, respectively.

Our net cash used in investing activities was approximately $120 million for the three months ended March 31, 2021, compared to approximately $109 million for the three months ended March 31, 2020, a decrease of approximately $11 million.

The cash used in investing activities during the three months ended March 31, 2021 was primarily impacted by an increase in cash used in the purchase of property and equipment of $6 million, an increase of $4 million in cash used for acquisition of facilities and other related businesses, and an increase in cash used to purchase other investments of $7 million.

The increase in cash used in investing activities was partially offset by a $4 million increase in cash proceeds from dispositions of hospitals and other ancillary operations, and a $2 million increase in cash proceeds from the sale of property and equipment.

Our net cash used in financing activities was $406 million for the three months ended March 31, 2021, compared to net cash provided by financing activities of $82 million for the three months ended March 31, 2020, an increase in cash used in financing activities of approximately $488 million.

This was primarily due to the net effect of our debt repayments, refinancing activities , and cash paid for deferred financing costs and other debt-related costs during the three months ended March 31, 2021 .

Amounts received through the PHSSEF or state and local programs that had not yet been recognized as a reduction in operating costs and expenses or otherwise refunded to HHS as of March 31, 2021 totaled approximately $25 million.

Such amount is included within accrued liabilities-other in the condensed consolidated balance sheet, and such unrecognized amounts may either be returned to HHS in one or more future periods when a procedure for doing so is established by HHS or may be recognized as a reduction in operating costs and expenses in future periods if the underlying conditions for recognition are met.

As noted above, we received Medicare accelerated payments of approximately $1.2 billion in April 2020 under the Medicare Accelerated and Advanced Payments Program.

As of March 31, 2021, approximately $546 million of Medicare accelerated payments are reflected within accrued liabilities-other in the condensed consolidated balance sheet while the remaining approximately $517 million are included within other long-term liabilities.

In April 2021, CMS began recouping Medicare accelerated payments previously received by the Company.

The CARES Act provides for deferred payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

We began deferring the employer portion of social security taxes in mid-April 2020 and, as of September 30, 2020, have deferred approximately $91 million which is included within other long-term liabilities in the condensed consolidated balance sheet.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the nine months ended September 30, 2020 from those disclosed in the table on page 72 of our 2019 Form 10-K and discussed below related to debt refinancing activity during 2020.

We began deferring the employer portion of social security taxes in mid-April 2020 and, as of December 31, 2020, we had deferred approximately $144 million.

As of March 31, 2021, of this amount, approximately $72 million is included within accrued liabilities employee compensation and approximately $72 million is included within other long-term liabilities in the condensed consolidated balance sheet.

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, 2021 from those disclosed in the table on page 64 of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission, or SEC, on February 18, 2021, or 2020 Form 10-K, except as discussed below related to debt refinancing activity during 2021.

Capital Expenditures

Cash expenditures for purchases of facilities and other related businesses were approximately $1 million for the nine months ended September 30, 2020, compared to $13 million for the nine months ended September 30, 2019.

Our expenditures for the nine months ended September 30, 2020 and 2019 were primarily related to physician practices and other ancillary services

Excluding the cost to construct replacement and de novo hospitals, our cash expenditures for routine capital for the nine months ended September 30, 2020 totaled $186 million compared to $286 million for the nine months ended September 30, 2019.

Cash expenditures for purchases of facilities and other related businesses were approximately $4 million for the three months ended March 31, 2021, compared to less than $1 million for the three months ended March 31, 2020.

Our expenditures for the three months ended March 1, 2021 and 2020 were primarily related to physician practices and other ancillary services.

Excluding the cost to construct replacement and de novo hospitals, our cash expenditures for routine capital for the three months ended March 31, 2021 totaled $76 million compared to $63 million for the three months ended March 31, 2020.

These capital expenditures related primarily to the purchase of additional equipment, minor renovations and information systems infrastructure.

Costs to construct replacement hospitals totaled $97 million for the nine months ended September 30, 2020, compared to $30 million for the nine months ended September 30, 2019.

The costs to construct replacement hospitals for the nine months ended September 30, 2020 and 2019 primarily represent construction costs for replacement facilities in La Porte, Indiana and Fort Wayne, Indiana.

During the nine months ended September 30, 2020 and 2019, we had cash expenditures of $34 million and $6 million, respectively, that represent both planning and construction costs for two de novo hospitals in Arizona.

We expect to commence operations for an 18-bed micro-hospital during the fourth quarter of 2020, while the other de novo hospital is expected to be completed by 2022 and have 52 beds.

Costs to construct replacement hospitals totaled $16 million for the three months ended March 31, 2021, related primarily to the construction of a replacement facility in Fort Wayne, Indiana.

Costs to construct replacement hospitals totaled $29 million for the three months ended March 31, 2020, related primarily to the construction of a replacement facility in La Porte, Indiana.

During the three months ended March 31, 2021 and 2020, we also had cash expenditures of $13 million and $8 million, respectively, that represent both planning and construction costs for two de novo hospitals in the Tucson, Arizona market.

We commenced operations for an 18-bed micro-hospital in that market during the fourth quarter of 2020, while the other de novo hospital is expected to be completed by the end of 2021 and have 52 beds.

Pursuant to a hospital purchase agreement from our March 1, 2016 acquisition of Northwest Health - La Porte, formerly known as La Porte Hospital, and Northwest Health – Starke, formerly known as Starke Hospital, we committed to build replacement facilities in both La Porte, Indiana and Knox, Indiana.

Under the terms of such agreement, construction of the replacement hospital for Northwest Health - La Porte is required to be completed within five years of the date of acquisition, or March 2021.

In addition, construction of the replacement facility for Northwest Health - Starke is required to be completed within five years of the date we enter into a new lease with Starke County, Indiana, the hospital lessor, or in the event we do not enter into a new lease with Starke County, construction shall be completed by September 30, 2026.

The completion of the replacement facility for Northwest Health – La Porte, in La Porte, Indiana, and transfer of operations, including renaming the hospital to Northwest Health – La Porte, was completed on October 24, 2020.

Construction of the replacement facility for Northwest Health - Starke is required to be completed within five years of the date we enter into a new lease with Starke County, Indiana, the hospital lessor, or in the event we do not enter into a new lease with Starke County, construction shall be completed by September 30, 2026.

We have not entered into a new lease with the lessor for Northwest Health - Starke and currently anticipate completing construction of the Northwest Health - Starke replacement facility in 2026.

Construction costs, including equipment costs, for the Northwest Health - La Porte totaled approximately $119 million as of September 30, 2020.

Construction costs for the Northwest Health - Starke replacement facility is currently estimated to be approximately $15 million.

The completion of the replacement facility for Northwest Health - La Porte in La Porte, Indiana, and transfer of operations, including renaming the hospital to Northwest Health – La Porte, was completed on October 24, 2020.

Capital Resources

Net working capital was approximately $1.1 billion at both September 30, 2020 and December 31, 2019.

Net working capital decreased by approximately $82 million between December 31, 2019 and September 30, 2020.

This decrease was primarily due to the increase in other accrued liabilities and decrease in patient accounts receivable, partially offset by an increase in cash, driven by the receipt of PHSSEF funds as well as Medicare accelerated payments, during the nine months ended September 30, 2020.

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, which we entered into on April 3, 2018, as well as anticipated access to pu blic and private debt markets.

Net working capital was approximately $1.4 billion at March 31, 2021, compared to $1.7 billion at December 31, 2020.

Net working capital decreased by approximately $301 million between December 31, 2020 and March 31, 2021.

The decrease is primarily due to the decrease in cash, as a result of debt repayments, refinancing activities and cash paid for deferred financing costs during the three months ended March 31, 2021, partially offset by a decrease in current maturities of long-term debt.

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 the ABL Facility, in the maximum aggregate principal amount of $1.0 billion, subject to borrowing base capacity.

At September 30, 2020, the available borrowing base under the ABL Facility was $654 million, of which we had no outstanding borrowings and letters of credit issued of $151 million.

At March 31, 2021, the available borrowing base under the ABL Facility was $633 million, of which we had no outstanding borrowings.

Letters of credit were reduced during the three months ended March 31, 2021 by $30 million in relation to a professional liability claim that was settled and funded during the three months ended December 31, 2020.

Inclusive of this reduction, letters of credit totaling $120 million were issued as of March 31, 2021.

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

Principal amounts outstanding under the ABL Facility, if any, will be due and payable in full on April 3, 2023.

The ABL Facility contains customary representations and warranties, subject to limitations and exceptions, and customary covenants restricting our ability, subject to certain exceptions, to, among other things (1) declare dividends, make distributions or redeem or repurchase capital stock, (2) prepay, redeem or repurchase other debt, (3) incur liens or grant negative pledges, (4) make loans and investments and enter into acquisitions and joint ventures, (5) incur additional indebtedness or provide certain guarantees, (6) engage in mergers, acquisitions and asset sales, (7) conduct transactions with affiliates, (8) alter the nature of our businesses, (9) grant certain guarantees with respect to physician practices, (10) engage in sale and leaseback transactions or (11) change our fiscal year.

We are also required to comply with a consolidated fixed coverage ratio, upon certain triggering events described below, and various affirmative covenants.

The consolidated fixed coverage ratio is calculated as the ratio of (x) consolidated EBITDA (as defined in the ABL Facility) less capital expenditures to (y) the sum of consolidated interest expense (as defined in the ABL Facility), scheduled principal payments, income taxes and restricted payments made in cash or in permitted investments.

For purposes of calculating the consolidated fixed charge coverage ratio, the calculation of consolidated EBITDA as defined in the ABL Facility is a trailing 12-month calculation that begins with our consolidated net income, with certain adjustments for interest, taxes, depreciation and amortization, net income attributable to noncontrolling interests, stock compensation expense, restructuring costs, and the financial impact of other non-cash or non-recurring items recorded during any such 12-month period.

The consolidated fixed charge coverage ratio is a required covenant only in periods where the total borrowings outstanding under the ABL Facility reduce the amount available in the facility to less than the greater of (i) $95 million or (ii) 10% of the calculated borrowing base.

As a result, in the event we have less than $95 million available under the ABL Facility, we would need to comply with the consolidated fixed charge coverage ratio.

At September 30, 2020, we were not subject to the consolidated fixed charge coverage ratio as such triggering event had not occurred during the last twelve months ended September 30, 2020.

On February 6, 2020, CHS completed a private offering of $1.462 billion aggregate principal amount of 6⅝% Senior Secured Notes due February 15, 2025 (the “6⅝% Senior Secured Notes due 2025”).

CHS used the net proceeds of the offering of the 6⅝% Senior Secured Notes due 2025 to (i) purchase any and all of its 5⅛% Senior Secured Notes due 2021 validly tendered and not validly withdrawn in the cash tender offer announced on January 23, 2020, (ii) redeem all of the 5⅛% Senior Secured Notes due 2021 that were not purchased pursuant to such tender offer, (iii) purchase in one or more privately negotiated transactions approximately $426 million aggregate principal amount of its 6¼% Senior Secured Notes due 2023 and (iv) pay related fees and expenses.

The 6⅝% Senior Secured Notes due 2025 bear interest at a rate of 6.625% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2020.

The 6⅝% Senior Secured Notes are scheduled to mature on February 15, 2025.

The 6⅝% Senior Secured Notes due 2025 are unconditionally guaranteed on a senior-priority secured basis by us and each of the CHS current and future domestic subsidiaries that provide guarantees under the ABL Facility, any capital market debt securities of CHS (including CHS’ outstanding senior notes) and certain other long-term debt of CHS.

The 6⅝% Senior Secured Notes due 2025 and the related guarantees are secured by shared (i) first-priority liens on the Non-ABL Priority Collateral and (ii) second-priority liens on the ABL Priority Collateral that secures on a first-priority basis the ABL Facility, in each case subject to permitted liens described in the indenture governing the 6⅝% Senior Secured Notes due 2025.

During the three months ended September 30, 2020, we extinguished a portion of certain series of our outstanding notes through open market repurchases, as follows (in millions):

Principal Amount

6⅞% Senior Notes due 2028

8⅛% Junior-Priority Secured Notes due 2024

6⅞% Senior Notes due 2022

Total principal amount of debt extinguished

A gain from early extinguishment of debt of $115 million was recognized during the three months ended September 30, 2020 associated with these open market repurchases.

As of August 30, 2020, we terminated our last i nterest rate swap agreement.

A s of September 30, 2020 , approximately 100 % of our debt ha s a fixed rate of interest .

On January 28, 2021, the remaining principal amount of the 6¼% Senior Secured Notes due 2023 of approximately $95 million was redeemed using cash on hand.

On February 2, 2021, we completed a private offering of $1.775 billion aggregate principal amount of 6⅞% Junior-Priority Secured Notes due April 15, 2029 (the “6⅞% Junior-Priority Secured Notes due 2029”).

The proceeds of the offering were used, together with cash on hand, to redeem the 9⅞% Junior-Priority Secured Notes due 2023 via a tender offer which was funded on February 2, 2021, or to the extent not tendered, to fund the redemption of the remaining notes on February 4, 2021, and to pay related fees and expenses.

The 6⅞% Junior-Priority Secured Notes due 2029 bear interest at a rate of 6.875% per year payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2021.

On February 9, 2021, we completed a private offering of $1.095 billion aggregate principal amount of 4¾% Senior Secured Notes due February 15, 2031 (the “4¾% Senior Secured Notes due 2031”).

The proceeds of the offering were used, together with cash on hand, to redeem the 8⅝% Senior Secured Notes due 2024 on February 9, 2021 and to pay related fees and expenses.

The 4¾% Senior Secured Notes due 2031 bear interest at a rate of 4.750% per year payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2021.

On March 1, 2021, we redeemed the remaining principal amount of the 6⅞% Senior Notes due 2022 of approximately $126 million using cash on hand.

Our ability to meet the restricted covenants and financial ratios and tests in the ABL Facility and the indentures governing our outstanding notes can be affected by events beyond our control, and we cannot assure you that we will meet those tests.

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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 September 30, 2020, approximately $ 19 million of our outstanding debt of $ 12.9 billion is due within the next 12 months.

Any net proceeds from divestitures are expected to be used for general corporate purposes and capital expenditures.

Through September 30, 2020, we received approximately $1.9 billion of relief payments via the CARES Act and other sources, including approximately $ 719 million in payments through the PHSSEF and various state and local programs, net of amounts attributable to previously divested entities, and approximately $1.2 billion of accelerated payments pursuant to the Medicare Accelerated and Advance Payment Program, of which approximately $1.1 billion remained outstanding as of September 30, 2020.

As previously noted, PHSSEF payments are not required to be repaid, subject to certain terms and conditions, while payments received under the Medicare Accelerated and Advance Payment Program are required to be repaid.

Additionally, the CARES Act permits the deferral of payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

As of September 30, 2020, approximately $91 million of social security taxes have been deferred.

The deferral of the employer portion of social security taxes along with the funds received under the CARES Act provisions noted above, have positively impacted our cash flows from operations during 2020.

As previously discussed, we may require an increased level of working capital if we experience extended billing and collection cycles resulting from negative economic conditions (including high unemployment and underemployment levels) arising from the COVID-19 pandemic, which may impact service mix, revenue mix, payor mix and patient volumes, as well as our ability to collect outstanding receivables.

As of March 31, 2021, approximately $20 million of our outstanding debt of $11.9 billion is due within the next 12 months.

Through March 31, 2021, we received approximately $1.2 billion of accelerated payments pursuant to the Medicare Accelerated and Advance Payment Program, of which approximately $1.1 billion remained outstanding as of March 31, 2021.

Recoupment of these funds by CMS began in April 2021 under the repayment framework more specifically described above under “Legislation Overview” of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Additionally, the CARES Act permitted the deferral of payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

Through December 31, 2020, we had deferred approximately $144 million of which, approximately $72 million is included within accrued liabilities employee compensation and approximately $72 million is included within other long-term liabilities as of March 31, 2021, in the condensed consolidated balance sheets.

The deferral of the employer portion of social security taxes along with the repayment of Medicare accelerated payments are expected to negatively impact our cash flows from operations during 2021.

A material increase in the amount or deterioration in the collectability of accounts receivable will adversely affect our cash flows and results of operations, requiring an increased level of working capital.

We believe that internally generated cash flows and current levels of availability for additional borrowing under the ABL Facility, as well as our continued access to the capital markets, will be sufficient to finance acquisitions, capital expenditures, working capital requirements, and any debt repurchases or other debt repayments we may elect to make or be required to make through the next 12 months.

PHSSEF funds that we have received and may continue to receive under the CARES Act and the PPPHCE Act will be used according to their terms and conditions as reimbursement for lost revenues and incremental expenses attributable to COVID-19, including working capital requirements and capital expenditures.

PHSSEF funds that we have received and may continue to receive under the CARES Act and related legislation will be used according to their terms and conditions as reimbursement for lost revenues and incremental expenses attributable to COVID-19, including working capital requirements and capital expenditures.

As noted above, the COVID-19 pandemic has resulted in, and may continue to result in, significant disruptions of financial and capital markets, which could reduce our ability to access capital and negatively affect our liquidity in the future.

Additionally, while we have received PHSSEF payments and accelerated Medicare payments under the CARES Act and the PPPHCE Act, and may continue to receive and be able to utilize PHSSEF payments which have been received, as noted above, there is no assurance regarding the extent to which anticipated ongoing negative impacts on us arising from the COVID-19 pandemic will be offset by benefits which we may recognize or receive in the future under the CARES Act, the PPPHCE Act or any future stimulus measures.

As noted above, during the three months ended September 30, 2020, we purchased a portion of certain series of our outstanding notes through open market purchases, and we may elect from time to time to continue to purchase our outstanding debt in open market purchases, privately negotiated transactions or otherwise.

Additionally, while we have received PHSSEF payments and accelerated Medicare payments under the CARES Act and related legislation and may continue to receive and be able to utilize PHSSEF payments which have been received, as noted above, there is no assurance regarding the extent to which anticipated ongoing negative impacts on us arising from the COVID-19 pandemic will be offset by benefits which we may recognize or receive in the future under the CARES Act and related legislation or any future stimulus measures.

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

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

Off-balance Sheet Arrangements

Off-balance sheet arrangements consist of letters of credit of $151 million issued on the ABL Facility, primarily in support of potential insurance-related claims and certain bonds, as well as approximately $17 million representing the maximum potential amount of future payments under physician recruiting guarantee commitments in excess of the liability recorded at September 30, 2020.

Off-balance sheet arrangements consist of letters of credit of $120 million issued on the ABL Facility, primarily in support of potential insurance-related claims and certain bonds, as well as approximately $12 million representing the maximum potential amount of future payments under physician recruiting guarantee commitments in excess of the liability recorded at March 31, 2021.

As previously discussed, we have a commitment to build one replacement facility.

As part of an acquisition in 2016, we agreed to build a replacement facility in Knox, Indiana.

The estimated construction costs, including equipment costs, are currently estimated to be approximately $15 million.

We have incurred no cost to date for the construction of the replacement facility in Knox, Indiana.

Noncontrolling Interests

We have sold noncontrolling interests in certain of our subsidiaries or acquired subsidiaries with existing noncontrolling interest ownership positions.

As of September 30, 2020, we have hospitals in 10 of the markets we serve, with noncontrolling physician

ownership interests ranging from 1% to 40%.

In addition, as of September 30, 2020, we have four other hospitals with noncontrolling interests owned by non-profit entities.

Redeemable noncontrolling interests in equity of co nsolid ated subsidiaries was $ 481 million and $502 million at September 30, 2020 and December 31, 2019 , respectively , and noncontrolling interests in equity of consolidated subsidiaries was $ 60 million and $77 million as of September 30, 2020 and December 31, 2019, respectively.

The amount of net income attributable to noncontrolling interests was $ 16 million and $ 19 million for the three months ended September 30, 2020 and 2019, respectively , and $54 million and $58 million for the nine months ended September 30, 2020 and 2019, respectively .

As of March 31, 2021, we have hospitals in 10 of the markets we serve, with noncontrolling physician ownership interests ranging from 1% to 40%.

In addition, as of March 31, 2021, we have five other hospitals with noncontrolling interests owned by non-profit entities or a for-profit subsidiary of a non-profit entity.

Redeemable noncontrolling interests in equity of consolidated subsidiaries was $481 million and $484 million at March 31, 2021 and December 31, 2020, respectively, and noncontrolling interests in equity of consolidated subsidiaries was $86 million and $87 million at March 31, 2021 and December 31, 2020, respectively.

The amount of net income attributable to noncontrolling interests was $29 million and $16 million for the three months ended March 31, 2021 and 2020, respectively.

As a result of the change in the Stark Law “whole hospital” exception included in the Affordable Care Act, we are not permitted to introduce physician ownership at any of our hospital facilities that did not have physician ownership at the time of the adoption of the Affordable Care Act, or increase the aggregate percentage of physician ownership in any of our former or existing hospital joint ventures in excess of the aggregate physician ownership level held at the time of the adoption of the Affordable Care Act.

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However, we cannot predict our ability to cover or offset future cost increases, particularly any increases in our cost of providing health insurance benefits to our employees.

Moreover, as noted above, we have incurred, and may continue to incur, certain increased expenses arising from the COVID-19 pandemic, including additional labor, supply chain, capital and other expenditures.

Critical Accounting Policies

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Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions.

Critical accounting policies are defined as those policies that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.

We believe that our critical accounting policies are limited to those described below.

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The transaction price, which involves significant estimates, is determined based on our standard charges for the goods and services provided, with a reduction recorded for price concessions related to third party contractual arrangements as well as patient discounts and patient price concessions.

During each of the three and nine month periods ended September 30, 2020 and 2019, the impact of changes to the inputs used to determine the transaction price was considered immaterial to the current period.

During each of the three-month periods ended March 31, 2021 and 2020, the impact of changes to the inputs used to determine the transaction price was considered immaterial to the current period.

Currently, several states utilize supplemental reimbursement programs for the purpose of providing reimbursement to providers to offset a portion of the cost of providing care to Medicaid and indigent patients.

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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 September 30, 2020 from our estimated reimbursement percentage, net income (loss) for the nine months ended September 30, 2020 would have changed by approximately $79 million, and net accounts receivable at September 30, 2020 would have changed by $102 million.

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at March 31, 2021 from our estimated reimbursement percentage, net loss for the three months ended March 31, 2021 would have changed by approximately $82 million, and net accounts receivable at March 31, 2021 would have changed by $105 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 and net income (loss) by an insignificant amount for each of the three and nine-month periods ended September 30, 2020 and 2019.

Contractual allowance adjustments related to final settlements and previous program

reimbursement estimates impacted net operating revenues and net (loss) income by an insignificant amount for each of the three-month periods ended March 31, 2021 and 2020.

Patient Accounts Receivable

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We also continually review the net realizable value of accounts receivable by monitoring historical cash collections as a percentage of trailing net operating revenues, as well as by analyzing current period net revenue 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, the impact of recent acquisitions and dispositions and the impact of current economic and other events.

If the actual collection percentage differed by 1% at September 30, 2020 from our estimated collection percentage as a result of a change in expected recoveries, net income (loss) for the nine months ended September 30, 2020 would have changed by $ 42 million, and net accounts receivable at September 30, 2020 would have changed by $ 54 million.

If the actual collection percentage differed by 1% at March 31, 2021 from our estimated collection percentage as a result of a change in expected recoveries, net loss for the three months ended March 31, 2021 would have changed by $39 million, and net accounts receivable at March 31, 2021 would have changed by $51 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 revenue 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 $3.6 billion at September 30, 2020 and $3.8 billion December 31, 2019, being pursued by various outside collection agencies.

We had approximately $3.2 billion at March 31, 2021, and $3.3 billion December 31, 2020, being pursued by various outside collection agencies.

We expect to collect less than 3%, 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 53 days and 58 days at September 30, 2020 and December 31, 2019, respectively.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $15.3 billion as of September 30, 2020 and approximately $16.6 billion as of December 31, 2019.

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 53 days and 52 days at March 31, 2021 and December 31, 2020, respectively.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $ 15.3 billion as of March 31, 2021 and approximately $14.8 billion as of December 31, 2020 .

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

As of September 30, 2020:

As of March 31, 2021:

% 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 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 91% and 90% at September 30, 2020 and December 31, 2019, 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 94% at both September 30, 2020 and December 31, 2019.

Goodwill and Other Intangibles

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We performed our last annual goodwill impairment evaluation during the fourth quarter of 2020 using the October 31, 2020 measurement date, which indicated no impairment.

At September 30, 2020, we had approximately $4.2 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.

While no impairment was indicated in our annual goodwill evaluation as of the October 31, 2019 measurement date, the reduction in our fair value and the resulting goodwill impairment charges recorded in 2016 and 2017 reduced the carrying value of our hospital operations reporting unit to an amount equal to our estimated fair value as of such prior year measurement dates.

This increases the risk that future declines in fair value could result in goodwill impairment.

At March 31, 2021, we had approximately $4.2 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.

A detailed evaluation of potential impairment indicators was performed as of March 31, 2021.

On the basis of available evidence as of March 31, 2021, no impairment indicators were identified.

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 or fair value of our long-term debt, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income tax rates, and costs of invested capital.

A detailed evaluation of potential impairment indicators was performed as of September 30, 2020, which specifically considered the volatility of the fair market value of our outstanding senior secured and unsecured notes and common stock during the nine months ended September 30, 2020, as well as declines in patient volumes and net operating revenues resulting from the COVID-19 pandemic.

On the basis of available evidence as of September 30, 2020, no impairment indicators were identified.

Some of those inputs include, but are not limited to, the

most recent price of our common stock or fair value of our long-term debt, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income tax rates, and costs of invested capital.

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 a decline in or volatility of our stock price and the fair value of its our long-term debt, lower than expected hospital volumes, higher market interest rates or increased operating costs.

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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 using the risk-free interest rate corresponding to the timing of our expected payments.

The net present value of the projected payments was discounted using a weighted-average risk-free rate of 1.9% as of September 30, 2020 and 2.6% and 3.1% in 2019 and 2018, respectively.

The net present value of the projected payments was discounted using a weighted-average risk-free rate of 1.8% as of March 31, 2021 and December 31, 2020.

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

Professional malpractice expense includes the losses resulting from professional liability claims and loss adjustment expense, as well as paid excess insurance premiums, and is presented within other operating expenses in the accompanying condensed consolidated statements of income (loss).

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

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Substantially all claims occurring during 2007 were self-insured up to $10 million per claim.

There were no significant changes in our estimate of the reserve for professional liability claims during the nine months ended September 30, 2020.

There were no significant changes in our estimate of the reserve for professional liability claims during the three months ended March 31, 2021 .

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 approximately $1 million as of September 30, 2020.

A total of approximately $1 million of interest and penalties is included in the amount of liability for uncertain tax positions at September 30, 2020.

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

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was less than $1 million as of March 31, 2021.

A total of less than $1 million of interest and penalties is included in the amount of liability for uncertain tax positions at March 31, 2021.

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

It is possible the amount of unrecognized tax benefit could change in the next 12 months as a result of a lapse of the statute of limitations and settlements with taxing authorities;

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We believe the results of these examinations will not be material to our consolidated results of operations or consolidated financial position.

We have extended the federal statute of limitations through June 30, 2021 for Community Health Systems, Inc.

We have extended the federal statute of limitations through December 31, 2021 for Community Health Systems, Inc.

for the tax periods ended December 31, 2014 and 2015.

Our federal income tax return for the 2018 tax year is under examination by the Internal Revenue Service.

Recent Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update, or ASU, 2020-04, or Reference Rate Reform:

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another rate that is expected to be discontinued.

The amendments in the ASU are effective for all entities as of March 12, 2020 through December 31, 2022.

The adoption of this guidance did not have a material impact on our condensed consolidated financial position or results of operations.

We have evaluated all other recently issued, but not yet effective, ASUs and do not expect the eventual adoption of these ASUs to have a material impact our condensed consolidated financial position or results of operations.

FORWARD-LOOKING STATEMENTS

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the volume of COVID-19 patients cared for across our health systems;

the timing and availability of effective medical treatments and vaccines;

the timing and availability of effective medical treatments and vaccines, including the timing and effectiveness of the ongoing rollout of currently available vaccines;

the spread of potentially more contagious and/or virulent forms of the virus;

measures we are taking to respond to the COVID-19 pandemic;

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and supply shortages and disruptions;

uncertainty regarding the implementation of the CARES Act, the PPPHCE Act, and any other future stimulus measures related to COVID-19, including the magnitude and timing of any future payments or benefits we may receive or realize thereunder;

uncertainty regarding the implementation of the CARES Act, the PPPHCE Act, the CAA, the ARPA and any other future stimulus measures related to COVID-19, including the magnitude and timing of any future payments or benefits we may receive or realize thereunder;

general economic and business conditions, both nationally and in the regions in which we operate, including economic and business conditions resulting from the COVID-19 pandemic;

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the future and long-term viability of health insurance exchanges and potential changes to the beneficiary enrollment process;

risks associated with our substantial indebtedness, leverage and debt service obligations, including our ability to refinance such indebtedness on acceptable terms or to incur additional indebtedness, and our ability to remain in compliance with debt covenants, as well as risks associated with disruptions in the financial and capital markets as the result of the COVID-19 pandemic which could impact us from a financing and liquidity perspective;

demographic changes;

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changes in, or the failure to comply with, contract terms with payors and changes in reimbursement policies or rates paid by federal or state healthcare programs or commercial payors;

any potential additional 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;

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

changes in inpatient or outpatient Medicare and Medicaid payment levels and methodologies;

the effects related to the continued implementation of the sequestration spending reductions and the potential for future deficit reduction legislation;

the effects related to the implementation of sequestration spending reductions pursuant to both the Budget Control Act of 2011 and the PAYGO Act and the potential for future deficit reduction legislation;

increases in the amount and risk of collectability of patient accounts receivable, including decreases in collectability which may result from, among other things, self-pay growth and difficulties in recovering payments for which patients are responsible, including co-pays and deductibles;

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the availability and terms of capital to fund any additional acquisitions or replacement facilities or other capital expenditures;

our ability to successfully make acquisitions or complete divestitures, including the disposition of hospitals and non-hospital businesses pursuant to our portfolio rationalization and deleveraging strategy, our ability to complete any such acquisitions or divestitures on desired terms or at all, the timing of the completion of any such acquisitions or divestitures, and our ability to realize the intended benefits from any such acquisitions or divestitures;

our ability to successfully make acquisitions or complete divestitures, our ability to complete any such acquisitions or divestitures on desired terms or at all, the timing of the completion of any such acquisitions or divestitures, and our ability to realize the intended benefits from any such acquisitions or divestitures;

the impact that changes in our relationships with joint venture or syndication partners could have on effectively operating our hospitals or ancillary services or in advancing strategic opportunities;

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our ability to realize anticipated cost savings and other benefits from our current strategic and operational cost savings initiatives;

changes in interpretations, assumptions and expectations regarding the Tax Cuts and Jobs Act;

the other risk factors set forth in our 2019 Form 10-K, our Quarterly Report on Form 10-Q filed with the SEC on July 29, 2020, and our other public filings with the SEC.

any changes in or interpretations of income tax laws and regulations;

the other risk factors set forth in our 2020 Form 10-K, and our other public filings with the SEC.

Although we believe that these forward-looking statements are based upon reasonable assumptions, these assumptions are inherently subject to significant regulatory, economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond our control.

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We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

Quantitative and Qualitative Disclosures about Market Risk

During the three months ended March 31, 2021, 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 2020 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