COMMUNITY HEALTH SYSTEMS INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read this discussion together with our condensed consolidated financial statements and the accompanying notes included herein. Throughout this Quarterly Report on Form 10-Q, we refer to Community Health Systems, Inc., or the Parent Company, and its consolidated subsidiaries in a simplified manner and on a collective basis, using words like “we,” “our,” “us” and the “Company”. This drafting style is suggested by the Securities and Exchange Commission, or SEC, and is not meant to indicate that the publicly traded Parent Company or any particular subsidiary of the Parent Company owns or operates any asset, business or property. The hospitals, operations and businesses described in this filing are owned and operated by distinct and indirect subsidiaries of Community Health Systems, Inc. Executive Overview We are one of the largest publicly traded hospital companies in the United States and a leading operator of general acute care hospitals and outpatient facilities in communities across the country. We provide healthcare services through the hospitals that we own and operate and affiliated businesses in non-urban and selected urban markets throughout the United States. 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 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 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 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. Our hospitals, medical clinics, medical personnel, and employees have been actively caring for COVID-19 patients. Although we have been implementing considerable safety measures, treatment of COVID-19 patients has associated risks, which may include the manner in which medical personnel perceive and respond to such risks. 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. 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. 24 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 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. 25 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 : Hospital Buyer City, State Licensed Beds Effective Date 2021 Divestitures: Lea Regional Medical Center Covenant Health System Hobbs, NM 68 January 1, 2021 Tennova Healthcare - Tullahoma Vanderbilt University Medical Center Tullahoma, TN 135 January 1, 2021 Tennova Healthcare - Shelbyville Vanderbilt University Medical Center Shelbyville, TN 60 January 1, 2021 Northwest Mississippi Medical Center Delta Health System Clarksdale, MS 181 February 1, 2021 2020 Divestitures: Berwick Hospital Center Fayette Holdings, Inc. Berwick, PA 90 December 1, 2020 Brownwood Regional Medical Center Hendrick Health System Brownwood, TX 188 October 27, 2020 Abilene Regional Medical Center Hendrick Health System Abilene, TX 231 October 27, 2020 San Angelo Community Medical Center Shannon Health System San Angelo, TX 171 October 24, 2020 Bayfront Health St. Petersburg Orlando Health, Inc. St. Petersburg, FL 480 October 1, 2020 Hill Regional Hospital AHRK Holdings, LLC Hillsboro, TX 25 August 1, 2020 St. Cloud Regional Medical Center Orlando Health, Inc. St. Cloud, FL 84 July 1, 2020 Northern Louisiana Medical Center Allegiance Health Management, Inc. Ruston, LA 130 July 1, 2020 Shands Live Oak Regional Medical Center HCA Healthcare, Inc., or HCA, Live Oak, FL 25 May 1, 2020 Shands Starke Regional Medical Center HCA Starke, FL 49 May 1, 2020 Southside Regional Medical Center Bon Secours Mercy Health System Petersburg, VA 300 January 1, 2020 Southampton Memorial Hospital Bon Secours Mercy Health System Franklin, VA 105 January 1, 2020 Southern Virginia Regional Medical Center Bon Secours Mercy Health System Emporia, VA 80 January 1, 2020 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 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, 26 • an after-tax charge of $3 million for loss from early extinguishment of debt, • 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 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 The U.S. Congress and certain state legislatures have introduced and passed a large number of proposals and legislation designed to make major changes in the healthcare system, including changes that have impacted access to health insurance. The most prominent of these recent efforts, the Affordable Care Act, affected how healthcare services are covered, delivered and reimbursed. The Affordable Care Act increased health insurance coverage through a combination of public program expansion and private sector health insurance reforms and mandated that substantially all U.S. citizens maintain health insurance. 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, 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. Additionally, effective January 1, 2019, the financial penalty associated with the individual mandate was eliminated as part of the 2017 tax reform legislation. In December 2018, as a result of this change, a federal judge in Texas found the individual mandate unconstitutional and determined the rest of the Affordable Care Act was therefore invalid. 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. 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. Of critical importance to us will be the potential impact of any changes specific to the Medicaid program, including the funding and expansion provisions of the Affordable Care Act or any subsequent legislation or agency initiatives. Historically, the states with the greatest reductions in the number of uninsured adult residents have expanded Medicaid. A number of states have opted out of the Medicaid coverage expansion provisions, but could ultimately decide to expand their programs at a later date. Of the 16 states in which we operated hospitals as 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. 27 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 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 . It is difficult to predict the ongoing effect of the Affordable Care Act due to executive orders, changes to the law’s implementation, clarifications and modifications resulting from the rule-making process, judicial interpretations resulting from court challenges to its constitutionality and interpretation, whether and how many states ultimately decide to expand Medicaid coverage, the number of uninsured who elect to purchase health insurance coverage, budgetary issues at federal and state levels, and efforts to change or repeal the statute. We may not be able to fully realize the positive impact the Affordable Care Act may otherwise have on our business, results of operations, cash flow, capital resources and liquidity. We cannot predict whether we will be able to modify certain aspects of our operations to offset any potential adverse consequences from the Affordable Care Act or the impact of any alternative provisions that may be adopted. In recent years, a number of laws, including the Affordable Care Act and Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, have promoted shifting from traditional fee-for-service reimbursement models to alternative payment models that tie reimbursement to quality and cost of care. CMS currently administers various accountable care organizations and bundled payment demonstration projects and has indicated that it will continue to pursue similar initiatives. However, the COVID-19 pandemic may impact provider performance and data reporting under these initiatives. CMS has temporarily modified requirements of certain programs by, for example, extending reporting deadlines. As a result of the COVID-19 pandemic, federal and state governments have passed legislation, promulgated regulations, and taken other administrative actions intended to assist healthcare providers in providing care to COVID-19 and other patients during the public health emergency. These measures include temporary relief from Medicare conditions of participation requirements for healthcare providers, temporary relaxation of licensure requirements for healthcare professionals, temporary relaxation of privacy restrictions for telehealth remote communications, promoting use of telehealth by temporarily expanding the scope of services for which Medicare reimbursement is available, and limited waivers of fraud and abuse laws for activities related to COVID-19 during the emergency period. 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 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 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. 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. The repayment terms specify that for the first 11 months after repayment begins, repayment will occur through an automatic recoupment of 25% of Medicare payments otherwise owed to the provider. At the end of the eleven-month period, recoupment will increase to 50% for six months. 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. 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 28 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 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 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. 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 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, 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 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. Supreme Court ruled in Azar v. 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. In response to this adverse ruling, CMS proposed a new rule in August 2020 in an attempt to retroactively cure the underlying procedural 29 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, 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. Furthermore, we will continue to strive to improve operating efficiencies and procedures in order to improve the performance of our hospitals. Sources of Revenue The following table presents the approximate percentages of net operating revenues by payor source for the periods indicated. The data for the periods presented are not strictly comparable due to the effect that hospital acquisitions and divestitures have had on these statistics. Three Months Ended March 31, 2021 2020 Medicare 23.0 % 25.0 % Medicaid 13.0 13.5 Managed Care and other third-party payors 63.5 60.5 Self-pay 0.5 1.0 Total 100.0 % 100.0 % As shown above, we receive a substantial portion of our revenues from the Medicare and Medicaid programs. Included in Managed Care and other third-party payors is operating revenues from insurance companies with which we have insurance provider contracts, Medicare managed care, insurance companies for which we do not have insurance provider contracts, workers’ compensation carriers and non-patient service revenue, such as rental income and cafeteria sales. In the future, we generally expect the portion of revenues received from the Medicare and Medicaid programs to increase over the long-term due to the general aging of the population and the impact of the Affordable Care Act. 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. 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 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. Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-based reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for the treatment of patients covered by Medicare, Medicaid and non-governmental payors are generally less than our standard billing rates. We account for the differences between the estimated program reimbursement rates and our standard billing rates as contractual allowance adjustments, which we deduct from gross revenues to arrive at net operating revenues. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement 30 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 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. Hospitals that do not submit required patient quality data are subject to a reduction in payments. We are complying with this data submission requirement. Payments may also be affected by various other adjustments, such as admission and medical review criteria for inpatient services commonly known as the “two midnight rule.” This rule limits when services to Medicare beneficiaries are payable as inpatient hospital services. Reductions in the rate of increase or overall reductions in Medicare reimbursement may cause a decline in the growth of our net operating revenues. Payment rates under the Medicaid program vary by state. In addition to the base payment rates for specific claims for services rendered to Medicaid enrollees, several states utilize supplemental reimbursement programs to make separate payments that are not specifically tied to an individual’s care, some of which offset a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from CMS and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. The programs are generally authorized for a specified period of time and require CMS’s approval to be extended. We are unable to predict whether or on what terms CMS will extend the supplemental programs in the states in which we operate. Under these supplemental programs, we recognize revenue and related expenses in the period in which amounts are estimable and collection is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and included as Medicaid revenue in the table above, and fees, taxes or other program related costs are reflected in other operating expenses. Results of Operations Our hospitals offer a variety of services involving a broad range of inpatient and outpatient medical and surgical services. These include general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic services, psychiatric and rehabilitation services. Historically, the strongest demand for hospital services generally occurs during January through April and the weakest demand for these services generally occurs during the summer months. Accordingly, eliminating the effects of new acquisitions and/or divestitures, our net operating revenues and earnings are historically highest during the first quarter and lowest during the third quarter. As previously noted, the COVID-19 pandemic has disrupted the pattern of demand for services we provide. The following tables summarize, for the periods indicated, selected operating data. Three Months Ended March 31, 2021 2020 Operating results, as a percentage of net operating revenues: Net operating revenues 100.0 % 100.0 % Operating expenses (a) (83.9 ) (90.1 ) Depreciation and amortization (4.6 ) (4.8 ) Impairment and gain (loss) on sale of businesses, net (0.7 ) (1.5 ) Income from operations 10.8 3.6 Interest expense, net (7.7 ) (8.7 ) Loss from early extinguishment of debt (2.3 ) (0.1 ) Equity in earnings of unconsolidated affiliates 0.3 0.3 Income (loss) before income taxes 1.1 (4.9 ) (Provision for) benefit from income taxes (2.3 ) 6.0 Net (loss) income (1.2 ) 1.1 Less: Net income attributable to noncontrolling interests (0.9 ) (0.5 ) Net (loss) income attributable to Community Health Systems, Inc. stockholders (2.1 )% 0.6 % 31 Three Months Ended March 31, 2021 2020 Percentage (decrease) increase from prior year: Net operating revenues (0.4 )% (10.4 )% Admissions (b) (14.0 ) (13.3 ) Adjusted admissions (c) (15.8 ) (12.8 ) Average length of stay (d) 11.1 (2.2 ) Net (loss) income attributable to Community Health Systems, Inc. (455.6 ) 115.3 Same-store percentage increase (decrease) from prior year (e): Net operating revenues 9.8 % (3.5 )% Admissions (b) (4.9 ) (5.2 ) Adjusted admissions (c) (7.2 ) (4.8 ) (a) 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. (b) Admissions represents the number of patients admitted for inpatient treatment. (c) Adjusted admissions is a general measure of combined inpatient and outpatient volume. We computed adjusted admissions by multiplying admissions by gross patient revenues and then dividing that number by gross inpatient revenues. (d) Average length of stay represents the average number of days inpatients stay in our hospitals. (e) Excludes information for 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 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 $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. Operating costs and expenses, excluding depreciation and amortization and impairment and (gain) loss on sale of businesses, as a percentage of net operating revenues, decreased from 90.1% for the three months ended March 31, 2020 to 83.9% for 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. 32 Depreciation and amortization, as a percentage of net operat ing revenues, de creased from 4. 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 $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. 33 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. 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 year ended December 31, 2020, respectively. 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 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 $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 $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. 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 for the Northwest Health - Starke replacement facility is currently estimated to be approximately $15 million. 34 Capital Resources 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. 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 public and private debt markets. 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 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. 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. A breach of any of these covenants could result in a default under the ABL Facility and/or the indentures that govern our outstanding notes. Upon the occurrence of an event of default under the ABL Facility or indentures that govern our outstanding notes, all amounts outstanding under the ABL Facility and the indentures that govern our outstanding notes may become immediately due and payable and all commitments under the ABL Facility to extend further credit may be terminated. As 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. 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. 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. 35 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 colle ct outstanding receivables. 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 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 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 $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 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. Reimbursement, Legislative and Regulatory Changes Ongoing legislative and regulatory efforts could reduce or otherwise adversely affect the payments we receive from Medicare and Medicaid and other payors. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings, interpretations and discretion which may further affect payments made under those programs, and the federal and state governments might, in the future, reduce the funds available under those programs or require more stringent utilization and quality reviews of hospital facilities. Additionally, there may be a continued rise in managed care programs and additional restructuring of the financing and delivery of healthcare in the United States. These events could cause our future financial results to be adversely impacted. We cannot estimate the impact of Medicare and Medicaid reimbursement changes that have been enacted or are under consideration. We cannot predict whether additional reimbursement reductions will be made or whether any such changes or other restructuring of the financing and delivery of healthcare would have a material adverse effect on our business, financial conditions, results of operations, cash flow, capital resources and liquidity. 36 Inflation The healthcare industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. In addition, our suppliers pass along rising costs to us in the form of higher prices. We have implemented cost control measures, including our case and resource management program, to curb increases in operating costs and expenses. We have generally offset increases in operating costs by increasing reimbursement for services, expanding services and reducing costs in other areas. 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. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those policies that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. We believe that our critical accounting policies are limited to those described below. Revenue Recognition We record net operating revenues at the transaction price estimated to reflect the total consideration due from patients and third-party payors in exchange for providing goods and services in patient care. These services are considered to be a single performance obligation and have a duration of less than one year. Revenues are recorded as these goods and services are provided. 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-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. These programs are designed with input from the CMS and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. Under these supplemental programs, we recognize revenue and related expenses in the period in which amounts are estimable and collection is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and fees, taxes or other program-related costs are reflected in other operating expenses. Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for treatment of patients covered by these programs are generally less than the standard billing rates. Explicit price concessions are recorded for contractual allowances that are calculated and recorded through internally-developed data collection and analysis tools to automate the monthly estimation of required contractual allowances. Within this automated system, payors’ historical paid claims data are utilized to calculate the contractual allowances. This data is automatically updated on a monthly basis. All hospital contractual allowance calculations are subjected to monthly review by management to ensure reasonableness and accuracy. We account for the differences between the estimated program reimbursement rates and the standard billing rates as contractual allowance adjustments, which is one component of the deductions from gross revenues to arrive at net operating revenues. The process of estimating contractual allowances requires us to estimate the amount expected to be received based on payor contract provisions. The key assumption in this process is the estimated contractual reimbursement percentage, which is based on payor classification, historical paid claims data and, when applicable, application of the expected managed care plan reimbursement based on contract terms. Due to the complexities involved in these estimates, actual payments we receive could be different from the amounts we estimate and record. If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% 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 37 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 Substantially all of our accounts receivable are related to providing healthcare services to patients at our hospitals and affiliated businesses. Collection of these accounts receivable is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and outstanding patient balances for which the primary insurance payor has paid some but not all of the outstanding balance, with the remaining outstanding balance (generally deductibles and co-payments) owed by the patient. For all procedures scheduled in advance, our policy is to verify insurance coverage prior to the date of the procedure. Insurance coverage is not verified in advance of procedures for walk-in and emergency room patients. We estimate any adjustments to the transaction price for implicit price concessions by reserving a percentage of all self-pay accounts receivable without regard to aging category, based on collection history, adjusted for expected recoveries and any anticipated changes in trends. Our ability to estimate the transaction price and any implicit price concessions is not impacted by not utilizing an aging of our net accounts receivable as we believe that substantially all of the risk exists at the point in time such accounts are identified as self-pay. The percentage used to reserve for all self-pay accounts is based on our collection history. We believe that we collect substantially all of our third-party insured receivables, which include receivables from governmental agencies. Patient accounts receivable are recorded at net realizable value based on certain assumptions determined by each payor. For third-party payors including Medicare, Medicaid, and Managed Care, the net realizable value is based on the estimated contractual reimbursement percentage, which is based on current contract prices or historical paid claims data by payor. For self-pay accounts receivable, which includes patients who are uninsured and the patient responsibility portion for patients with insurance, the net realizable value is determined using estimates of historical collection experience without regard to aging category. These estimates are adjusted for estimated conversions of patient responsibility portions, expected recoveries and any anticipated changes in trends. Patient accounts receivable can be impacted by the effectiveness of our collection efforts. Additionally, significant changes in payor mix, business office operations, economic conditions or trends in federal and state governmental healthcare coverage could affect the net realizable value of accounts receivable. 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 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. Our policy is to write-off gross accounts receivable if the balance is under $10.00 or when such amounts are placed with outside collection agencies. We believe this policy accurately reflects our ongoing collection efforts and is consistent with industry practices. We had approximately $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. As these amounts have been written-off, they are not included in our accounts receivable. Collections on amounts previously written-off are recognized as a recovery of net operating revenues when received. However, we take into consideration estimated collections of these future amounts written-off in determining the implicit price concessions used to measure the transaction price for the applicable portfolio of patient accounts receivable. All of the following information is derived from our hospitals, excluding clinics, unless otherwise noted. Patient accounts receivable from our hospitals represent approximately 98% of our total consolidated accounts receivable. Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 53 days and 52 days at March 31, 2021 and December 31, 2020, respectively. 38 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 March 31, 2021: % of Gross Receivables Payor 0 - 90 Days 90 - 180 Days 180 - 365 Days Over 365 Days Medicare 14 % — % — % — % Medicaid 7 % 1 % 1 % 1 % Managed Care and Other 33 % 4 % 3 % 3 % Self-Pay 7 % 5 % 9 % 12 % As of December 31, 2020: % of Gross Receivables Payor 0 - 90 Days 90 - 180 Days 180 - 365 Days Over 365 Days Medicare 13 % 1 % — % — % Medicaid 7 % 1 % 1 % 1 % Managed Care and Other 31 % 4 % 3 % 3 % Self-Pay 8 % 6 % 9 % 12 % The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and implicit price concessions) summarized by payor is as follows: March 31, December 31, 2021 2020 Insured receivables 67.3 % 64.3 % Self-pay receivables 32.7 35.7 Total 100.0 % 100.0 % The combined total at our hospitals and clinics for the estimated implicit price concessions for self-pay accounts receivable and allowances for other self-pay discounts and contractuals, as a percentage of gross self-pay receivables, was approximately 91% at both March 31, 2021 and December 31, 2020. 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 March 31, 2021 and December 31, 2020. Goodwill and Other Intangibles Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired. Goodwill is evaluated for impairment annually and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. During 2017, we early adopted Accounting Standards Update, or ASU 2017-04, which allows a company to record a goodwill impairment when the reporting units carrying value exceeds the fair value determined in step one. 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 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 39 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. Such changes impacting the calculation of our fair value, the risks of which are amplified by the COVID-19 pandemic, could result in a material impairment charge in the future. Impairment or Disposal of Long-Lived Assets Whenever events or changes in circumstances indicate that the carrying values of certain long-lived assets may be impaired, we project the undiscounted cash flows expected to be generated by these assets. If the projections indicate that the reported amounts are not expected to be recovered, such amounts are reduced to their estimated fair value based on a quoted market price, if available, or an estimate based on valuation techniques available in the circumstances. Professional Liability Claims As part of our business of owning and operating hospitals, we are subject to legal actions alleging liability on our part. We accrue for losses resulting from such liability claims, as well as loss adjustment expenses that are out-of-pocket and directly related to such liability claims. These direct out-of-pocket expenses include fees of outside counsel and experts. We do not accrue for costs that are part of our corporate overhead, such as the costs of our in-house legal and risk management departments. The losses resulting from professional liability claims primarily consist of estimates for known claims, as well as estimates for incurred but not reported claims. The estimates are based on specific claim facts, our historical claim reporting and payment patterns, the nature and level of our hospital operations, and actuarially determined projections. The actuarially determined projections are based on our actual claim data, including historic reporting and payment patterns which have been gathered over an approximately 20-year period. As discussed below, since we purchase excess insurance on a claims-made basis that transfers risk to third-party insurers, the liability we accrue does include an amount for the losses covered by our excess insurance. We also record a receivable for the expected reimbursement of losses covered by our excess insurance. Since we believe that the amount and timing of our future claims payments are reliably determinable, we discount the amount we accrue for losses resulting from professional liability claims 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 1.8% 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 (loss) income. Our processes for obtaining and analyzing claims and incident data are standardized across all of our hospitals and have been consistent for many years. We monitor the outcomes of the medical care services that we provide and for each reported claim, we obtain various information concerning the facts and circumstances related to that claim. In addition, we routinely monitor current key statistics and volume indicators in our assessment of utilizing historical trends. The average lag period between claim occurrence and payment of a final settlement is between three and four years, although the facts and circumstances of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after settlement with the claimant is reached, settled claims represent approximately 1.0% of the total liability at the end of any period. For purposes of estimating our individual claim accruals, we utilize specific claim information, including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred. Once the case accruals for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years, geography, and claims relating to the acquired HMA hospitals versus claims relating to our other hospitals. Several actuarial methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses our company-specific historical claims data and other information. This company-specific data includes information regarding our business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data. 40 Based on these analyses, we determine our estimate of the professional liability claims. The determination of management’s estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of management. Changes in reserving data or the trends and factors that influence reserving data may signal fundamental shifts in our future claim development patterns or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover, since our methods and models use different types of data and we select our liability from the results of all of these methods, we typically cannot quantify the precise impact of such factors on our estimates of the liability. Due to our standardized and consistent processes for handling claims and the long history and depth of our company-specific data, our methodologies have historically produced reliably determinable estimates of ultimate paid losses. Management considers any changes in the amount and pattern of its historical paid losses up through the most recent reporting period to identify any fundamental shifts or trends in claim development experience in determining the estimate of professional liability claims. However, due to the subjective nature of this estimate and the impact that previously unforeseen shifts in actual claim experience can have, future estimates of professional liability could be adversely impacted when actual paid losses develop unexpectedly based on assumptions and settlement events that were not previously known or anticipated. We are primarily self-insured for these claims; however, we obtain excess insurance that transfers the risk of loss to a third-party insurer for claims in excess of our self-insured retentions. Our excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002, substantially all of our professional and general liability risks were subject to a less than $1 million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2 million per occurrence. Substantially all claims reported after June 1, 2003 and before June 1, 2005 are self-insured up to $4 million per claim. Substantially all claims reported on or after June 1, 2005 and before June 1, 2014 are self-insured up to $5 million per claim. Substantially all claims reported on or after June 1, 2014 and before June 1, 2018 are self-insured up to $10 million per claim. Substantially all claims reported on or after June 1, 2018 are self-insured up to $15 million per claim. Management, on occasion, has selectively increased the insured risk at certain hospitals based upon insurance pricing and other factors and may continue that practice in the future. Excess insurance for all hospitals has been purchased through commercial insurance companies and generally covers us for liabilities in excess of the self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of which totals up to $95 million per occurrence and in the aggregate for claims reported on or after June 1, 2003, up to $145 million per occurrence and in the aggregate for claims reported on or after January 1, 2008, up to $195 million per occurrence and in the aggregate for claims reported on or after June 1, 2010, and up to at least $215 million per occurrence and in the aggregate for claims reported on or after June 1, 2015. In addition, for integrated occurrence malpractice claims, there is an additional $50 million of excess coverage for claims reported on or after June 1, 2014 and an additional $75 million of excess coverage for claims reported on or after June 1, 2015 through June 1, 2020. The $75 million in integrated occurrence coverage will also apply to claims reported between June 1, 2020 and May 31, 2021 for events that occurred prior to June 1, 2020 but which were not previously known or reported . For certain policy years prior to June 1, 2014, if the first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention will increase to $10 million per claim for any subsequent claims in that policy year until our total aggregate coverage is met. Beginning June 1, 2018, this drop-down provision in the excess policies attaches over the $15 million per claim self-insured retention. Effective June 1, 2014, the hospitals acquired from HMA were insured on a claims-made basis as described above and through commercial insurance companies as described above for substantially all claims reported on or after June 1, 2014 except for physician-related claims with an occurrence date prior to June 1, 2014. Prior to June 1, 2014, the former HMA hospitals obtained insurance coverage through a wholly-owned captive insurance subsidiary and a risk retention group subsidiary which are domiciled in the Cayman Islands and South Carolina, respectively. Those insurance subsidiaries, which are collectively referred to as the “Insurance Subsidiaries,” provided (i) claims-made coverage to all of the former HMA hospitals and (ii) occurrence-basis coverage to most of the physicians employed by the former HMA hospitals. The employed physicians not covered by the Insurance Subsidiaries generally maintained claims-made policies with unrelated third party insurance companies. To mitigate the exposure of the program covering the former HMA hospitals and other healthcare facilities, the Insurance Subsidiaries bought claims-made reinsurance policies from unrelated third parties for claims above self-retention levels of $10 million or $15 million per claim, depending on the policy year. Effective January 1, 2008, the former Triad hospitals were insured on a claims-made basis as described above and through commercial insurance companies as described above for substantially all claims occurring on or after January 1, 2002 and reported on or after January 1, 2008. Substantially all losses for the former Triad hospitals in periods prior to May 1, 1999 were insured through a wholly-owned insurance subsidiary of HCA, Triad’s owner prior to that time, and excess loss policies maintained by HCA. HCA has agreed to indemnify the former Triad hospitals in respect of claims covered by such insurance policies arising prior to May 1, 1999. From May 1, 1999 through December 31, 2006, the former Triad hospitals obtained insurance coverage on a claims incurred basis from HCA’s wholly-owned insurance subsidiary with excess coverage obtained from other carriers that is subject to certain deductibles. Effective for claims incurred after December 31, 2006, Triad began insuring its claims from $1 million to $5 million through its wholly-owned captive insurance company, replacing the coverage provided by HCA. Substantially all claims occurring during 2007 were self-insured up to $10 million per claim. 41 There were no significant changes in our estimate of the reserve for professional liability claims during the three months ended March 31, 2021 . Income Taxes We must make estimates in recording provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets. We believe that future income will enable us to realize certain deferred tax assets, subject to the valuation allowance we have established. 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; however, we do not anticipate the change will have a material impact on our consolidated results of operations or consolidated financial position. Our federal income tax returns for the 2009 and 2010 tax years have been settled with the Internal Revenue Service. The results of these examinations were not material to our consolidated results of operations or consolidated financial position. Our federal income tax returns for the 2014 and 2015 tax years remain under examination by the Internal Revenue Service. 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 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. 42 FORWARD-LOOKING STATEMENTS Some of the matters discussed in this Report include “forward-looking statements” within the meaning of the federal securities laws, which involve risks, assumptions and uncertainties. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “thinks,” and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. These factors include, among other things: • developments related to COVID-19, including, without limitation, related to the length and severity of the pandemic; the volume of canceled or rescheduled procedures; the volume of COVID-19 patients cared for across our health systems; 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; the impact of government and administrative regulation on us; changes in net revenue due to patient volumes, payor mix and negative macroeconomic conditions; increased expenses related to labor, supply chain, capital and other expenditures; workforce disruptions; and supply shortages and disruptions; • 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; • the impact of current or future federal and state health reform initiatives, including, without limitation, the Affordable Care Act, and the potential for the Affordable Care Act to be repealed or found unconstitutional or otherwise invalidated, or for additional changes to the law, its implementation or its interpretation (including through executive orders and court challenges); • the extent to and manner in which states support increases, decreases or changes in Medicaid programs, implement health insurance exchanges or alter the provision of healthcare to state residents through regulation or otherwise; • 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; • demographic changes; • changes in, or the failure to comply with, federal, state or local laws or governmental regulations affecting our business, including any such laws or governmental regulations which are adopted in connection with the COVID-19 pandemic; • potential adverse impact of known and unknown government investigations, audits, and federal and state false claims act litigation and other legal proceedings; • our ability, where appropriate, to enter into and maintain provider arrangements with payors and the terms of these arrangements, which may be further affected by the increasing consolidation of health insurers and managed care companies and vertical integration efforts involving payors and healthcare providers; • changes in, or the failure to comply with, contract terms with payors and changes in reimbursement policies or rates paid by federal or state healthcare programs or commercial payors; • any potential impairments in the carrying value of goodwill, other intangible assets, or other long-lived assets, or changes in the useful lives of other intangible assets; • changes in inpatient or outpatient Medicare and Medicaid payment levels and methodologies; • the effects related to the implementation of sequestration spending reductions pursuant to both the Budget Control Act of 2011 and the PAYGO Act and the potential for future deficit reduction legislation; 43 • increases in the amount and risk of collectability of patient accounts receivable, including decreases in collectability which may result from, among other things, self-pay growth and difficulties in recovering payments for which patients are responsible, including co-pays and deductibles; • the efforts of insurers, healthcare providers, large employer groups and others to contain healthcare costs, including the trend toward value-based purchasing; • increases in wages as a result of inflation or competition for highly technical positions and rising supply and drug costs due to market pressure from pharmaceutical companies and new product releases; • liabilities and other claims asserted against us, including self-insured malpractice claims; • competition; • our ability to attract and retain, at reasonable employment costs, qualified personnel, key management, physicians, nurses and other healthcare workers; • trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals or via telehealth; • changes in medical or other technology; • changes in U.S. GAAP; • the availability and terms of capital to fund any additional acquisitions or replacement facilities or other capital expenditures; • our ability to successfully make acquisitions or complete divestitures, our ability to complete any such acquisitions or divestitures on desired terms or at all, the timing of the completion of any such acquisitions or divestitures, and our ability to realize the intended benefits from any such acquisitions or divestitures; • the impact that changes in our relationships with joint venture or syndication partners could have on effectively operating our hospitals or ancillary services or in advancing strategic opportunities; • our ability to successfully integrate any acquired hospitals, or to recognize expected synergies from acquisitions; • the impact of seasonal severe weather conditions, including the timing and amount of insurance recoveries in relation to severe weather events; • our ability to obtain adequate levels of insurance, including general liability, professional liability, and directors and officers liability insurance; • timeliness of reimbursement payments received under government programs; • effects related to pandemics, epidemics, or outbreaks of infectious diseases, including the novel coronavirus causing the disease known as COVID-19 as noted above; • the impact of cyber-attacks or security breaches; • any failure to comply with the terms of the Corporate Integrity Agreement; • the concentration of our revenue in a small number of states; • our ability to realize anticipated cost savings and other benefits from our current strategic and operational cost savings initiatives; • any changes in or interpretations of income tax laws and regulations; and • the other risk factors set forth in our 2020 Form 10-K, and our other public filings with the SEC. 44 Although we believe that these forward-looking statements are based upon reasonable assumptions, these assumptions are inherently subject to significant regulatory, economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond our control. Accordingly, we cannot give any assurance that our expectations will in fact occur, and we caution that actual results may differ materially from those in the forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this filing. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. Item 3. 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.