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Item 2. Management’s Discussion and Analysis

2021-07-29 compared with 2021-04-29 · 266 added, 218 removed, 446 unchanged (52% of the section changed)

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

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

As of June 30, 2021, we owned or leased 84 hospitals, comprised of 82 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.

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

COVID-19 Pandemic

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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.

In an attempt to contain the spread and impact of COVID-19, authorities throughout the United States and the world have recommended and mandated 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.

However, in the United States, the number of COVID-19 cases has declined in comparison to earlier levels at the height of the pandemic as vaccines have become widely available, and most restrictions related to the COVID-19 pandemic have been relaxed.

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.

We have been working with federal, state and local health authorities to respond to the COVID-19 pandemic in the communities we serve.

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.

Although we have implemented 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 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.

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.

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

Negative economic conditions and other factors resulting from the COVID-19 pandemic 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.

These factors 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 adversely affect our financial results and require an increased level of working capital.

W hile 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 if economic and/or public health conditions i n the United States deteriorate.

The ultimate impact of the pandemic on our financial results will depend on, among other factors, the durati on and severity of 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, availability and adoption of effective medical treatments and vaccines, the spread of potentially more contagious and/or virulent forms of the virus , including any possible variants of the virus that may be resistant to currently available vaccines, and the i m pact of governmen t actions and administrative regulation on the hospital industry and broader economy, including through existing and any future stimulus efforts.

As discussed below und er “L egislative 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 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 additio nal stimulus measures will be en acted or their impact, if any.

We are unable to assess the extent to which potential 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 the six months ended June 30, 2021, we completed the divestiture of five hospitals, including three which closed effective January 1, 2021 (for these hospitals we received net proceeds at a preliminary closing on December 31, 2020).

These five hospitals represented annual net operating revenues in 2020 of approximately $275 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 $28 million in connection with the disposition of these hospitals.

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

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

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

The following table provides a summary of hospitals that we divested during the six months ended June 30, 2021 and the year ended December 31, 2020:

Effective Date

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February 1, 2021

AllianceHealth Midwest

SSM Health Care of Oklahoma

Midwest City, OK

April 1, 2021

2020 Divestitures:

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Shands Live Oak Regional Medical Center

HCA Healthcare, Inc., or HCA,

HCA Healthcare, Inc.

Shands Starke Regional Medical Center

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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.

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 or our unconsolidated equity interest in 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.

During the six months ended June 30, 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.

As described in the Notes to Condensed Consolidated Financial Statements (Unaudited) in Part I, Item 1 of this Form 10-Q under the heading “Acquisitions and Divestitures”, a purchase agreement was entered into on May 1, 2021 among certain subsidiaries of the Company and HCA for the sale of the Company’s unconsolidated minority equity interest in Macon Healthcare, LLC.

Macon Healthcare, LLC is a joint venture with certain subsidiaries of HCA representing two hospitals in Macon, Georgia, in which the Company holds a 38% interest.

The sale, which is scheduled to be completed in the third quarter of 2021, is expected to result in cash proceeds to the Company of approximately $110 million.

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

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:

Our net operating revenues for the three months ended June 30, 2021 increased $488 million to approximately $3.0 billion compared to approximately $2.5 billion for the three months ended June 30, 2020.

On a same-store basis, net operating revenues for the three months ended June 30, 2021 increased $697 million.

Increases in net operating revenues, both on a consolidated and same-store basis, for the three months ended June 30, 2021 compared to 2020, reflect recovery from COVID-19 pandemic-induced reductions in volume in 2020.

We had net income of $37 million during the three months ended June 30, 2021, compared to $93 million for the three months ended June 30, 2020.

Net income for the three months ended June 30, 2021 included the following:

an after-tax charge of $23 million for loss from early extinguishment of debt, and

an after-tax charge of $1 million for the impairment of goodwill and long-lived assets of divested businesses based on their estimated fair values.

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

an after-tax charge of $2 million for government and other legal settlements and related costs,

an after-tax charge of $22 million for the impairment of goodwill and long-lived assets of divested businesses based on their estimated fair values, and

an after-tax charge of $4 million for employee termination benefits and other restructuring costs.

Consolidated inpatient admissions for the three months ended June 30, 2021, increased 4.8%, compared to the three months ended June 30, 2020.

Consolidated adjusted admissions for the three months ended June 30, 2021, increased 15.7%, compared to the three months ended June 30, 2020.

Same-store inpatient admissions for the three months ended June 30, 2021, increased 17.0%, compared to the three months ended June 30, 2020, and same-store adjusted admissions for the three months ended June 30, 2021, increased 28.5%, compared to the three months ended June 30, 2020.

These increases reflect recovery from COVID-19 pandemic-induced reductions in volume in 2020.

Our net operating revenues for the six months ended June 30, 2021 increased $476 million to approximately $6.0 billion compared to approximately $5.5 billion for the six months ended June 31, 2020.

On a same-store basis, net operating revenues for the six months ended June 30, 2021 increased $966 million.

Increases in net operating revenues, both on a consolidated and same-store basis, for the six months ended June 30, 2021 compared to 2020, reflect recovery from COVID-19 pandemic-induced reductions in volume in 2020.

We had net income of $2 million during the six months ended June 30, 2021, compared to $126 million for the six months ended June 30, 2020.

Net income for the six months ended June 30, 2021 included the following:

an after-tax charge of $116 million for loss from early extinguishment of debt, and

an after-tax charge of $18 million for the impairment of goodwill and long-lived assets of divested businesses based on their estimated fair values.

Net income for the six months ended June 30, 2020 included the following:

an after-tax charge of $3 million for government and other legal settlements and related costs,

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.

an after-tax charge of $57 million for the impairment of goodwill and long-lived assets of divested businesses based on their estimated fair values,

an after-tax charge of $4 million for employee termination benefits and other restructuring costs,

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

Consolidated inpatient admissions for the six months ended June 30, 2021, decreased 5.5%, compared to the six months ended June 30, 2020.

Consolidated adjusted admissions for the six months ended June 30, 2021, decreased 2.0%, compared to the six months ended June 30, 2020.

Same-store inpatient admissions for the six months ended June 30, 2021, increased 5.1%, compared to the six months ended June 30, 2020, and same-store adjusted admissions for the six months ended June 30, 2021, increased 8.7%, compared to the six months ended June 30, 2020.

These same-store increases primarily resulted from lower volumes during the prior year period due to the impact of the COVID-19 pandemic.

Self-pay revenues represented approximately 0.9% and (2.2)% of net operating revenues for the three months ended June 30, 2021 and 2020, respectively, and 0.7% and (0.5)% for the six months ended June 30, 2021 and 2020, respectively.

The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 7.1% and 5.5% for the three months ended June 30, 2021 and 2020, respectively, and 7.4% and 5.5% for the six months ended June 30, 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 0.7% for the three months ended June 30, 2021 and 2020, respectively, and 0.9% and 0.7% for the six months ended June 30, 2021 and 2020, respectively.

Legislative Overview

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 most prominent of these 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.

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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.

The Affordable Care Act 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.

This change resulted in legal challenges to the constitutionality of the individual mandate and validity of the Affordable Care Act as a whole.

However, in June 2021, the U.S.

Supreme Court determined that the plaintiffs lacked standing, allowing the law to remain in place.

Nonetheless, 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 is 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.

Of the 16 states in which we o perated hospitals as of June 30 , 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 o f hospitals as of June 30, 202 1 .

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 conditions , or otherwise implement programs that vary from federal standards.

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

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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.

In addition, members of Congress have proposed measures that would expand government-sponsored coverage, including single-payor models, and some states have implemented or are considering public health insurance options.

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 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.

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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.

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).

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.

These laws also delay scheduled reductions to Medicaid DSH payments, provide a 20% add-on to the inpatient PPS DRG rate for COVID-19 patients for the duration of the public health emergency, and permit the deferral of payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

As a result, absent congressional action, Medicare spending will be reduced by up to 4% in fiscal year 2022, in addition to the existing sequestration requirements of the Budget Control Act of 2011.

Through June 30, 2021, we received approximately $712 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 six months ended June 30, 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.

common stockholders during the three and six months ended June 30, 2021, in the amount of less than $1 million and $63 million, respectively, and $333 million during both the three and six months ended June 30, 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 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.

In June 2021, HHS issued guidance that set forth deadlines for using and reporting on the use of PHSSEF funds, depending on the dates on which the funds were received.

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.

No additional Medicare accelerated payments have been received by us since such time and because CMS is no longer accepting new applications for accelerated payments, we do not expect to receive additional Medicare accelerated payments.

CMS began recouping Medicare accelerated payments in April 2021, and as of June 30, 2021, approximately $116 million of accelerated payments previously received by us have been recouped by CMS.

Additionally, 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 six months ended June 30, 2021 and the year ended December 31, 2020, respectively.

As of June 30, 2021 approximately $680 million of Medicare accelerated payments are reflected within accrued liabilities-other in the condensed consolidated balance sheet while the remaining approximately $267 million is included within other long-term liabilities.

There is still a high degree of uncertainty surrounding the implementation of the CARES Act and other stimulus legislation.

In addition, 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 current declaration expires October 18, 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.

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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.

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 .

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

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

errors cited by the U.S.

In response to this adverse ruling, CMS proposed a new rule in August 2020 in an attempt to retroactively cure the underlying procedural errors cited by the U.S.

Supreme Court as the basis in their decision.

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

CMS’ action has introduced uncertainty regarding the potential outcomes from the Supreme Court ruling, and the proposed rule has resulted 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.

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

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 Allina and subsequent litigation, and, if so, the timing of any such payments.

Litigants in lawsuits challenging the proposed rule are seeking such relief.

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

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

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

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

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Managed Care and other third-party payors

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

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

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.

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

We account for adjustments to previous program reimbursement

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

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

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

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

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Three Months Ended

Six Months Ended

Operating results, as a percentage of net operating revenues:

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(Provision for) benefit from income taxes

Net (loss) income

Net income attributable to noncontrolling interests

Net (loss) income attributable to Community Health

Net income (loss) attributable to Community Health

Systems, Inc.

Three Months Ended March 31,

Percentage (decrease) increase from prior year:

Three Months Ended June 30,

Six Months Ended June 30,

Percentage increase (decrease) from prior year:

Net operating revenues

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Average length of stay (d)

Net (loss) income attributable to Community Health

Net income (loss) attributable to Community Health

Systems, Inc.

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Adjusted admissions (c)

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

Operating expenses include salaries and benefits, supplies, other operating expenses, government and other legal settlements and related costs, lease cost and rent, net of the reduction in operating expenses through June 30, 2021 and 2020, resulting from the recognition of pandemic relief funds.

Admissions represents the number of patients admitted for inpatient treatment.

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

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

Excludes information for businesses sold or closed during 2020 and the six months ended June 30, 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.

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.

Three Months Ended June 3 0 , 2021 Compared to Three Months Ended June 30 , 2020

Net operating revenues increased by 19.4% to approximately $3.0 billion for the three months ended June 30, 2021, from approximately $2.5 billion for the three months ended June 30, 2020.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $697 million, or 30.2%, during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020.

Non-same-store net operating revenues decreased $209 million during the three months ended June 30, 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 increased by 4.8% during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Also on a consolidated basis, adjusted admissions increased by 15.7% during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

On a same-store basis, net operating revenues per adjusted admission increased 1.3%, while inpatient admissions increased by 17.0% and adjusted admissions increased by 28.5% for the three months ended June 30, 2021, compared to the three months ended June 30, 2020.

Operating costs and expenses, as a percentage of net operating revenues, increased from 88.2% during the three months ended June 30, 2020 to 89.6% during the three months ended June 30, 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, increased from 82.2% for the three months ended June 30, 2020 to 85.1% for the three months ended June 30, 2021.

Salaries and benefits, as a percentage of net operating revenues, decreased from 50.9% for the three months ended June 30, 2020 to 42.1% for the three months ended June 30, 2021.

Supplies, as a percentage of net operating revenues, remained consistent at 16.6% for both of the three-month periods ended June 30, 2021 and 2020.

Other operating expenses, as a percentage of net operating revenues, decreased from 29.1% for the three months ended June 30, 2020 to 23.8% for the three months ended June 30, 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 June 30, 2020 to 0.0% during the three months ended June 30, 2021.

Lease cost and rent, as a percentage of net operating revenues, decreased from 3.3% for the three months ended June 30, 2020 to 2.6% for the three months ended June 30, 2021.

Pandemic relief funds, as a percentage of net operating revenues, was less than (0.1)% for the three months ended June 30, 2021, compared to (17.8%) for the three months ended June 30, 2020.

The decrease in salaries and benefits, as a percentage of net operating revenues, during the three months ended June 30, 2021 compared to June 30, 2020 is primarily due to the reduction in personnel associated with divestitures.

Depreciation and amortization, as a percentage of net operating revenues, decreased from 5.6% for the three months ended June 30, 2020 to 4.4% for the three months ended June 30, 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 $2 million for the three months ended June 30, 2021, compared to $10 million for the three months ended June 30, 2020, related primarily to divestitures in each respective period.

Interest expense, net, decreased by $ 41 million to $ 219 million for the three months ended June 30, 2021 compared to $260 million for the three months ended June 30, 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.

Loss from early extinguishment of debt of $8 million was recognized during the three months ended June 30, 2021, as a result of the refinancing of certain of our outstanding notes as discussed further in Capital Resources.

No loss from early extinguishment of debt was recognized during the three months ended June 30, 2020.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, increased from less than 0.1% for the three months ended June 30, 2020 to (0.1)% for the three months ended June 30, 2021.

The net results of the above-mentioned changes resulted in income before income taxes increasing $56 million from $35 million for the three months ended June 30, 2020 to $91 million for the three months ended June 30, 2021.

Our provision for income taxes for the three months ended June 30, 2021 was $54 million compared to a benefit from income taxes of $58 million for the three months ended June 30, 2020.

Our effective tax rates were 59.3% and (165.7)% for the three months ended June 30, 2021 and 2020, respectively.

The difference in our effective tax rate for the three months ended June 30, 2021, compared to the three months ended June 30, 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 June 30, 2021.

The tax benefit of $58 million during the three months ended June 30, 2020 is primarily attributable to a change in our projected tax benefit for the annual period ending December 31, 2020.

Net income , as a percentage o f net operating revenues, was 3.7 % for the three months ended June 30 , 2020 compared to 1.2 % for the three months ended June 30 , 2021 .

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 0.9% for the three months ended June 30, 2020, compared to 1.0% for the three months ended June 30, 2021.

Net income attributable to Community Health Systems, Inc.

stockholders was $6 million for the three months ended June 30, 2021, compared to $70 million for the three months ended June 30, 2020.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Net operating revenues increased by 8.6% to approximately $6.0 billion for the six months ended June 30, 2021, from approximately $5.5 billion for the six months ended June 30, 2020.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $966 million, or 19.2%, during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020.

Non-same-store net operating revenues decreased $489 million during the six months ended June 30, 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 5.5% during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Also on a consolidated basis, adjusted admissions decreased by 2.0% during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

On a same-store basis, net operating revenues per adjusted admission increased 9.6%, while inpatient admissions increased by 5.1% and adjusted admissions increased by 8.7% for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

Operating expenses, as a percentage of net operating revenues, decreased from 92.7% during the six months ended June 30, 2020 to 89.4% during the six months ended June 30, 2021.

Operating expenses, excluding depreciation and amortization and impairment and loss on sale of businesses, as a percentage of net operating revenues, decreased from 86.6% for the six months ended June 30, 2020 to 84.5% for the six months ended June 30, 2021.

Salaries and benefits, as a percentage of net operating revenues, decreased from 48.5% for the six months ended June 30, 2020 to 42.7% for the six months ended June 30, 2021.

Supplies, as a percentage of net operating revenues, remained consistent at 16.5% for both of the six-month periods ended June 30, 2021 and 2020.

Other operating expenses, as a percentage of net operating revenues, decreased from 26.7% for the six months ended June 30, 2020 to 24.1% for the six months ended June 30, 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 six months ended June 30, 2020 to less than 0.1% during the six months ended June 30, 2021.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.9% for the six months ended June 30, 2020 to 2.6% for the six months ended June 30, 2021.

Pandemic relief funds, as a percentage of net operating revenues, was (1.4)% for the six months ended June 30, 2021, compared to (8.1) for the six months ended June 30, 2020.

Depreciation and amortization, as a percentage of net operating revenues, decreased from 5.1% for the six months ended June 30, 2020 to 4.5% for the six months ended June 30, 2021, primarily due to the decrease in net operating revenues during the six months ended June 30, 2020, as a result of the COVID-19 pandemic.

Impairment and (gain) loss on sale of businesses was $23 million for the six months ended June 30, 2021, compared to $56 million for the six months ended June 30, 2020, related to impairment of the long-lived assets and reporting unit goodwill allocated to hospitals classified as held for sale or sold during the respective periods.

Interest expense, net, decreased by $74 million to $449 million for the six months ended June 30, 2021 compared to $523 million for the six months ended June 30, 2020.

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

Loss from early extinguishment of debt of $79 million was recognized during the six months ended June 30, 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 six months ended June 30, 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, increased from (0.1)% for the six months ended June 30, 2020 to (0.2)% for the six months ended June 30, 2021.

The net results of the above-mentioned changes resulted in income (loss) before income taxes increasing $240 million from loss of $115 million for the six months ended June 30, 2020 to income of $125 million for the six months ended June 30, 2021.

Our provision for income taxes for th e six months ended June 30, 2021 was $ 123 mil lion compared to a benefit from income taxes of $241 million for th e six months ended June 30, 2020 .

Our effective tax rates were 98.4 % and 209.6 % for th e six months ended June 30, 2021 and 2020 , respectively.

The difference in our effective tax rate for th e six months ended June 30, 2021 , when compared to th e six months ended June 30, 2020 , was primarily due to an increase in the valuation allowance recognized on IRC Section 163(j) interest carryforwards created as a result of the financing transactions completed during the six months ended June 30, 2021 .

The Company’s effective tax rate for the six months ended June 30, 2020 reflects changes in tax benefits as a result of an increase to the deductible interest expense allowed for 2019 and 2020 under the CARES Act that was enacted during the three months ended March 31, 2020 .

Net income, as a percentage of net operating revenues, was 2.3% for the six months ended June 30, 2020 compared to less than 0.1% for the six months ended June 30, 2021.

Net income attributable to noncontrolling interests, as a percentage of net operating revenues, increased from 0.7% for the six months ended June 30, 2020 to 1.0% for the six months ended June 30, 2021.

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.

stockholders was $(58) million for the six months ended June 30, 2021, compared to net income attributable to Community Health Systems, Inc.

stockholders of $87 million for the six months ended June 30, 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.

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.

Net cash provided by operating activities decreased $1.430 billion, from approximately $1.710 billion for the six months ended June 30, 2020, to approximately $280 million for the six months ended June 30, 2021.

The decrease was primarily attributable to the receipt of Medicare accelerated payments as well as PHSSEF funds under the CARES Act and PPPHCE Act during the six months ended June 30, 2020.

Cash paid for interest was $304 million during the six months ended June 30, 2021 compared to $486 million for the six months ended June 30, 2020.

Cash paid for income taxes, net of refunds received, resulted in a net payment of $1 million, and a net refund of approximately $2 million during the six months ended June 30, 2021 and 2020, respectively.

Our net cash used in investing activities was approximately $255 million for the six months ended June 30, 2021, compared to approximately $53 million for the six months ended June 30, 2020, an increase of approximately $202 million.

The cash used in investing activities during the six months ended June 30, 2021 was primarily impacted by a decrease of $145 million in cash proceeds from dispositions of hospitals and other ancillary operations, an increase in cash used in the purchase of property and equipment of $20 million, an increase of $4 million in cash used for acquisition of facilities and other related businesses, an increase in cash used in the net impact of the purchase and sale of available-for-sale and equity securities of $19 million and an increase in cash used to purchase other investments of $15 million.

The increase in cash used in investing activities was partially offset by a $1 million increase in cash proceeds from the sale of property and equipment.

Our net cash used in financing activities was approximately $451 million for the six months ended June 30, 2021, compared to approximately $321 million for the six months ended June 30, 2020, an increase in cash used in financing activities of approximately $130 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 six months ended June 30, 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 June 30, 2021 totaled approximately $28 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 or may be recognized as a reduction in operating costs and expenses in future periods if the underlying conditions for recognition are met.

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

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

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

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

We began deferring the employer portion of social security taxes in mid-April 2020 and, as of 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.

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

CMS began recouping Medicare accelerated payments in April 2021 and as of June 30, 2021, approximately $116 million of accelerated payments previously received by us has been recouped by CMS.

As of June 30, 2021, approximately $680 million of Medicare accelerated payments are reflected within accrued liabilities-other in the condensed consolidated balance sheet while the remaining approximately $267 million are included within other long-term liabilities.

The CARES Ac t provided 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 June 30, 2021 , we had deferred approximately $146 million .

O f this amount, approximately $ 73 million is included within accrued liabilities employee compensation and approximately $ 73 million is included within other long-term liabilities in the condensed consolidated balance sheet.

Macon Healthcare, LLC is a joint venture with certain subsidiaries of HCA representing two hospitals in Macon, Georgia, in which the Company holds a 38% interest.

The sale, which is scheduled to be completed in the third quarter of 2021, is expected to result in cash proceeds to the Company of approximately $110 million.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the six months ended June 30, 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.

Cash expenditures for purchases of facilities and other related businesses were approximately $4 million for the six months ended June 30, 2021, compared to less than $1 million for the six months ended June 30, 2020.

Our expenditures for the six months ended June 30, 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 six months ended June 30, 2021 totaled $149 million compared to $119 million for the six months ended June 30, 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.

Costs to construct replacement hospitals totaled $34 million for the six months ended June 30, 2021, primarily related to the construction of a replacement facility in Fort Wayne, Indiana.

Costs to construct replacement hospitals for the six months ended June 30, 2020 totaled $59 million, primarily related to the construction of a replacement facility in La Porte, Indiana.

During the six months ended June 30, 2021 and 2020, we also had cash expenditures of $29 million and $14 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 first quarter of 2022 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.

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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.

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

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.

Net working capital was approximately $1.2 billion at June 30, 2021, compared to $1.7 billion at December 31, 2020.

Net working capital decreased by approximately $511 million between December 31, 2020 and June 30, 2021.

The decrease is primarily due to the decrease in cash, as a result of debt repayments, repayment of Medicare accelerated payments, refinancing activities and cash paid for deferred financing costs during the six months ended June 30, 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.

At June 30, 2021, the available borrowing base under the ABL Facility was $762 million, of which $120 million was

reserved for outstanding letters of credit and $ 642 million represented excess availability.

W e had no outstanding borrowings as of June 30, 2021 .

Letters of cred it were reduced during the six m onths ended June 30, 2021 by $30 million in relation to a professional liability claim that was settled and funded dur in g the three months ended December 31, 2020.

The issued letters of credit are 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”).

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, or 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”).

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, or 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.

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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.

On May 19, 2021, we completed a private offering of $1.440 billion aggregate principal amount of 6⅛% Junior-Priority Secured Notes due April 1, 2030, or the 6⅛% Junior-Priority Secured Notes due 2030.

The proceeds of the offering were used, together with cash on hand, to redeem the 8⅛% Junior-Priority Secured Notes due 2024 on May 19, 2021 and to pay related fees and expenses.

The 6⅛% Junior-Priority Secured Notes due 2030 bear interest at a rate of 6.125% per year payable semi-annually in arrears on April 1 and October 1, commencing on October 1, 2021.

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

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

As of 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 June 30, 2021, approximately $27 million of our outstanding debt of $11.9 billion is due within the next 12 months.

Through June 30, 2021, we received approximately $1.2 billion of accelerated payments pursuant to the Medicare Accelerated and Advance Payment Program, of which approximately $947 million remained outstanding as of June 30, 2021.

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

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

Through June 30, 2021, we had deferred approximately $146 million of which, approximately $73 million is included within accrued liabilities employee compensation and approximately $73 million is included within other long-term liabilities 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.

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.

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 arising from the COVID-19 pandemic or other factors, which may impact service mix, revenue mix, payor mix and patient volumes, as well as our ability to collect 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.

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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.

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 potential 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.

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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.

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 $13 million representing the maximum potential amount of future payments under physician recruiting guarantee commitments in excess of the liability recorded at June 30, 2021.

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

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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 of June 30, 2021, we have hospitals in eight of the markets we serve, with noncontrolling physician ownership interests ranging from less than 1% to 40%.

In addition, as of June 30, 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 $498 million and $484 million at June 30, 2021 and December 31, 2020, respectively, and noncontrolling interests in equity of consolidated subsidiaries was $79 million and $87 million at June 30, 2021 and December 31, 2020, respectively.

The amount of net income attributable to noncontrolling interests was $31 million and $23 million for the three month periods ended June 30, 2021 and 2020, respectively, and $60 million and $39 million for the six month periods ended June 30 2021 and 2020, respectively.

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

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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.

Wages and other expenses increase during periods of inflation, when labor shortages occur in the marketplace or when market forces or other factors drive such developments, which has occurred and may continue to occur in connection with the current competitive labor market arising out of the COVID-19 pandemic.

Additionally, our suppliers may pass along higher materials costs and shipping/handling fees 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.

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

During each of the three-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.

During each of the three and six-month periods ended June 30, 2021 and 2020, the impact of changes to the inputs used to determine the transaction price was considered immaterial to the current period.

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

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

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at 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.

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at June 30, 2021 from our estimated reimbursement percentage, net loss for the six months ended June 30, 2021 would have changed by approximately $83 million, and net accounts receivable at June 30, 2021 would have changed by $107 million.

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

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

Contractual allowance adjustments related to final settlements and previous program

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

We account for adjustments to previous program reimbursement estimates as contractual allowance adjustments and report them in the

periods that such adjustments become known.

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net income (loss) by an insignificant amount for each of the three and six-month periods ended June 30 , 2021 and 2020.

Patient Accounts Receivable

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

If the actual collection percentage differed by 1% at 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.

If the actual collection percentage differed by 1% at June 30, 2021 from our estimated collection percentage as a result of a change in expected recoveries, net loss for the six months ended June 30, 2021 would have changed by $40 million, and net accounts receivable at June 30, 2021 would have changed by $51 million.

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

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

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

We had approximately $2.8 billion at June 30, 2021, and $3.3 billion at December 31, 2020, being pursued by various outside collection agencies.

We expect to collect less than 3%, net of estimated collection fees, of the amounts being pursued by outside collection agencies.

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

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

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

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 54 days and 52 days at June 30, 2021 and December 31, 2020, respectively.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $ 15.5 billion as of June 30, 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:

As of June 30, 2021:

% of Gross Receivables

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Self-pay receivables

The combined total at our hospitals and clinics for the estimated implicit price concessions for self-pay 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

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

At 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.

At June 30, 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 June 30, 2021.

On the basis of available evidence as of June 30, 2021, no impairment indicators were identified.

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

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

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

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

Future estimates of fair value could be adversely affected if the actual outcome of one or more of the assumptions described above changes materially in the future, including a decline in or volatility of our stock price and the fair value of its our long-term debt, lower than expected hospital volumes, higher market interest rates or increased operating costs.

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Since we believe that the amount and timing of our future claims payments are reliably determinable, we discount the amount we accrue for losses resulting from professional liability claims using the risk-free interest rate corresponding to the timing of our expected payments.

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

The net present value of the projected payments was discounted using a weighted-average risk-free rate of approximately 1.8% at both June 30, 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.

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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 .

The $75 million in integrated occurrence coverage will also apply to claims reported between June 1, 2020 and June 1, 2022 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.

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

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

There were no significant changes in our estimate of the reserve for professional liability claims during the six months ended June 30 , 2021 .

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

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

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was 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.

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was less than $1 million as of June 30, 2021.

A total of less than $1 million of interest and penalties is included in the amount of liability for uncertain tax positions at June 30, 2021.

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

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, 2015 and 2018 tax years remain under examination by the Internal Revenue Service.

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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.

FORWARD-LOOKING STATEMENTS

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

the timing and availability of effective medical treatments and vaccines, 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;

the timing, availability and adoption of effective medical treatments and vaccines;

the spread of potentially more contagious and/or virulent forms of the virus, including any possible variants of the virus that may be resistant to currently available vaccines;

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

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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 impact of current or future federal and state health reform initiatives, including, without limitation, the Affordable Care Act, and the potential for changes to the Affordable Care Act, 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;

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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;

increases in wages as a result of inflation or competition for highly technical positions and higher 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;

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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.

During the six months ended June 30, 2021, there have been no material changes in the quantitative and qualitative disclosures set forth in Item 7A.

Quantitative and Qualitative Disclosures about Market Risk in our 2020 Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis