What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 224 added, 173 removed, 344 unchanged (54% of the section changed)

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Executive Overview

We are one of the largest publicly traded providers of healthcare services in the United States and a leading operator of general acute care hospitals and outpatient facilities in communities across the country.

We provide healthcare services through the hospitals that we own and operate and affiliated businesses in non-urban and selected urban markets throughout the United States.

We are one of the nation’s largest healthcare companies.

Our affiliates are leading providers of healthcare services, developing and operating healthcare delivery systems in 48 distinct markets across 16 states.

As of June 30, 2022, our subsidiaries own or lease 84 affiliated hospitals (inclusive of a de novo hospital which commenced operations during the three months ended June 30, 2022), with approximately 13,000 beds, and operate more than 1,000 sites of care, including physician practices, urgent care centers, freestanding emergency departments, occupational medicine clinics, imaging centers, cancer centers and ambulatory surgery centers.

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

As of March 31, 2022, we owned or leased 83 hospitals, comprised of 81 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.

COVID-19 Pandemic

As a provider of healthcare services, we have been and continue to be significantly affected by the public health and economic effects of the COVID-19 pandemic, which has been declared a public health emergency by the Secretary of the U.S.

Department of Health and Human Services Agency, or HHS.

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

Our hospitals, medical clinics, medical personnel, and employees have been actively caring for COVID-19 patients, and we have been working with federal, state and local health authorities to respond to COVID-19 cases in the communities we serve.

Taking into account the pandemic and other factors, the United States economy has recently experienced general inflationary pressures, significant disruptions to global supply networks, and an extremely competitive labor market.

We have experienced disruptions in connection with the provision of equipment, pharmaceuticals and medical supplies to us, as well as ongoing inflationary pressures in connection with the operation of our business.

In this regard, we have incurred, and may continue to incur, certain increased expenses arising from the pandemic and these economic conditions, including additional labor, supply chain, capital and other expenditures.

While we have implemented cost containment and other measures to try to counteract these developments, we may be unable to fully offset these increases in our costs and otherwise effectively respond to supply disruptions.

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.

To this end, we experienced the largest COVID-19 surge to-date during the three months ended March 31, 2022, which negatively impacted net operating revenues, labor expense and length of stay during the 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, if a major COVID-19 outbreak occurs in a geographic region where any of our hospitals or other facilities are located, we could be affected by responsive measures affecting treatment capacity and care, such as restrictions on elective medical procedures.

In addition, 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 in the United States deteriorate.

The ongoing impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic, the impact of the pandemic on economic conditions, 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 acceptance of effective medical treatments, the availability, acceptance of and need for additional doses of vaccines, the spread of potentially more contagious and/or virulent forms of the virus, including any variants of the virus that may be resistant to currently available vaccines, 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 well as vaccine requirements.

As discussed below under “Overview of Legislative Developments”, we have received, and may continue to receive, payments and advances made available under various federal and state 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 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 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 various federal and state stimulus programs.

Recent Developments and COVID-19 Pandemic

Economic conditions in the United States have been deteriorating in various respects, and the United States economy continues to experience significant inflationary pressures, an extremely competitive labor market, and disruptions to supply networks.

In this regard, we have incurred, and may continue to incur, certain increased expenses arising from these economic conditions, including additional labor, supply chain, capital and other expenditures.

Moreover, taking into account these developments, during the second quarter of 2022, we experienced unfavorable changes in payor mix, declines in patient volumes, wage inflation for permanent employees and increased rates for and greater utilization of temporary contract labor (including contract nursing personnel).

These factors had a material unfavorable impact on our financial results during the second quarter of 2022, and may have an unfavorable impact on our financial results in future periods which could be material.

While we have implemented cost containment and other measures to try to counteract these developments, we may continue to be unable to fully offset the impact of these factors on the operation of our business.

In addition, as a provider of healthcare services, we have been and continue to be affected by the public health and economic effects of the COVID-19 pandemic, which has been declared a public health emergency by the Secretary of the U.S.

Department of Health and Human Services, or HHS.

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

If economic conditions in the United States further significantly deteriorate and/ or public health conditions related to the COVID-19 pandemic significantly worsen, any such developments could materially and adversely affect our results of operations, financial position, and/or our cash flows.

Completed Divestiture and Acquisition Activity

No hospitals were divested during the three months ended March 31, 2022.

No hospitals were divested during the six months ended June 30, 2022.

On March 7, 2022, we entered into a definitive agreement for the sale of substantially all of the assets of AllianceHealth Seminole (32 licensed beds) in Seminole, Oklahoma, to affiliates of SSM Health Care of Oklahoma.

The proceeds from this sale were received at a preliminary closing on June 30, 2022, and the disposition was completed on July 1, 2022.

During 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.

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

The following table provides a summary of hospit als that we divested during t he year ended December 31, 2021 :

Effective Date

2021 Divestitures:

Lea Regional Medical Center

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April 1, 2021

Our portfolio rationalization and deleveraging strategy involving the divestiture of hospitals and non-hospital businesses concluded at the end of 2020.

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.

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

We expect proceeds from any such divestitures to be used for general corporate purposes and capital expenditures.

This disposition is expected to be completed during the second half of 2022.

During the three months ended March 31, 2022, we paid approximately $1 million to acquire the operating assets and related businesses of certain physician practices, clinics and other ancillary businesses that operate within the communities served by our hospitals.

During the six months ended June 30, 2022, we paid approximately $4 million to acquire the operating assets and related businesses of certain physician practices, clinics and other ancillary businesses that operate within the communities served by our hospitals.

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

Overview of Operating Results

Net operating revenues increased from $3.0 billion for the three months ended March 31, 2021 to $3.1 billion for the three months ended March 31, 2022.

On a same-store basis, net operating revenues for the three months ended March 31, 2022 increased $113 million.

We had net income of $30 million during the three months ended March 31, 2022, compared to a net loss of $35 million for the three months ended March 31, 2021.

Net income for the three months ended March 31, 2022 included the following:

Net operating revenues decreased from $3.0 billion for the three months ended June 30, 2021 to $2.9 billion for the three months ended June 30, 2022.

On a same-store basis, net operating revenues for the three months ended June 30, 2022 decreased $79 million.

We had net loss of $(298) million during the three months ended June 30, 2022, compared to net income of $37 million for the three months ended June 30, 2021.

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 $5 million for the impairment of long-lived assets of a hospital held for sale based on its estimated fair value.

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, and

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.

Consolidated inpatient admissions for the three months ended March 31, 2022, decreased 1.7%, compared to the three months ended March 31, 2021.

Consolidated adjusted admissions for the three months ended March 31, 2022, increased 2.2%, compared to the three months ended March 31, 2021.

Same-store inpatient admissions for the three months ended March 31, 2022, decreased 0.3%, compared to the three months ended March 31, 2021, and same-store adjusted admissions for the three months ended March 31, 2022, increased 3.2%, compared to the three months ended March 31, 2021.

Self-pay revenues represented approximately 1.4 % and 0.5 % of net operating revenues for the three month s ended March 31 , 202 2 and 20 21 , respectively .

The amount of foregone revenue related to providing charity care services as a percentage of net operatin g revenues was approximately 11.7 % and 7.6 % for the three months ended March 31, 2022 and 2021 , respectively .

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.3 % and 0.9 % for the three months ended March 31, 2022 and 2021 , respectively.

Overview of Legislative Developments

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.

There were no similar adjustments to net loss for the three months ended June 30, 2022.

Consolidated inpatient admissions for the three months ended June 30, 2022, decreased 3.4%, compared to the three months ended June 30, 2021.

Consolidated adjusted admissions for the three months ended June 30, 2022, decreased 0.4%, compared to the three months ended June 30, 2021.

Same-store inpatient admissions for the three months ended June 30, 2022, decreased 3.5%, compared to the three months ended June 30, 2021, and same-store adjusted admissions for the three months ended June 30, 2022, decreased 0.5%, compared to the three months ended June 30, 2021.

Net operating revenues increased from $6.020 billion for the six months ended June 30, 2021 to $6.044 billion for the six months ended June 30, 2022.

On a same-store basis, net operating revenues for the six months ended June 30, 2022 increased $34 million.

We had net loss of $(268) million during the six months ended June 30, 2022, compared to net income of $2 million for the six months ended June 30, 2021.

Net loss for the six months ended June 30, 2022 included the following:

an after-tax charge of $14 million for loss from early extinguishment of debt, and

an after-tax charge of $5 million for the impairment of long-lived assets of a hospital that was subsequently sold at a sales price below carrying value.

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.

Consolidated in patient admissions for the six months ended June 30, 2022 , de creased 2.5 %, compared to the six months ended June 30, 2021 .

Consolidated a djusted admissions for the six months ended June 30, 2022 , in creased 0.8 %, compared to the six months ended June 30, 2021 .

Same-store in patient admissions for the six months ended June 30, 2022 , de creased 1.9 %, compared to the six months ended June 30, 2021 , and same-store a djusted admissions for the six months ended June 30, 2022 , in creased 1.3 %, compared to the six months ended June 30, 2021 .

Self-pay revenues represented approximately 0.4% and 0.9% of net operating revenues for the three months ended June 30, 2022 and 2021, respectively, and 0.9% and 0.7% for the six months ended June 30, 2022 and 2021, respectively.

The amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 13.9% and 7.1% for the three months ended June 30, 2022 and 2021, respectively, and 12.8% and 7.4% for the six months ended June 30, 2022 and 2021, respectively.

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.6% and 0.9% for the three months ended June 30, 2022 and 2021, respectively, and 1.5% and 0.9% for the six months ended June 30, 2022 and 2021, respectively.

Overview of Legislative and Other Governmental Developments

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.

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

Of the 16 states in which we operated hospitals as of March 31, 2022, nine states have taken action to expand their Medicaid programs.

At this time, the other seven states have not, including Florida, Alabama, Tennessee, Mississippi and Texas, where we operated a significant number of hospitals as of March 31, 2022.

Of the 16 states in which we operated hospitals as of June 30, 2022, nine states have taken action to expand their Medicaid programs.

At this time, the other seven states have not, including Florida, Alabama, Tennessee, Mississippi and Texas, where we operated a significant number of hospitals as of June 30, 2022.

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

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

For example, the No Surprises Act requires providers to send an insured patient’s health plan a good faith estimate of expected charges, including billing and diagnostic codes, prior to when the patient is scheduled to receive the item or service.

HHS is deferring enforcement of this requirement until it issues additional regulations.

For example, the No Surprises Act currently requires providers to provide a good faith estimate of expected charges to uninsured or self-pay individuals in connection with scheduled items or services, upon request of the individual.

It also requires providers to send an insured patient’s health plan a good faith estimate of expected charges, including billing and diagnostic codes, prior to when the patient is scheduled to receive the item or service.

HHS is deferring enforcement of the good faith estimate requirement for insured patients until it issues additional regulations.

In recent years, a number of laws, including the Affordable Care Act and the Medicare Access and CHIP Reauthorization Act, have promoted shifting from traditional fee-for-service reimbursement models to alternative payment models that tie reimbursement to quality and cost of care.

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Congress further delayed these sequestration cuts through March 31, 2022, and reduced the sequestration adjustment to 1% from April 1 through June 30, 2022, but increased the reductions set for 2030.

The CARES Act and related legislation 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, 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, and provided claims reimbursement to healthcare providers for the provision of COVID-19 testing, treatment, and vaccine administration to uninsured individuals by way of the Health Resources & Services Administration, or HRSA, COVID-19 Uninsured Program.

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

The CARES Act and related legislation also delay scheduled reductions to Medicaid DSH payments, provide a 20% add-on to the inpatient prospective payment system diagnosis-related group, or PPS DRG , rate for COVID-19 patients for the duration of t he public health emergency, permit ted 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 , and provided claims reimbursement to healthcare providers for the provision of COVID-19 testing, treatment, and vaccine administration to uninsured individuals by way of the Health Resources & Services Administration, or HRSA, COVID-19 Uninsured Program .

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

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

However, Congress has delayed implementation of this payment reduction until 2023.

Through March, 31, 2022, net of amounts that have been repaid to the respective federal state, and local agency, we received approximately $805 million in pandemic relief fund payments through various federal, state and local programs on a cumulative basis since their enactment.

Of the net amount received to-date, approximately $42 million was received during the three months ended March 31, 2022 and the remainder was received during the years ended December 31, 2021 and 2020.

Payments recognized to-date have not impacted net operating revenues, and had a positive impact on net loss attributable to Community Health Systems, Inc.

stockholders during the three months ended March 31, 2022 and 2021, in the amount of $35 million and $62 million, respectively.

Through June 30, 2022, net of amounts that have been repaid to the respective federal, state, and local agencies, we received approximately $815 million in pandemic relief fund payments through various federal, state and local programs on a cumulative basis since their enactment.

Of the net amount received to-date, approximately $52 million was received during the six months ended June 30, 2022 and the remainder was received during the years ended December 31, 2021 and 2020.

Payments recognized to-date have not impacted net operating revenues, and had a positive impact on net (loss) income attributable to Community Health Systems, Inc.

stockholders during the three months ended June 30, 2022 and 2021, in the amount of $6 million and less than $1 million, respectively, and $41 million and $63 million during the six months ended June 30, 2022 and 2021, respectively.

Amounts received through various federal, state or local programs that have not yet been recognized or otherwise have not been refunded to HHS are included within accrued liabilities-other in the condensed consolidated balance sheets, and such unrecognized amounts may be returned to HHS or the respective state or local agency, as applicable, or may be recognized in future periods if the underlying conditions for recognition are reasonably assured of being met.

We have satisfied all current reporting requirements for pandemic relief funds received to-date, as applicable.

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

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CMS began recouping Medicare accelerated payments in April 2021.

As of December 31, 2021, all Medicare accelerated payments received by us were recouped or repaid to CMS or assumed by buyers rel ated to hospitals we divested.

In this regard, a pproximately $1.1 billion and $77 million of Medicare accelerated payments were recouped or repaid to CMS or assumed by buyers related to hospitals we divested during the years ended December 31, 2021 and 2020, respectively.

There is still a high degree of uncertainty regarding the magnitude and timing of any future payments or benefits that we may receive or realize under the CARES Act and other stimulus legislation passed in response to the COVID-19 pandemic.

As of December 31, 2021, all Medicare accelerated payments received by us were recouped or repaid to CMS or assumed by buyers related to hospitals we divested.

In this regard, approximately $1.1 billion and $77 million of Medicare accelerated payments were recouped or repaid to CMS or assumed by buyers related to hospitals we divested during the years ended December 31, 2021 and 2020, respectively.

There is still uncertainty regarding the magnitude and timing of any future payments or benefits that we may receive or realize under the CARES Act and other stimulus legislation passed in response to the COVID-19 pandemic, although we do not currently expect to receive the same level of payments or benefits in future periods that we received or realized earlier in the pandemic.

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 healthcare providers are available only until funds expire or 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 15, 2022.

The current declaration expires October 13, 2022.

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 HHS will provide states with 60 days’ notice prior to termination of the declaration.

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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 rule in August 2020 in an attempt to retroactively cure the underlying procedural errors cited by the U.S.

In response to this adv erse ruling, CMS proposed a 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.

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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 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, pandemic relief fund payments we have received and may in the future receive under federal, state or local stimulus or relief programs, 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 and for the foreseeable future thereafter.

While the ruling in Allina was specific to the DSH payments calculated for federal fiscal year 2012 for the plaintiff hospitals, the Allina precedent could result in higher DSH payments for fe deral fiscal years 2005 to 2013 .

There continues to be uncertainty regarding the extent to which, if any, Medicare DSH payments would be remitted to our affiliated hospitals as the result of Allina and subsequent litigation as well as litigation related to other Medicare DSH issues, and, if so, the timing of any such payments.

If it were 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 ;

however, based on recent judicial developments, we believe the likelihood of our affiliated hospitals receiving any Medicare DSH payments in respect of prior periods as set forth above has decreased .

In June 2022, the U.S.

Supreme Court ruled in American Hospital Association v.

Becerra , a case on the 340B Drug Pricing Program that could impact Medicare reimbursement to us, both in respect of past periods and future periods.

The 340B program allows certain non-profit healthcare organizations that care for many uninsured and low-income patients to purchase outpatient drugs from pharmaceutical manufacturers at discounted rates.

Our hospitals do not participate in the 340B program.

In 2018, HHS implemented a payment policy that reduced Medicare payments to 340B hospitals for most drugs obtained at 340B-discounted rates.

These payment cuts resulted in increased payments for non-340B hospitals, including our facilities.

In Becerra, the U.S.

Supreme Court determined that HHS unlawfully reduced reimbursement rates for 340B hospitals.

The remedy in the case has not yet been determined.

However, if it is determined that budget neutrality applies to the remedy, companies or entities that operate non-340B hospitals such as us may be required to repay previously received payments, which could have a material adverse impact on our financial results in any future reporting period in which such future repayments are recognized or paid.

In addition, depending on future Medicare payment policies, companies or entities that operate non-340B hospitals such as us could receive decreased reimbursement going forward for outpatient drugs, which would adversely impact our results on a prospective basis.

As a result of our current levels of cash, pandemic relief fund payments we may in the future receive under federal, state or local stimulus or relief programs, available borrowing capacity, long-term outlook on our debt repayments, the refinancing of certain of our notes, proceeds from any potential future disposition of hospitals or other investments such as our minority equity interests in various businesses, as applicable, 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 and for the foreseeable future thereafter.

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 following table presents the approximate percentages of net operating revenues by payor source for the periods indicated.

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

The data for the periods presented are not strictly comparable due to the effect that businesses acquired, sold, closed or opened during each of the respective periods, as applicable, have had on these statistics.

Three Months Ended

Six Months Ended

Managed Care and other third-party payors

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Included in Managed Care and other third-party payors is operating revenues from insurance companies with which we have insurance provider contracts, Medicare managed care, insurance companies for which we do not have insurance provider contracts, workers’ compensation carriers and non-patient service revenue, such as rental income and cafeteria sales.

In the future, we generally expect the portion of revenues received from the Medicare and Medicaid programs to increase over the long-term due to the general aging of the population and other factors, including health reform initiatives.

In the future, we generally expect the portion of revenues

received from the Medicare and Medicaid programs to increase over the long-term due to the general aging of the population and other factors, including health reform initiatives.

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

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

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net income (loss) by an insignificant amount in each of the three-month periods ended March 31, 2022 and 2021.

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 and six-month periods ended June 30, 2022 and 2021.

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

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Historically, the strongest demand for hospital services generally occurs during January through April and the weakest demand for these services generally occurs during the summer months.

Accordingly, eliminating the effects of new acquisitions and/or divestitures, our net operating revenues and earnings are historically highest during the first quarter and lowest during the third quarter.

As previously noted, the COVID-19 pandemic has disrupted the pattern of demand for services we provide.

Accordingly, eliminating the effects of new acquisitions and/or divestitures, our net operating revenues and earnings have generally been the highest during the first quarter and lowest during the third quarter.

The following tables summarize, for the periods indicated, selected operating data.

Three Months Ended

Six Months Ended

Operating results, as a percentage of net operating revenues:

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Equity in earnings of unconsolidated affiliates

Income before income taxes

(Loss) income before income taxes

Provision for income taxes

Net income (loss)

Net (loss) income

Net income attributable to noncontrolling interests

Net loss attributable to Community Health

Net (loss) income attributable to Community Health

Systems, Inc.

Three Months Ended March 31,

Percentage increase (decrease) from prior year:

Three Months Ended June 30,

Six Months Ended June 30,

Percentage (decrease) increase from prior year:

Net operating revenues

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Average length of stay (d)

Net loss attributable to Community Health

Net (loss) income attributable to Community Health

Systems, Inc.

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

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

Net operating revenues

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Adjusted admissions (c)

Operating expenses include salaries and benefits, supplies, other operating expenses, lease cost and rent, net of the reduction in operating expenses through March 31, 2022 and 2021, resulting from the recognition of pandemic relief funds.

Operating expenses include salaries and benefits, supplies, other operating expenses, and lease cost and rent, net of the reduction in operating expenses through June 30, 2022 and 2021, resulting from the recognition of pandemic relief funds.

Admissions represents the number of patients admitted for inpatient treatment.

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

Excludes information for businesses sold or closed during each of the respective periods, as applicable.

Excludes information for businesses sold or closed during each of the respective periods, as applicable, and one hospital opened in 2022.

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, 2022 Compared to Three Months Ended March 31, 2021

Net operating revenues increased to $3.1 billion for the three months ended March 31, 2022 compared to $3.0 billion for the three months ended March 31, 2021.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $113 million, or 3.8%, during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021.

On a period-over-period basis, the increase in net operating revenues was attributable to increased patient volumes, acuity, and reimbursement rates.

Non-same-store net operating revenues decreased $15 million during the three months ended March 31, 2022, in comparison to the prior year period.

On a consolidated basis, inpatient admissions decreased by 1.7% and adjusted admissions increased by 2.2% during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

On a same-store basis, net operating revenues per adjusted admission increased 0.5%, while inpatient admissions decreased by 0.3% and adjusted admissions increased by 3.2% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

Operating costs and expenses, as a percentage of net operating revenues, increased from 89.2% during the three months ended March 31, 2021 to 91.3% during the three months ended March 31, 2022.

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 83.9% for the three months ended March 31, 2021 to 87.0% for the three months ended March 31, 2022.

Salaries and benefits, as a percentage of net operating revenues, decreased from 43.2% for the three months ended March 31, 2021 to 42.6% for the three months ended March 31, 2022, primarily due to employees moving to contract labor roles, partially offset by wage inflation.

Supplies, as a percentage of net operating revenues, decreased from 16.3% for the three months ended March 31, 2021 to 16.0% for the three months ended March 31, 2022.

Other operating expenses, as a percentage of net operating revenues, increased from 24.5% for the three months ended March 31, 2021 to 27.4% for the three months ended March 31, 2022, primarily due to an increase in the utilization of and rates for contract labor.

Lease cost and rent, as a percentage of net operating revenues, decreased from 2.6% for the three months ended March 31, 2021 to 2.5% for the three months ended March 31, 2022.

Pandemic relief funds, as a percentage of net operating revenues, was (1.5)% for the three months ended March 31, 2022, compared to (2.7)% for the three months ended March 31, 2021.

Depreciation and amortization, as a percentage of net operating revenues, decreased to 4.1% for the three months ended March 31, 2022 from 4.6% for the three months ended March 31, 2021.

Impairment and (gain) loss on sale of businesses, net was expense of $6 million for the three months ended March 31, 2022, which related to a hospital held for sale, compared to $21 million for the three months ended March 31, 2021, which related primarily to divestitures during the period.

Interest expense, net, decreased by $ 14 million to $ 217 million for the three months ended March 31, 2022 compared to $231 million for the three months ended March 31, 2021.

This was primarily due to our debt refinancing activities in 2021 as discussed further in Liquidity.

Loss from early extinguishment of debt of $5 million and $71 million was recognized during the three months ended March 31, 2022 and 2021, respectively, 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, decreased to (0.2)% for the three months ended March 31, 2022 from (0.3)% for the three months ended March 31, 2021, primarily due to the sale of our unconsolidated equity interests in Macon Healthcare, LLC during the three months ended September 30, 2021.

The net results of the above-mentioned changes resulted in income before income taxes increasing $19 million to $53 million for the three months ended March 31, 2022 from $34 million for the three months ended March 31, 2021.

Our provision for income taxes for the three months ended March 31, 2022 was $23 million compared to $69 million for the three months ended March 31, 2021.

Our effective tax rates were 43.4% and 202.9% for the three months ended March 31, 2022 and 2021, respectively.

Valuation allowances recognized on IRC Section 163(j) interest carryforwards created as a result of the financing transaction completed during the three months ended March 31, 2022 were lower than valuation allowances recognized related to the financing transactions completed during the three months ended March 31, 2021, resulting in a period-over-period decrease in the effective tax rate.

Net income (loss), as a percentage of net operating revenues, was 1.0% for the three months ended March 31, 2022 compared to (1.2)% for the three months ended March 31, 2021.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.0% for the three months ended March 31, 2022, compared to 0.9% for the three months ended March 31, 2021.

Net loss attributable to Commun i ty Health Systems, Inc.

stockholders was $ (1) million for the three months ended March 31, 2022 , compared to $(64) million for the three months ended March 31, 2021 .

Three Months Ended June 30 , 2022 Compared to Three Months Ended June 30 , 2021

Net operating revenues decreased to $2.9 billion for the three months ended June 30, 2022 compared to $3.0 billion for the three months ended June 30, 2021.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods decreased $79 million, or 2.6%, during the three months ended June 30, 2022, as compared to the three months ended June 30, 2021.

On a period-over-period basis, the decrease in net operating revenues was primarily attributable to decreased patient volumes, lower acuity of inpatient admissions and a decline in non-patient revenue, partially offset by increased reimbursement rates.

Non-same-store net operating revenues increased $5 million during the three months ended June 30, 2022, in comparison to the prior year period.

On a consolidated basis, inpatient admissions decreased by 3.4% and adjusted admissions decreased by 0.4% during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.

On a same-store basis, net operating revenues per adjusted admission decreased 2.1%, while inpatient admissions decreased by 3.5% and adjusted admissions decreased by 0.5% for the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

Operating costs and expenses, as a percentage of net operating revenues, increased from 89.6% during the three months ended June 30, 2021 to 95.9% during the three months ended June 30, 2022.

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 85.1% for the three months ended June 30, 2021 to 91.4% for the three months ended June 30, 2022.

Salaries and benefits, as a percentage of net operating revenues, increased from 42.1% for the three months ended June 30, 2021 to 44.1% for the three months ended June 30, 2022, primarily due to wage increases driven by inflation and current competitive labor market conditions.

Supplies, as a percentage of net operating revenues, remained consistent at 16.6% for the three months ended June 30, 2022 and 2021.

Other operating expenses, as a percentage of net operating revenues, increased from 23.8% for the three months ended June 30, 2021 to 28.3% for the three months ended June 30, 2022, primarily due to higher rates for and greater utilization of contract labor.

Lease cost and rent, as a percentage of net operating revenues, increased from 2.6% for the three months ended June 30, 2021 to 2.7% for the three months ended June 30, 2022.

Pandemic relief funds, as a percentage of net operating revenues, were (0.3)% for the three months ended June 30, 2022, compared to less than (0.1)% for the three months ended June 30, 2021.

Depreciation and amortization, as a percentage of net operating revenues, increased to 4.5% for the three months ended June 30, 2022 from 4.4% for the three months ended June 30, 2021.

There was no impairment and (gain) loss on sale of businesses, net for the three months ended June 30, 2022, compared to impairment and (gain) loss on sale of businesses, net, of $2 million for the three months ended June 30, 2021, which related primarily to divestitures during the period.

Interest expense, net, decreased by $ 1 million to $ 218 million for the three months ended June 30, 2022 compared to $219 million for the three months ended June 30, 2021.

This was primarily due to our debt refinancing activities in 2021.

There was no loss from early extinguishment of debt during the three months ended June 30, 2022.

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.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, decreased to less than (0.1)% for the three months ended June 30, 2022 from (0.1)% for the three months ended June 30, 2021, primarily due to the sale of our unconsolidated equity interests in Macon Healthcare, LLC during the three months ended September 30, 2021.

The net results of the above-mentioned changes resulted in (loss) income before income taxes decreasing $189 million to a loss of $(98) million for the three months ended June 30, 2022 from $91 million for the three months ended June 30, 2021.

Our provision for income taxes for the three months ended June 30, 2022 and 2021 was $200 million and $54 million, respectively, and the effective tax rates were (204.1)% and 59.3% for the three months ended June 30, 2022 and 2021, respectively.

The increase in the provision for income taxes for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to an increase in non-deductible interest as a result of a decline in projected adjusted taxable income for 2022 compared to 2021, compounded by an adverse change in the IRC Section 163(j) limit for deductible interest expense beginning in 2022.

The difference in our effective tax rate for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was due to an increase in the provision for income taxes and reporting loss before income taxes in the current year period compared to income before income taxes in the prior year period.

Net (loss) income, as a percentage of net operating revenues, was (10.1)% for the three months ended June 30, 2022 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 remained consistent at 1.0% for the three months ended June 30 , 2022 and 2021 .

Net (loss) income attributable to Community Health Systems, Inc.

stockholders was $(326) million for the three months ended June 30, 2022, compared to $6 million for the three months ended June 30, 2021.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Net operating revenues increased to $6.044 billion for the six months ended June 30, 2022 compared to $6.020 billion for the six months ended June 30, 2021.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $34 million, or 0.6%, during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021.

On a period-over-period basis, the increase in net operating revenues was attributable to increased reimbursement rates and outpatient service volume, partially offset by decreased inpatient volume, less favorable payor mix and a decline in non-patient revenue.

Non-same-store net operating revenues decreased $10 million during the six months ended June 30, 2022, in comparison to the prior year period.

On a consolidated basis, inpatient admissions decreased by 2.5% and adjusted admissions increased by 0.8% during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

On a same-store basis, net operating revenues per adjusted admission decreased 0.7%, while inpatient admissions decreased by 1.9% and adjusted admissions increased by 1.3% for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

Operating costs and expenses, as a percentage of net operating revenues, increased from 89.4% during the six months ended June 30, 2021 to 93.6% during the six months ended June 30, 2022.

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 84.5% for the six months ended June 30, 2021 to 89.2% for the six months ended June 30, 2022.

Salaries and benefits, as a percentage of net operating revenues, increased from 42.7% for the six months ended June 30, 2021 to 43.4% for the six months ended June 30, 2022, primarily due to wage increases driven by inflation and current competitive labor market conditions.

Supplies, as a percentage of net operating revenues, decreased from 16.5% for the six months ended June 30, 2021 to 16.3% for the six months ended June 30, 2022.

Other operating expenses, as a percentage of net operating revenues, increased from 24.1% for the six months ended June 30, 2021 to 27.8% for the six months ended June 30, 2022, primarily due to higher rates for and greater utilization of contract labor.

Lease cost and rent, as a percentage of net operating revenues remained consistent at 2.6% for the six months ended June 30, 2022 and 2021.

Pandemic relief funds, as a percentage of net operating revenues, were (0.9)% for the six months ended June 30, 2022, compared to (1.4)% for the six months ended June 30, 2021.

Depreciation and amortization, as a percentage of net operating revenues, decreased to 4.3% for the six months ended June 30, 2022 from 4.5% for the six months ended June 30, 2021.

Impairment and (gain) loss on sale of businesses, net was expense of $6 million for the six months ended June 30, 2022, which related to a hospital held for sale, compared to $23 million for the six months ended June 30, 2021, which related primarily to divestitures during the period.

Interest expense, net, decreased by $ 14 million to $ 435 million for the six months ended June 30, 2022 compared to $449 million for the six months ended June 30, 2021.

This was primarily due to our debt refinancing activities in 2021.

Loss from early extinguishment of debt of $5 million and $79 million was recognized during the six months ended June 30, 2022 and 2021, respectively, 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, decreased to (0.1)% for the six months ended June 30, 2022 from (0.2)% for the six months ended June 30, 2021, primarily due to the sale of our unconsolidated equity interests in Macon Healthcare, LLC during the three months ended September 30, 2021.

The net results of the above-mentioned changes resulted in (loss) income before income taxes decreasing $170 million to a loss of $(45) million for the six months ended June 30, 2022 from income of $125 million for the six months ended June 30, 2021.

Our provision for income taxes for the six months ended June 30, 2022 and 2021 was $223 million and $123 million, respectively, and the effective tax rates were (495.6)% and 98.4% for the six months ended June 30, 2022 and 2021, respectively.

The increase in the provision for income taxes for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to an increase in non-deductible interest as a result of a decline in projected adjusted taxable income for 2022 compared to 2021, compounded by an adverse change in the IRC Section 163(j) limit for deductible interest expense beginning in 2022.

The difference in our effective tax rate for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was due to an increase in the provision for income taxes and reporting loss before income taxes in the current year period compared to income before income taxes in the prior year period.

Net (loss) income , as a percentage o f net operating revenues, was (4.4) % for the six months ended June 30, 2022 compared to less than 0.1 % f or the six months ended June 30, 2021 .

Net income attributable to noncontrolling interests as a percentage of net operating revenues remained consistent at 1.0% for the six months ended June 30, 2022 and 2021.

Net loss attributable to Community Health Systems, Inc.

stockholders was $(327) million for the six months ended June 30, 2022, compared to $(58) million for the six months ended June 30, 2021.

Liquidity and Capital Resources

Net cash provided by operating activities remained consistent at $101 million for both of the three-month periods ended March 31, 2022 and 2021.

Cash paid for interest was $242 million during the three months ended March 31, 2022 compared to $203 million for the three months ended March 31, 2021.

Cash paid for income taxes, net of refunds received, resulted in a net payment of $2 million and less than $1 million during the three months ended March 31, 2022 and 2021, respectively.

Our net cash used in investing activities was approximately $121 million for the three months ended March 31, 2022, compared to approximately $120 million for the three months ended March 31, 2021, an increase of $1 million.

The cash used in investing activities during the three months ended March 31, 2022 was primarily impacted by a decrease of $4 million in cash proceeds from dispositions of hospitals and other ancillary operations, an increase of $11 million in cash used in the net impact of the purchase and sale of available-for-sale and equity securities, a $2 million decrease in cash proceeds from the sale of property and equipment and a $4 million increase in cash proceeds from the sale of investments in unconsolidated affiliates.

These decreases in cash used in investing activities were partially offset by a decrease of $8 million in cash used in the purchase of property and equipment, a decrease of $3 million in cash used for acquisition of facilities and other related businesses and a decrease of $9 million in cash used to purchase other investments.

Our net cash used in financing activities was approximately $27 million for the three months ended March 31, 2022, compared to approximately $406 million for the three months ended March 31, 2021, a decrease in cash used in financing activities of approximately $379 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, 2022 and 2021.

Net working capital was approximately $1.1 billion at both March 31, 2022 and December 31, 2021.

Net working capital increased by approximately $26 million between December 31, 2021 and March 31, 2022.

The increase is primarily due to the increase in prepaid expenses and taxes and decreases in accrued interest and other accrued liabilities during the three months ended March 31, 2022, partially offset by a decrease in cash, as a result of debt repayments, refinancing activities and cash paid for deferred financing costs.

Net cash provided by operating activities decreased $126 million, from approximately $280 million for the six months ended June 30, 2021, to approximately $154 million for the six months ended June 30, 2022.

Cash paid for interest was $410 million during the six months ended June 30, 2022 compared to $304 million for the six months ended June 30, 2021.

Cash paid for income taxes, net of refunds received, resulted in a net payment of $6 million and $1 million during the six months ended June 30, 2022 and 2021, respectively.

Net cash used in investing activities was approximately $237 million for the six months ended June 30, 2022, compared to approximately $255 million for the six months ended June 30, 2021, a decrease of $18 million.

Net cash used in investing activities during the six months ended June 30, 2022 was primarily impacted by a decrease of $21 million in cash used for the purchase of property and equipment, an increase of $4 million in cash proceeds from the sale of property and equipment, a decrease of $2 million in cash used to purchase other investments, and a decrease of $1 million in cash used in the net impact of the purchase and sale of available-for-sale debt and equity securities.

These decreases in cash used in investing activities were partially offset by an increase of $6 million in cash used to purchase investments in unconsolidated affiliates and a decrease of $4 million in cash proceeds from dispositions of hospitals and other ancillary operations.

Our net cash used in financing activities was approximately $78 million for the six months ended June 30, 2022, compared to approximately $451 million for the six months ended June 30, 2021, a decrease of $373 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, 2022 and 2021.

Net working capital was approximately $1.0 billion at June 30, 2022 and $1.1 billion at December 31, 2021, respectively.

Net working capital decreased by approximately $81 million between December 31, 2021 and June 30, 2022.

The decrease is primarily due to the decrease in cash and cash equivalents as a result of cash paid for interest, deferred financing costs and contract labor as well as a decrease in patient accounts receivable, net, during the six months ended June 30, 2022, partially offset by an increase in prepaid expenses and taxes and decreases in accrued employee compensation and other accrued liabilities.

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, as amended and restated on November 22, 2021, and anticipated access to public and private debt markets as well as proceeds from the disposition of hospitals or other investments such as our minority equity interests in various businesses, as applicable.

Pursuant to the ABL Credit Agreement, the lenders have extended to CHS/Community Health Systems, Inc., or CHS, a revolving asset-based loan facility, or the ABL Facility, in the maximum aggregate principal amount of $1.0 billion, subject to borrowing base capacity.

At March 31, 2022, the available borrowing base under the ABL Facility was $1.0 billion, of which $103 million was reserved for outstanding letters of credit and $897 million represented excess availability.

We had no outstanding borrowings as of March 31, 2022.

At June 30, 2022, the available borrowing base under the ABL Facility was $978 million, of which $84 million was reserved for outstanding letters of credit and $894 million represented excess availability.

Letters of credit were reduced during the six months ended June 30, 2022 by $19 million due to a reduction in an insurance-related letter of credit.

We had no outstanding borrowings as of June 30, 2022.

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

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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, 2022 , approximately $ 43 million of our outstanding debt of $ 12.2 billion is due within the next 12 months.

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

As of June 30, 2022, approximately $32 million of our outstanding debt of $12.2 billion is due within the next 12 months.

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

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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Pandemic relief funds that we have received and may continue to receive through various federal, state and local stimulus or relief programs have been and will continue to be used according to applicable terms and conditions as reimbursement for lost revenues or incremental expenses attributable to COVID-19, including working capital requirements and capital expenditures.

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

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

In addition, ongoing negative economic conditions and/or the COVID-19 pandemic have resulted in, and may continue to result in, significant disruptions of financial and capital markets, which could reduce our ability to access capital and negatively affect our liquidity in the future.

Additionally, while we have received and may continue to receive pandemic relief funds and may continue to be able to utilize pandemic relief funds which have been received, as noted above, there is no assurance regarding the extent to which we will continue to benefit from these payments or other stimulus measures.

Moreover, we do not currently expect to receive the same level of pandemic relief payments or benefits in future periods that we received or realized earlier in the pandemic.

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

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

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, 2022 from those disclosed under “Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K, except as discussed above related to debt refinancing activity during 2022.

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, 2022 from those disclosed under “Capital Resources” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K filed with the SEC on February 17, 2022, or 2021 Form 10-K, except as discussed above related to debt refinancing activity during 2022.

Capital Resources

Cash expenditures for purchases of facilities and other related businesses were approximately $1 million for the three months ended March 31, 2022, compared to $4 million for the three months ended March 31, 2021.

Our expenditures for the three months ended March 31, 2022 and 2021 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, 2022 totaled $64 million compared to $76 million for the three months ended March 31, 2021.

Cash expenditures for purchases of facilities and other related businesses were approximately $4 million for both of the six-month periods ended June 30, 2022 and 2021.

Our expenditures for the six months ended June 30, 2022 and 2021 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, 2022 totaled $144 million compared to $149 million for the six months ended June 30, 2021.

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

Costs to construct replacement hospitals totaled $12 million and $16 million for the three months ended March 31, 2022 and 2021, respectively, primarily related to the construction of a replacement facility in Fort Wayne, Indiana.

During the three months ended March 31, 2022 and 2021, we also had cash expenditures of $21 million and $13 million, respectively, that represent both planning and construction costs primarily for one de novo hospital in the Tucson, Arizona market.

This de novo hospital is expected to be completed in the first half of 2022 and have 52 beds.

Costs to construct replacement hospitals totaled $13 million and $34 million for the six months ended June 30, 2022 and 2021, respectively, primarily related to the construction of a replacement facility in Fort Wayne, Indiana.

During the six months ended June 30, 2022 and 2021, we also had cash expenditures of $34 million and $29 million, respectively, that represent both planning and construction costs primarily for one de novo hospital in the Tucson, Arizona market.

This de novo hospital was completed in the first half of 2022 and has 52 beds.

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

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

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

The estimated construction costs, including equipment costs, for the construction of this replacement facility in Knox, Indiana are currently estimated to be approximately $15 million.

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.

The estimated construction costs, including equipment costs, for the construction of this replacement facility in Knox, Indiana are currently e st imated to be a pproximately $15 million.

Reimbursement, Legislative and Regulatory Changes

Ongoing legislative and regulatory efforts could reduce or otherwise adversely affect the payments we receive from Medicare and Medicaid and other payors.

Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings, interpretations and discretion which may further affect payments made under those programs, and the federal and state governments might, in the future, reduce the funds available under those programs or require more stringent

utilization and quality reviews of hospital facilities.

Ongoing legislative and regulatory efforts, and judicial interpretations, could reduce or otherwise adversely affect the payments we receive from Medicare and Medicaid and other payors.

Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings, interpretations and discretion, and which are at times subject to court challenges, which may further affect payments made under those programs.

Further, the federal and state governments might, in the future, reduce the funds available under those programs, require repayment of previously received funds or require more stringent utilization and quality reviews of hospital facilities.

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

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

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at March 31, 2022 from our estimated reimbursement percentage, net income for the three months ended March 31, 2022 would have changed by approximately $87 million, and net accounts receivable at March 31, 2022 would have changed by $112 million.

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at June 30, 2022 from our estimated reimbursement percentage, net income for the six months ended June 30, 2022 would have changed by approximately $87 million, and net accounts receivable at June 30, 2022 would have changed by $112 million.

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

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

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net income (loss) by an insignificant amount for each of the three-month periods ended March 31, 2022 and 2021.

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 and six-month periods ended June 30, 2022 and 2021.

Patient Accounts Receivable

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We estimate any adjustments to the transaction price for implicit price concessions by reserving a percentage of all self-pay accounts receivable without regard to aging category, based on collection history, adjusted for expected recoveries and any anticipated changes in trends.

Our ability to estimate the transaction price and any implicit price concessions is not impacted by not utilizing an aging of our net accounts receivable as we believe that substantially all of the risk exists at the point in time such accounts are

identified as self-pay.

The percentage used to reserve for all self-pay accounts is based on our collection history.

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

If the actual collection percentage differed by 1% at March 31, 2022 from our estimated collection percentage as a result of a change in expected recoveries, net income for the three months ended March 31, 2022 would have changed by $41 million, and net accounts receivable at March 31, 2022 would have changed by $52 million.

If the actual collection percentage differed by 1% at June 30, 2022 from our estimated collection percentage as a result of a change in expected recoveries, net income for the six months ended June 30, 2022 would have changed by $40 million, and net accounts receivable at June 30, 2022 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 $1.8 billion at March 31, 2022, and $2.2 billion at December 31, 2021, being pursued by various outside collection agencies.

We had approximately $1.8 billion at June 30, 2022, and $2.2 billion at December 31, 2021, being pursued by various outside collection agencies.

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

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

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 56 days and 55 days at March 31, 2022 and December 31, 2021, respectively.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $16.2 billion as of March 31, 2022 and December 31, 2021.

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 58 days and 55 days at June 30, 2022 and December 31, 2021, respectively.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $16.0 billion and $16.2 billion as of June 30, 2022 and December 31, 2021, respectively.

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, 2022:

As of June 30, 2022:

% 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 90% at March 31, 2022 and approximately 91% at December 31, 2021.

If the receivables that have been written-off, but where collections are still being pursued by outside collection agencies, were included in both the allowances and gross self-pay receivables specified above, the percentage of combined allowances to total self-pay receivables would have been 93% at both March 31, 2022 and December 31, 2021.

Taking into account recent developments as discussed below, we believe that our accounting policies with respect to the impairment of goodwill and other intangibles currently constitutes a critical accounting policy.

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

Goodwill is evaluated for impairment annually and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value.

We performed our last annual goodwill impairment evaluation during the fourth quarter of 2021 using the October 31, 2021 measurement date, which indicated no impairment.

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, our recent financial results, estimates of future revenue and expense growth, estimated market multiples, expected capital expenditures, income tax rates, and costs of invested capital.

At June 30, 2022, 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, 2022, which specifically considered declines in the fair market value of our senior secured and unsecured notes and common stock during the six months ended June 30, 2022 as well as macroeconomic conditions and our recent financial results, including the effect of increased wage and contract labor expense.

On the basis of available evidence, as of June 30, 2022, we concluded that the fair value of the reporting unit was not more likely than not reduced to an amount less than its carrying value.

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

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

Moreover, the recent developments described in the immediately preceding paragraph have increased our risk of future goodwill impairment, which could be material.

Professional Liability Claims

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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 approximately 3.0% and 1.8% at March 31, 2022 and December 31, 2021, respectively.

The net present value of the projected payments was discounted using a weighted-average risk-free rate of approximately 3.4% and 1.8% at June 30, 2022 and December 31, 2021, respectively.

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 excess insurance premiums, and is presented within other operating expenses in the accompanying condensed consolidated statements of loss.

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

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

A 1% change in assumptions for either severity or frequency as of March 31, 2022 would have increased or decreased the reserve between $10 million to $20 million.

A 1% change in assumptions for either severity or frequency as of June 30, 2022 would have increased or decreased the reserve between $10 million to $20 million.

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

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Our excess insurance is underwritten on a claims-made basis.

For claims reported prior to June 1, 2002, substantially all of our professional and general liability risks were subject to a less than $1 million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2 million per occurrence.

retentions were $2 million per occurrence.

Substantially all claims reported after June 1, 2003 and before June 1, 2005 are self-insured up to $4 million per claim.

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To mitigate the exposure of the program covering the former HMA hospitals and other healthcare facilities, the Insurance Subsidiaries bought claims-made reinsurance policies from unrelated third parties for claims above self-retention levels of $10 million or $15 million per claim, depending on the policy year.

There were no significant changes in our estimate of the reserve for professional liability claims during the three months ended March 31, 2022.

There were no significant changes in our estimate of the reserve for professional liability claims during the six months ended June 30, 2022.

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 effecti ve tax rate, if recognized, was less than $1 million as of March 31, 2022 .

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, 2022 .

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

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was less than $1 million as of June 30, 2022.

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, 2022.

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

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

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

We have extended the federal statute of limitations through June 30, 2022 for Community Health Systems, Inc.

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

In addition, we have extended our federal statute of limitations through December 31, 2023 for the tax period ended December 31, 2018.

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the volume of canceled or rescheduled procedures;

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

the timing, availability and acceptance of effective medical treatments, vaccines (including additional dosages of vaccines) and tests;

the spread of potentially more contagious and/or virulent forms of the virus, including variants of the virus for which currently available vaccines, treatments and tests may not be effective or authorized;

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

the impact of government actions on us, including with respect to vaccine mandates, testing requirements, travel restrictions and other virus containment measures;

changes in net operating revenues due to patient volumes, payor mix and evolving macroeconomic conditions;

inflationary conditions and increased expenses related to labor, supply chain, capital and other expenditures;

workforce disruptions;

and supply shortages and disruptions;

and the spread of potentially more contagious and/or virulent forms of the virus, including variants of the virus for which currently available vaccines, treatments and tests may not be effective or authorized;

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

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;

general economic and business conditions, both nationally and in the regions in which we operate, including inflationary pressures that have significantly increased and may continue to significantly increase our expenses, the extremely competitive labor market and labor shortages, and supply chain shortages and disruptions, as well as the current and/or potential future adverse impact of such economic conditions and other factors on our net operating revenues (including our service mix, revenue mix, payor mix and/or patient volumes) and our ability to collect outstanding receivables;

the impact of current or future federal and state health reform initiatives, including 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);

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the impact of seasonal severe weather conditions and climate change, as well as the timing and amount of insurance recoveries in relation to severe weather events;

our ability to obtain adequate levels of insurance, including general liability, professional liability, and directors and officers liability insurance;

our ability to obtain adequate levels of insurance, including cyber, general liability, professional liability, and directors and officers liability insurance;

timeliness of reimbursement payments received under government programs;

effects related to pandemics, epidemics, or outbreaks of infectious diseases, including the novel coronavirus causing the disease known as COVID-19;

effects related to pandemics, epidemics, or outbreaks of infectious diseases, including the coronavirus causing the disease known as COVID-19;

any failure to comply with our obligations under license or technology agreements;

challenging economic conditions in certain non-urban communities in which we operate;

challenging economic conditions in non-urban communities in which we operate;

any developments with respect to the final auditing and reporting requirements of, or other adverse developments with respect to, the Corporate Integrity Agreement to which we are subject;

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Quantitative and Qualitative Disclosures about Market Risk

During the three months ended March 31, 2022, there have been no material changes in the quantitative and qualitative disclosures set forth in Item 7A.

During the six months ended June 30, 2022, 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 2021 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