What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-10-27 compared with 2022-07-28 · 230 added, 180 removed, 388 unchanged (51% of the section changed)

7 unchanged sentences

Our affiliates are leading providers of healthcare services, developing and operating healthcare delivery systems in 47 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.

As of September 30, 2022, and after taking into account the two hospital closures and one completed hospital divestiture discussed in Note 3 of the Notes to the Condensed Consolidated Financial Statements included under Part I, Item 1 of this Form 10-Q, our subsidiaries own or lease 81 affiliated hospitals, 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.

1 unchanged sentence

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.

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

Taking into account these factors, we have incurred, and may continue to incur, increased expenses arising from factors such as wage inflation for permanent employees and increased rates for and utilization of temporary contract labor (including contract nursing personnel), and have also experienced unfavorable changes in payor mix, declines in patient volumes and lower acuity of inpatient admissions and surgeries.

These factors had an unfavorable impact on our financial results during the three and nine months ended September 30, 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, during the three months ended September 30, 2022, our financial results were adversely impacted by Hurricane Ian, which negatively impacted certain of our hospitals and other healthcare facilities located in Florida.

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.

3 unchanged sentences

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 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).

Acquisition , Divestiture and Closure Activity

During the nine months ended September 30, 2022, we paid approximately $9 million to acquire the operating assets and related businesses of certain physician practices, clinics, ambulatory surgery centers 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.

During the nine months ended September 30, 2022, we completed the divestiture of one hospital.

This hospital represented annual net operating revenues in 2021 of approximately $18 million, and we received total net proceeds of approximately $1 million in connection with this disposition.

During 2021, we completed the divestiture of five hospitals, including three divestitures that 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 their disposition.

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

The following table provides a summary of hospitals that we divested during the nine months ended September 30, 2022 and the year ended December 31, 2021:

Effective Date

2022 Divestiture:

AllianceHealth Seminole

SSM Health Care of Oklahoma

2021 Divestitures:

Lea Regional Medical Center

17 unchanged sentences

April 1, 2021

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

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

During the 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.

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

Generally, these hospitals and non-hospital businesses are not in one of our strategically beneficial service areas, are less complementary to our business strategy and/or have lower operating margins.

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

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

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

During the three months ended September 30, 2022, we completed the closure of Shorepoint Health Venice hospital (312 licensed beds) in Venice, Florida.

We recorded an impairment charge of approximately $25 million during the three months ended September 30, 2022, to adjust the fair value of the long-lived assets of this hospital, including property and equipment and capitalized software costs, based on their estimated fair value and future utilization.

During the three months ended September 30, 2022, the provision of inpatient services and substantially all outpatient services ceased at First Hospital Wyoming Valley (psychiatric hospital) (149 licensed beds) in Wilkes-Barre, Pennsylvania, resulting in the closure of this facility being substantially complete as of September 30, 2022.

We expect to complete the closure of First Hospital Wyoming Valley during the three months ending December 31, 2022.

We recorded an impairment charge of approximately $18 million during the three months ended September 30, 2022, to adjust the fair value of the long-lived assets of this hospital, including property and equipment and capitalized software costs, based on their estimated fair value and future utilization.

On September 14, 2022, we entered into a definitive agreement for the sale of substantially all of the assets of Greenbrier Valley Medical Center (122 licensed beds) in Ronceverte, West Virginia, to Vandalia Health, Inc.

This hospital is classified as held for sale as of September 30, 2022.

Overview of Operating Results

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 $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.

Net operating revenues decreased from $3.1 billion for the three months ended September 30, 2021 to $3.0 billion for the three months ended September 30, 2022.

On a same-store basis, net operating revenues for the three months ended September 30, 2022 decreased $69 million.

We had net income of less than $ 1 million during the three months ended September 30 , 2022 , compared to $ 144 million for the same period in 2021 .

Net income for the three months ended September 30, 2022 included the following:

• an after-tax charge of $4 million for expense related to government and other legal matters and related costs,

• an after-tax benefit of $68 million for gain from early extinguishment of debt,

• an after-tax charge of $37 million for the impairment of long-lived assets of divested or closed businesses based on their estimated fair values, and

• an after-tax charge of $1 million for restructuring charges related to the closure of businesses as well as service line closures and consolidations at certain hospitals.

Additionally, during the three months ended September 30, 2022, certain of our hospitals and other healthcare facilities in Florida were impacted by Hurricane Ian with disruption of services and remediation efforts that resulted in an estimated loss of net operating revenues, which together with incremental expenses directly related to hurricane response efforts totaled approximately $10 million in the aggregate on a pre-tax basis.

This estimated impact is prior to any insurance recoveries which we may receive and which, due to the requirement to account for such amounts as gain contingencies, would not be recognized until future periods.

Due to the timing of this event, it is expected that the above estimate would be updated in the fourth quarter to account for the impact of additional lost revenues and incremental expenses for continued clean-up and remediation efforts.

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

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

• an after-tax benefit of $21 million for the gain on the sale of unconsolidated equity interests in Macon Healthcare, LLC.

Consolidated inpatient admissions for the three months ended September 30, 2022, decreased 3.7%, compared to the same period in 2021.

Consolidated adjusted admissions for the three months ended September 30, 2022, increased 3.8%, compared to the same period in 2021.

Same-store inpatient admissions for the three months ended September 30, 2022, decreased 2.2%, compared to the same period in 2021, and same-store adjusted admissions for the three months ended September 30, 2022, increased 5.2%, compared to the same period in 2021.

Net operating revenues remained consistent at $9.1 billion for the nine months ended September 30, 2022 and 2021.

On a same-store basis, net operating revenues for the nine months ended September 30, 2022 increased $13 million.

We had net loss of $(267) million during the nine months ended September 30, 2022, compared to net income of $146 million for the same period in 2021.

Net loss for the nine months ended September 30, 2022 included the following:

an after-tax charge of $4 million for expense related to government and other legal matters and related costs,

an after-tax benefit of $54 million for gain from early extinguishment of debt,

an after-tax charge of $42 million for the impairment of long-lived assets of divested and closed businesses based on their estimated fair values, and

an after-tax charge of $1 million for restructuring charges related to the closure of businesses as well as service line closures and consolidations at certain hospitals.

Net income for the nine months ended September 30, 2021 included the following:

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

an after-tax charge of $19 million for the impairment of long-lived assets of divested businesses based on their estimated fair values, net of gains recognized upon the sale of certain businesses, and

an after-tax benefit of $21 million for gain on sale of unconsolidated equity interests in Macon Healthcare, LLC.

Consolidated inpatient admissions for the nine months ended September 30, 2022, decreased 2.9%, compared to the same period in 2021.

Consolidated adjusted admissions for the nine months ended September 30, 2022, increased 1.8%, compared to the same period in 2021.

Same-store inpatient admissions for the nine months ended September 30, 2022, decreased 1.3%, compared to the same period in 2021, and same-store adjusted admissions for the nine months ended September 30, 2022, increased 3.1%, compared to the same period in 2021.

Self-pay revenues represented approximately 0.2% and 1.3% of net operating revenues for the three months ended September 30, 2022 and 2021, respectively, and 0.6% and 0.9% for the nine months ended September 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 9.4% and 6.9% for the three months ended September 30, 2022 and 2021, respectively, and 11.7% and 7.2% for the nine months ended September 30, 2022 and 2021, respectively.

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.1% and 0.8% for the three months ended September 30, 2022 and 2021, respectively, and 1.3% and 0.8% for the nine months ended September 30, 2022 and 2021, respectively.

Overview of Legislative and Other Governmental Developments

17 unchanged sentences

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 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.

Of the 16 states in which we operated hospitals as of September 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 September 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.

15 unchanged sentences

These measures include temporary relief from Medicare conditions of participation requirements for healthcare providers, temporary relaxation of licensure requirements for healthcare professionals, temporary relaxation of privacy restrictions for telehealth remote communications, promoting use of telehealth by temporarily expanding the scope of services for which Medicare reimbursement is available, and limited waivers of fraud and abuse laws for activities related to COVID-19 during the public health emergency period.

As the United States has experienced a moderation of infection and related hospitalization rates in comparison to earlier periods, federal and state governments have shifted to reducing or terminating certain temporary measures that were implemented earlier in the COVID-19 public health emergency.

Primary legislative sources of COVID-19 relief include the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, the Paycheck Protection Program and Health Care Enhancement Act, or the PPPHCE Act, the CAA, and the American Rescue Plan Act of 2021, or the ARPA.

4 unchanged sentences

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

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

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

Providers that received accelerated payments during the COVID-19 pandemic were required to repay the accelerated payments beginning one year after the payment was issued.

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

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

4 unchanged sentences

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

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.

Through September 30, 2022, net of amounts that have been repaid to the respective federal, state, and local agencies, we received approximately $923 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, we received (returned) pandemic relief fund payments through various federal, state and local programs of approximately $108 million and $(4) million during the three months ended September 30, 2022 and 2021, respectively, and approximately $160 million and $4 million for the nine months ended September 30, 2022 and 2021, respectively.

The remainder of such amounts was received during the year ended December 31, 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.

stockholders during the three months ended September 30, 2022 and 2021, in the amount of $84 million and $14 million, respectively, and $125 million and $77 million during the nine months ended September 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 or the various state and local agencies 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.

4 unchanged sentences

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.

However, we do not expect to receive or recognize any significant level of payments or benefits under the CARES Act and other existing legislation in future periods beginning with the fourth quarter of 2022.

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 October 13, 2022.

The current declaration expires January 11, 2023.

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.

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

We are unable to predict whether any additional stimulus measures will be enacted or their impact on us.

For example, the HRSA COVID-19 Uninsured Program has stopped accepting claims for reimbursement for testing, treatment, and vaccinations, and we are unable to predict whether this program will receive additional funding.

There can be no assurance as to the total amount of financial and other types of assistance that we will receive under federal, state and local stimulus or relief programs, and it is difficult to predict the impact of such measures on our operations or how they will affect operations of our competitors.

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

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

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

19 unchanged sentences

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

The remedy in the case has not yet been determined.

The remedy for past payment years 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.

As a result of our current levels of cash, 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.

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Managed Care and other third-party payors

1 unchanged sentence

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.

9 unchanged sentences

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

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues and net (loss) income by an insignificant amount in each of the three 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.

21 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Operating results, as a percentage of net operating revenues:

5 unchanged sentences

Interest expense, net

Loss from early extinguishment of debt

Gain (loss) from early extinguishment of debt

Gain on sale of equity interests in Macon Healthcare, LLC

Equity in earnings of unconsolidated affiliates

(Loss) income before income taxes

Income before income taxes

Provision for income taxes

Net (loss) income

Net income (loss)

Net income attributable to noncontrolling interests

1 unchanged sentence

Systems, Inc.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Percentage (decrease) increase from prior year:

9 unchanged sentences

Adjusted admissions (c)

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.

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

Admissions represents the number of patients admitted for inpatient treatment.

3 unchanged sentences

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.

Items (b) through (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 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 .

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

Net operating revenues decreased to $3.0 billion for the three months ended September 30, 2022, compared to $3.1 billion for the same period in 2021.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods decreased $69 million, or 2.3%, during the three months ended September 30, 2022, compared to the same period in 2021.

On a period-over-period basis, the decrease in net operating revenues was primarily attributable to fewer inpatient admissions, due in part to Hurricane Ian, lower acuity of inpatient admissions and surgeries and unfavorable changes in payor mix.

Non-same-store net operating revenues decreased $21 million during the three months ended September 30, 2022, compared to the same period in 2021.

On a consolidated basis, inpatient admissions decreased by 3.7% and adjusted admissions increased by 3.8% during the three months ended September 30, 2022, compared to the same period in 2021.

On a same-store basis, net operating revenues per adjusted admission decreased 7.1%, while inpatient admissions decreased by 2.2% and adjusted admissions increased by 5.2% for the three months ended September 30, 2022, compared to the same period in 2021.

Operating costs and expenses, as a percentage of net operating revenues, increased from 89.1% during the three months ended September 30, 2021 to 93.3% during the three months ended September 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 84.7% for the three months ended September 30, 2021 to 87.2% for the three months ended September 30, 2022.

Salaries and benefits, as a percentage of net operating revenues, increased from 42.9% for the three months ended September 30, 2021 to 44.7% for the three months ended September 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 17.0% for the three months ended September 30, 2021 to 16.3% for the three months ended September 30, 2022.

Other operating expenses, as a percentage of net operating revenues, increased from 23.0% for the three months ended September 30, 2021 to 27.4% for the three months ended September 30, 2022, primarily due to higher costs for contract labor.

Lease cost and rent, as a percentage of net operating revenues, increased from 2.4% for the three months ended September 30, 2021 to 2.6% for the three months ended September 30, 2022.

Pandemic relief funds, as a percentage of net operating revenues, were (3.8)% for the three months ended September 30, 2022, compared to (0.6)% for the same period in 2021.

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

Impairment and (gain) loss on sale of businesses, net was $47 million for the three months ended September 30, 2022, compared to $1 million for the same period in 2021.

The expense in both periods related primarily to divestitures and closures during each respective period as discussed more specifically under “Acquisition, Divestiture and Closure Activity” herein.

Interest expense, net, increased by $ 1 million to $ 217 million for the three months ended September 30, 2022, compared to $216 million for the same period in 2021.

Gain from early extinguishment of debt of $78 million was recognized during the three months ended September 30, 2022 as a result of open market repurchases of certain of our outstanding notes completed during the three months ended September 30, 2022.

There was no (gain) loss from early extinguishment of debt for the same period in 2021.

There was no pre-tax gain recognized on the sale of unconsolidated equity interests during the three months ended September 30, 2022.

A pre-tax gain of $26 million was recognized during the three months ended September 30, 2021 on the sale of unconsolidated equity interests in Macon Healthcare, LLC, a joint venture with certain subsidiaries of HCA representing two hospitals in Macon, Georgia, in which we owned a 38% interest.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, increased to (0.2)% for the three months ended September 30, 2022 from (0.1)% for the three months ended September 30, 2021.

The net results of the above-mentioned changes resulted in income before income taxes decreasing $84 million to income of $70 million for the three months ended September 30, 2022 from income of $154 million for the three months ended September 30, 2021.

Our provision for income taxes for the three months ended September 30, 2022 and 2021 was $70 million and $10 million, respectively, and the effective tax rates were 100.0% and 6.5% for the three months ended September 30, 2022 and 2021, respectively.

The increase in the provision for income taxes for the three months ended September 30, 2022, compared to the same period in 2021 was primarily due to an increase in non-deductible interest 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 September 30, 2022, compared to the same period in 2021 was due to the aforementioned increase in the provision for income taxes and the decline in income before taxes.

Net income , as a percentage o f net operating revenues, was 0.0 % for the three months ended September 30 , 2022 , compared to 4.6 % for the same period in 2021 .

Net income attributable to noncontrolling interests as a percentage of net operating revenues increased to 1.4% for the three months ended September 30, 2022, compared to 1.0% for the same period in 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.

stockholders was $(42) million for the three months ended September 30, 2022, compared to $111 million for the same period in 2021.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Net operating revenues remained consistent at $9.1 billion for the nine months ended September 30, 2022 and 2021.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $13 million, or 0.1%, during the nine months ended September 30, 2022, compared to the same period in 2021.

On a period-over-period basis, there was a decline in net operating revenues from fewer inpatient admissions which was not fully offset by the increase in outpatient visits and surgeries.

Also, lower acuity of services was partially offset by improved reimbursement rates.

Non-same-store net operating revenues decreased $80 million during the nine months ended September 30, 2022, compared to the same period in 2021.

On a consolidated basis, inpatient admissions decreased by 2.9% and adjusted admissions increased by 1.8% during the nine months ended September 30, 2022, compared to the same period in 2021.

On a same-store basis, net operating revenues per adjusted admission decreased 2.9%, while inpatient admissions decreased by 1.3% and adjusted admissions increased by 3.1% for the nine months ended September 30, 2022, compared to the same period in 2021.

Operating costs and expenses, as a percentage of net operating revenues, increased from 89.3% during the nine months ended September 30, 2021 to 93.5% during the nine months ended September 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 nine months ended September 30, 2021 to 88.5% for the nine months ended September 30, 2022.

Salaries and benefits, as a percentage of net operating revenues, increased from 42.7% for the nine months ended September 30, 2021 to 43.8% for the nine months ended September 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 16.7% for the nine months ended September 30, 2021 to 16.3% for the nine months ended September 30, 2022.

Other operating expenses, as a percentage of net operating revenues, increased from 23.7% for the nine months ended September 30, 2021 to 27.7% for the nine months ended September 30, 2022, primarily due to higher costs for contract labor.

Lease cost and rent, as a percentage of net operating revenues increased from 2.5% for the nine months ended September 30, 2021 to 2.6% for the nine months ended September 30, 2022.

Pandemic relief funds, as a percentage of net operating revenues, were (1.9)% for the nine months ended September 30, 2022, compared to (1.1)% for the same period in 2021.

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

Impairment and (gain) loss on sale of businesses, net was an expense of $54 million for the nine months ended September 30, 2022, which related to a hospital divestiture and the closure of two hospitals as discussed more specifically under “Acquisition, Divestiture and Closure Activity” herein, compared to expense of $24 million for the same period in 2021, which related primarily to divestitures during the period.

Interest expense, net, decreased by $ 14 million to $ 652 million for the nine months ended September 30, 2022, compared to $666 million for the same period in 2021.

This was primarily due to our debt refinancing activities in 2021 and 2022.

Gain from early extinguishment of debt of $73 million was recognized during the nine months ended September 30, 2022, compared to loss from early extinguishment of debt of $79 million for the same period in 2021, as a result of the refinancing of certain of our outstanding notes in each period as well as open market repurchases of certain of our outstanding notes completed during the nine months ended September 30, 2022.

There was no pre-tax gain recognized on the sale of unconsolidated equity interests during the nine months ended September 30, 2022.

A pre-tax gain of $26 million was recognized during the nine months ended September 30, 2021 on the sale of unconsolidated equity interests in Macon Healthcare, LLC, a joint venture with certain subsidiaries of HCA representing two hospitals in Macon, Georgia, in which we owned a 38% interest.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, decreased to (0.1)% for the nine months ended September 30, 2022 from (0.2)% for the nine months ended September 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 i ncome before income taxes decreasing $254 million to income of $ 24 million for the nine months ended September 30, 2022 from income of $ 278 million for the nine months ended September 30, 2021.

Our provision for income taxes for the nine months ended September 30, 2022 and 2021 was $291 million and $132 million, respectively, and the effective tax rates were 1,212.5% and 47.5% for the nine months ended September 30, 2022 and 2021, respectively.

The increase in the provision for income taxes for the nine months ended September 30, 2022, compared to the same period in 2021 was primarily due to an increase in non-deductible interest 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 nine months ended September 30, 2022, compared to the same period in 2021 was due to the aformentioned increase in the provision for income taxes and the decline in income before taxes.

Net (loss) income, as a percentage of net operating revenues, was (2.9)% for the nine months ended September 30, 2022, compared to 1.6% for the same period in 2021.

Net income attributable to noncontrolling interests as a percentage of net operating revenues increased to 1.2% for the nine months ended September 30, 2022, compared to 1.0% for the same period in 2021.

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

stockholders was $(369) million for the nine months ended September 30, 2022, compared to $52 million for the same period in 2021.

Liquidity and Capital Resources

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.

Net cash provided by operating activities decreased $109 million, from approximately $400 million for the nine months ended September 30, 2021, to approximately $291 million for the nine months ended September 30, 2022.

Cash paid for interest was $614 million during the nine months ended September 30, 2022, compared to $572 million for the same period in 2021.

Cash paid for income taxes, net of refunds received, resulted in a net payment of $6 million and $3 million during the nine months ended September 30, 2022 and 2021, respectively.

Net cash used in investing activities was approximately $207 million for the nine months ended September 30, 2022, compared to approximately $313 million for the same period in 2021, a decrease of $106 million.

Net cash used in investing activities during the nine months ended September 30, 2022 was primarily impacted by an increase of $6 million in cash paid for acquisitions of facilities and other related businesses, a decrease of $50 million in cash used for the purchase of property and equipment, an increase of $23 million in cash proceeds from the sale of property and equipment, a decrease of $18 million in cash used to purchase other investments, a decrease of $38 million in cash used in the net impact of the purchases and sales of available-for-sale debt and equity securities and an increase resulting from $121 million in cash representing our share of proceeds from the sale of a majority interest in CoreTrust Holdings, LLC by Healthtrust Purchasing Group, L.P., a group purchasing organization in which we are a noncontrolling partner, distributed during the three months ended September 30, 2022.

These decreases in cash used in investing activities were partially offset by an increase of $14 million in cash used to purchase investments in unconsolidated affiliates, a decrease of $110 million in cash from the sale of equity interests in Macon Healthcare, LLC and a decrease of $14 million in cash proceeds from dispositions of hospitals and other ancillary operations.

Our net cash used in financing activities was approximately $291 million for the nine months ended September 30, 2022, compared to approximately $469 million for the same period in 2021, a decrease of $178 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 nine months ended September 30, 2022 and 2021.

Net working capital was approximately $886 million at September 30, 2022 and $1.1 billion at December 31, 2021, respectively.

Net working capital decreased by approximately $229 million between December 31, 2021 and September 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, contract labor and open market repurchases of certain of our outstanding notes as well as a decrease in patient accounts receivable, net, during the nine months ended September 30, 2022, partially offset by an increase in prepaid expenses and taxes and a decrease in accrued employee compensation.

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 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.

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 ag g regate principal amount of $1.0 billion, subject to borr owing base capacity.

At September 30 , 2022 , the available borrowing base under the ABL Facility w as $935 m ill ion, of which $83 million was reserved for outsta n ding letters of credi t and $852 million represented excess availability.

Letters of cr edit were reduced during the nine months e nded September 30, 2022 by $30 million primarily due to a reduction in an insurance-related letter of credit.

We had no outst anding borrowings as of September 30 , 2022 .

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

4 unchanged sentences

The 5¼% Senior Secured Notes due 2030 bear interest at a rate of 5.250% per year payable semi-annually in arrears on May 15 and November 15, commencing on November 15, 2022.

During the three months ended September 30, 2022, we extinguished a portion of certain series of our outstanding notes through open market repurchases, as follows (in millions):

Principal Amount

6⅞% Senior Notes due 2028

4¾% Senior Secured Notes due 2031

6⅞% Junior-Priority Secured Notes due 2029

6⅛% Junior-Priority Secured Notes due 2030

Total principal amount of debt extinguished

A pre-tax gain from early extinguishment of debt of approximately $78 million was recognized associated with these open market repurchases during the three months ended September 30, 2022.

Additional Liquidity Information

2 unchanged sentences

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

As of September 30, 2022, approximately $21 million of our outstanding debt of approximately $12.0 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.

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

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

2 unchanged sentences

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.

do not expect to receive or recognize any significant level of payments or benefits under the CARES Act and other existing legislation in future periods beginning with the fourth quarter of 2022 .

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 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.

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

Cash expenditures for purchases of facilities and other related businesses were approximately $9 million for the nine months ended September 30, 2022, compared to $3 million for the same period in 2021.

Our expenditures for the nine months ended September 30, 2022 and 2021 were primarily related to physician practices, clinics, ambulatory surgery centers and other ancillary businesses.

Excluding the cost to construct replacement and de novo hospitals, our cash expenditures for routine capital for the nine months ended September 30, 2022 totaled $231 million compared to $237 million for the same period in 2021.

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

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.

While none of our hospitals experienced extensive property damage from Hurricane Ian, we have incurred costs for repairs and may incur costs for capital expenditures needed to remediate damage that was incurred.

Costs to construct replacement hospitals totaled $14 million and $47 million for the nine months ended September 30, 2022 and 2021, respectively, primarily related to the construction of a replacement facility in Fort Wayne, Indiana.

During the nine months ended September 30, 2022 and 2021, we also had cash expenditures of $39 million and $50 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.

1 unchanged sentence

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 e st imated to be a pproximately $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 estimated to be approximately $15 million.

Reimbursement, Legislative and Regulatory Changes

11 unchanged sentences

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

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

The following information should be read in conjunction with our significant accounting policies included in Note 1 of the Notes to the Consolidated Financial Statements included under Part II, Item 8 of our 2021 Form 10-K.

We believe that our

critical accounting policies are limited to those described below.

The following information should be read in conjunction with our significant accounting policies inc luded in Note 1 of the Notes to the Consolidated Financial Statements includ ed under Part I I, Item 8 of our 2021 Form 10-K .

Revenue Recognition

10 unchanged sentences

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 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.

If the actual contractual reimbursement percentage under government programs and managed care contracts differed by 1% at September 30, 2022 from our estimated reimbursement percentage, net loss for the nine months ended September 30, 2022 would have changed by approximately $87 million, and net accounts receivable at September 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 (loss) income by an insignificant amount for each of the three and six-month periods ended June 30, 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 nine-month periods ended September 30, 2022 and 2021.

Patient Accounts Receivable

9 unchanged sentences

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 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.

If the actual collection percentage differed by 1% at September 30, 2022 from our estimated collection percentage as a result of a change in expected recoveries, net loss for the nine months ended September 30, 2022 would have changed by $38 million, and net accounts receivable at September 30, 2022 would have changed by $49 million.

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

Our policy is to write-off gross accounts receivable if the balance is under $10.00 or when such amounts are placed with outside collection agencies.

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

We had approximately $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.

Our policy is to write-off gross accounts receivabl e if the balance is under $10.00 or when such amounts are placed with outside collection agencies.

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

We had approximately $ 1.7 billion at September 30 , 2022 , an d $2 .2 billion at December 31, 2021 , being pursued by various outside collection agencies.

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

As these amounts have been written-off, they are not included in our accounts receivable.

3 unchanged sentences

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 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.

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 57 days and 55 days at September 30, 2022 and December 31, 2021, respectively.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $15.8 billion and $16.2 billion as of September 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 June 30, 2022:

As of September 30, 2022:

% of Gross Receivables

4 unchanged sentences

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

September 30,

Insured receivables

Self-pay receivables

The combined total at our hospitals and clinics for the estimated implicit price concessions for self-pay accounts receivable and allowances for other self-pay discounts and contractuals, as a percentage of gross self-pay receivables, was approximately 91% at both June 30, 2022 and 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 June 30, 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.

4 unchanged sentences

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.

At September 30, 2022, we had approximately $4 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 September 30, 2022, which specifically considered declines in the fair market value of our senior secured and unsecured notes and common stock during the nine months ended September 30, 2022 as well as macroeconomic conditions and our recent financial results, including the effect of increased wage and contract labor expense in recent periods.

On the basis of available evidence, as of September 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 continued 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.

11 unchanged sentences

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 3.4% and 1.8% at June 30, 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 3.8% and 1.8% at September 30, 2022 and December 31, 2021, respectively.

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

10 unchanged sentences

Company-specific data includes information regarding our business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data.

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 June 30, 2022 would have increased or decreased the reserve between $10 million to $20 million.

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

A 1% change in assumptions for either seve rity or frequency as of September 30 , 2022 would have increased or d ec reased the reserve between $10 million to $20 million.

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

9 unchanged sentences

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

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

retentions were $2 million per occurrence.

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

14 unchanged sentences

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 six months ended June 30, 2022.

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

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was less than $1 million at September 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 September 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.

4 unchanged sentences

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

Recent Accounting Pronouncements

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update, or ASU, 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50), Disclosure of Supplier Finance Program Obligations.” This ASU provides specific authoritative guidance for disclosure of supplier finance programs including key terms of such programs, amounts outstanding, and where the obligations are presented in the statement of financial position.

This ASU is effective for all entities for financial statements issued for annual periods beginning after December 15, 2022, including interim periods, except for the disclosure of rollforward information, which is effective for annual periods beginning after December 15, 2023.

Certain components of this guidance must be applied retrospectively while others may be applied prospectively.

Early adoption is permitted.

We are currently evaluating the impact that adoption of this ASU will have on our condensed consolidated financial statements.

FORWARD-LOOKING STATEMENTS

8 unchanged sentences

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 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;

general economic and business conditions, both nationally and in the regions in which we operate, including ongoing 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);

3 unchanged sentences

demographic changes;

changes in, or the failure to comply with, federal, state or local laws or governmental regulations affecting our business, including any such laws or governmental regulations which are adopted in connection with the COVID-19 pandemic;

potential adverse impact of known and unknown legal, regulatory and governmental proceedings and other loss contingencies, including governmental investigations and audits, and federal and state false claims act litigation;

17 unchanged sentences

our ability to successfully integrate any acquired hospitals and/or outpatient facilities, or to recognize expected synergies from acquisitions;

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;

the impact of 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 cyber, general liability, professional liability, and directors and officers liability insurance;

14 unchanged sentences

Quantitative and Qualitative Disclosures about Market Risk

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.

During the three months ended September 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