What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2022-10-27 · 219 added, 363 removed, 255 unchanged (70% of the section changed)

7 unchanged sentences

Our affiliates are leading providers of healthcare services, developing and operating healthcare delivery systems in 44 distinct markets across 15 states.

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.

As of March 31, 2023, our subsidiaries own or lease 79 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.

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

Recent Developments and COVID-19 Pandemic

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.

Economic conditions in the United States continue to be challenging in various respects, and the United States economy continues to experience significant inflationary pressures, elevated interest rates, challenging labor market conditions, 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, increased rates for and utilization of temporary contract labor (including contract nursing personnel) and increased rates for outsourced medical specialists.

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.

Department of Health and Human Services, or HHS.

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

The ongoing impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic, the impact of the pandemic on economic conditions, the volume of canceled or rescheduled procedures at our facilities, and the spread of potentially more contagious and/or virulent forms of the virus, including any variants of the virus that may be resistant to currently available vaccines.

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.

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 hospitals that we divested during the nine months ended September 30, 2022 and the year ended December 31, 2021:

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

Acquisition and Divestiture Activity

During the three months ended March 31, 2023, we paid approximately $8 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 and goodwill.

During the three months ended March 31, 2023, we completed the divestiture of one hospital, Greenbrier Valley Medical Center (122 licensed beds) in Ronceverte, West Virginia, to a subsidiary of Vandalia Health, Inc .

pursuant to the terms of a definitive agreement which was entered into on September 14, 2022, as amended.

This hospital represented annual net operating revenues in 2022 of approximately $84 million and we received total net proceeds of approximately $85 million at a preliminary closing on December 30, 2022 in connection with this disposition.

The following table provides a summary of hospitals that we divested during the three months ended March 31, 2023 and the year ended December 31, 2022:

Effective Date

2023 Divestiture:

AllianceHealth Seminole

SSM Health Care of Oklahoma

2021 Divestitures:

Lea Regional Medical Center

Covenant Health System

January 1, 2021

Tennova Healthcare - Tullahoma

Vanderbilt University Medical Center

Tullahoma, TN

January 1, 2021

Tennova Healthcare - Shelbyville

Vanderbilt University Medical Center

Shelbyville, TN

Greenbrier Valley Medical Center

Vandalia Health, Inc.

Ronceverte, WV

January 1, 2023

Northwest Mississippi Medical Center

Delta Health System

Clarksdale, MS

February 1, 2021

AllianceHealth Midwest

SSM Health Care of Oklahoma

Midwest City, OK

April 1, 2021

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.

2022 Divestiture:

AllianceHealth Seminole

SSM HealthCare of Oklahoma, Inc.

In addition, on April 1, 2023, we completed the sale of substantially all of the assets of Plateau Medical Center (25 licensed beds) in Oak Hill, West Virginia, to subsidiaries of Vandalia Health, Inc.

pursuant to the terms of a definitive agreement which was entered into on December 30, 2022, as amended.

The net proceeds from this sale of approximately $92 million were received at a preliminary closing on March 31, 2023

In addition to hospitals divested in 2022 and in 2023 through the date of this filing as noted above, we have entered into definitive agreements to sell a total of four hospitals.

The following sets forth the definitive agreements to sell hospitals that we have entered into since January 1, 2023:

On February 28, 2023, we entered into a definitive agreement for the sale of substantially all of the assets of Lake Norman Regional Medical Center (123 licensed beds) in Mooresville, North Carolina, and Davis Regional Medical Center (144 licensed beds) in Statesville, North Carolina, to Novant Health, Inc.

On March 2, 2023, we entered into a contribution and membership purchase agreement for the sale of a majority interest in Lutheran Rehabilitation Hospital (36 licensed beds) in Fort Wayne, Indiana, to Select Medical Corporation.

On April 3, 2023, we entered into a definitive agreement for the sale of substantially all of the assets of Medical Center of South Arkansas (166 licensed beds) in El Dorado, Arkansas to affiliates of SARH Holdings, Inc.

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

Moreover, we may give consideration to divesting certain additional hospitals and non-hospital businesses.

Generally, these hospitals and non-hospital businesses are not in one of our strategically beneficial services 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.

1 unchanged sentence

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 $3.1 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:

Net operating revenues decreased from $3.111 billion for the three months ended March 31, 2022 to $3.108 billion for the three months ended March 31, 2023.

On a same-store basis, net operating revenues for the three months ended March 31, 2023 increased $51 million.

We had a net loss of $20 million during the three months ended March 31, 2023, compared to net income of $30 million for the same period in 2022.

Net loss for the three months ended March 31, 2023 included the following:

an after-tax charge of $8 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 benefit of $14 million for the gain related to the sale of a hospital partially offset by impairment of long-lived assets that were idled, disposed or held-for-sale, 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.

Net income for the three months ended March 31, 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 held-for-sale based on its estimated fair value.

Consolidated inpatient admissions for the three months ended March 31, 2023, increased 1.2%, compared to the same period in 2022.

Consolidated adjusted admissions for the three months ended March 31, 2023, increased 5.8%, compared to the same period in 2022.

Same-store inpatient admissions for the three months ended March 31, 2023, increased 4.8%, compared to the same period in 2022, and same-store adjusted admissions for the three months ended March 31, 2023, increased 9.4%, compared to the same period in 2022.

Self-pay revenues represented approximately 0.8 % and 1.4 % of net operating revenues for the three month s ended March 31 , 202 3 and 20 22 , respectively .

The amount of foregone revenue related to providing charity care services as a percentage of net operatin g revenues was approximately 10.5 % and 11.7 % for the three months ended March 31, 2023 and 2022 , respectively .

Direct and indirect costs incurred in providing charity care services as a percentage of net operating revenues was approximately 1.2 % and 1.3 % for the three months ended March 31, 2023 and 2022 , respectively .

Overview of Legislative and Other Governmental Developments

Congress and certain state legislatures have introduced and passed a large number of proposals and legislation designed to make major changes in the healthcare system, including changes that have impacted access to health insurance.

The most prominent of these efforts, the Affordable Care Act, regulates how healthcare services are covered, delivered and reimbursed.

The Affordable Care Act increased health insurance coverage through a combination of public program expansion and private sector health insurance reforms.

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

However, reductions to Medicaid DSH payments have been delayed by the Consolidated Appropriations Act, or the CAA, through 2023 (to begin in federal fiscal year 2024).

The Affordable Care Act has been subject to legislative and regulatory changes and court challenges.

The healthcare industry is subject to changing political, regulatory, and economic influences that may affect our business.

In recent years, the U.S.

Congress and certain state legislatures have introduced and passed a large number of proposals and legislation affecting the healthcare system, including laws intended to impact access to health insurance and reduce healthcare costs and government spending.

The most prominent of these efforts, the Affordable Care Act, affects how healthcare services are covered, delivered and reimbursed, and expanded health insurance coverage through a combination of public program expansion and private sector health insurance reforms.

The Affordable Care Act has been, and continues to be, subject to legislative and regulatory changes and court challenges.

For example, effective January 1, 2019, the financial penalty associated with the mandate that most individuals enroll in a health insurance plan was effectively eliminated.

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

However, in June 2021, the U.S.

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

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

Some states have imposed individual health insurance mandates, and other states have explored or offer public health insurance options.

The current presidential administration has indicated that it generally intends to protect and strengthen the Affordable Care Act and Medicaid programs.

For example, in January 2021, President Biden issued an executive order that instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to health insurance coverage.

In a final rule published in September 2021, HHS extended the annual open enrollment period for coverage through federal marketplaces and granted state exchanges flexibility to lengthen their open enrollment periods.

However, some states have imposed individual health insurance mandates, and other states have explored or offer public health insurance options.

To increase access to health insurance during the COVID-19 pandemic, the American Rescue Plan Act of 2021, or the ARPA, enhanced subsidies for individuals eligible to purchase coverage through Affordable Care Act marketplaces.

The Inflation Reduction Act, enacted in August 2022, extends these enhanced subsidies through 2025.

In addition, in 2020, the Families First Coronavirus Response Act required states to maintain continuous Medicaid enrollment to receive a temporary increase in federal funds for Medicaid expenditures.

However, this “continuous coverage” requirement expired on April 1, 2023, and the increase in federal funding will be phased out through calendar year 2023, which could lead to Medicaid coverage disruptions and dis-enrollments of Medicaid enrollees.

These and other changes and initiatives may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased.

Of critical importance to us is the potential impact of any changes specific to the Medicaid program, including the funding and expansion provisions of the Affordable Care Act and subsequent legislation or agency initiatives.

1 unchanged sentence

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

Of the 16 states in which we operated hospitals as of September 30, 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.

There is uncertainty regarding the ongoing net effect of the Affordable Care Act due to the potential for continued changes to the law’s implementation and its interpretation by government agencies and courts.

There is also uncertainty regarding the potential impact of other health reform efforts at the federal and state levels.

Some reforms may have a positive impact on our business, while others may increase our operating costs, adversely impact the reimbursement we receive , or require us to modify certain aspects of our operations.

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

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

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

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

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

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

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

For example, CMS currently administers various accountable care organizations and bundled payment demonstration projects.

In October 2021, the CMS Innovation Center published an outline of its strategy for the next decade, noting the need to accelerate the movement to value-based care and drive broader system transformation.

However, the COVID-19 pandemic may impact provider performance and data reporting under value-based care initiatives.

CMS has temporarily modified requirements of certain programs by, for example, implementing special scoring and payment policies intended to mitigate negative impacts of the public health emergency on hospitals participating in the Hospital Value-Based Purchasing Program and similar programs.

Of the 16 states in which we operated hospitals as of March 31, 2023, 10 states have taken action to expand their Medicaid programs.

The other six states have not, including Florida, Alabama, Tennessee, Mississippi and Texas, where we operated a significant number of hospitals as of March 31, 2023.

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.

Other recent reform initiatives and proposals at the federal and state levels include those focused on price transparency and limiting out-of-network charges, which may impact prices, our competitive position and the relationships between hospitals, insurers, patients, and ancillary providers (such as anesthesiologists, radiologists, and pathologists).

For example, the No Surprises Act imposes various requirements on providers and health plans intended to prevent “surprise” medical bills.

Among other restrictions and requirements, the law prohibits providers from charging patients an amount beyond the in-network cost sharing amount for services rendered by out-of-network providers, subject to limited exceptions.

For services for which balance billing is prohibited (even when no balance billing occurs), the No Surprises Act includes provisions that may limit the amounts received by out-of-network providers from health plans, and also establishes a dispute resolution process (through a final rule that is currently subject to litigation) for providers and payors to handle payment disputes that cannot be resolved through direct negotiations.

Additionally, in connection with requirements that providers provide, in advance of the date of the scheduled item or service or upon request, a good faith estimate of expected charges to uninsured or self-pay patients for scheduled items and services, such patients may invoke a patient-provider dispute resolution process established by regulation to challenge charges in certain circumstances.

Other trends toward transparency and value-based purchasing may impact the competitive position and patient volumes of providers.

For example, t he CMS Care Compare website makes available to the public certain data that hospitals submit in connection with Medicare reimbursement claims, including hospital performance data on quality measures and patient satisfaction.

In addition, Medicare reimbursement for hospitals is adjusted based on quality and efficiency measures, and CMS currently administers various accountable care organizations and bundled payment demonstration projects.

The CMS Innovation Center has highlighted the need to accelerate the movement to value-based care and drive broader system transformation.

In response to the COVID-19 pandemic, federal and state governments have passed legislation, promulgated regulations, and taken other administrative actions intended to assist healthcare providers in providing care to COVID -19 and other patients during the public health emergency and to provide financial relief.

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.

Together, these stimulus laws authorize over $186 billion in funding to be distributed through the Public Health and Social Services Emergency Fund, or the PHSSEF, to eligible providers, including public entities and Medicare- and/or Medicaid-enrolled providers.

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

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

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

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

Providers 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).

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

The CARES Act and related legislation also delay scheduled reductions to Medicaid DSH payments, provide a 20% add-on to the inpatient prospective payment system diagnosis-related group, or PPS DRG , rate for COVID-19 patients for the duration of t he public health emergency, permit ted the deferral of payment of the employer portion of social security taxes between March 27, 2020 and December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022 , and provided claims reimbursement to healthcare providers for the provision of COVID-19 testing, treatment, and vaccine administration to uninsured individuals by way of the Health Resources & Services Administration, or HRSA, COVID-19 Uninsured Program .

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

Primary legislative sources of COVID-19 relief have include d the Coronavirus Aid, Relief and Economic Security Act , or the CARES Act , the Paycheck Protection Program and Health C are Enactment Act, or the PPPHCE Act, the Consolidated Appropriations Act, 2021, or the CAA , and the ARPA.

Together, these stimulus laws authorized over $186 billion in funding to be distributed through the Public Health and S ocial Services Emergency Fund, or the PHSSEF , to eligible healthcare providers, including public entities and Medicare- and/or Medicaid-enrolle d providers.

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

The CARES Act and related legislation include other provisions offering financial relief, including through Medicare and Medicaid payment adjustments, such as a 20% add-on to the inpatient PPS DRG rate for COVID-19 patients and delays of scheduled reductions to Medicaid DSH reductions.

In addition, Congress temporarily suspended the Medicare sequestration payment adjustment, which would have otherwise reduced payments to Medicare providers by 2% as required by the BCA.

The sequestration adjustment, which was phased back in during 2022, has been extended through the first six months of 2032.

The ARPA, in addition to providing funding for healthcare providers, increased the federal budget deficit in a manner that triggers an additional statutorily mandated sequestration under the PAYGO Act.

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

However, Congress has delayed implementation of this payment reduction until 2025.

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 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.

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

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

CMS began recouping Medicare accelerated payments in April 2021.

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

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

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

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 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.

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.

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.

In June 2019, the U.S.

Supreme Court ruled in Azar v.

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

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

Supreme Court as the basis in their decision.

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

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

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

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

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

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

We did not receive or recognize any significant level of payments or benefits under the CARES Act and other existing COVID-19 related stimulus and relief legislation during the three months ended March 31, 2023, and do not expect to receive or recognize any significant level of payments or benefits under the CARES Act and other existing legislation related to COVID-19 in future periods.

Beyond financial assistance, federal and state governments have enacted legislation and established regulations intended to temporarily ease legal and regulatory burdens on healthcare providers during the COVID-19 pandemic.

As the United States has experienced a moderation of COVID-19 infection and related hospitalization rates in comparison to earlier periods, federal and state governments have reduced or terminated certain temporary measures that were previously implemented.

The COVID-19 pandemic continues to evolve, and there is uncertainty regarding the ultimate impact to our business of governmental efforts to assist healthcare providers responding to and otherwise affected by the COVID-19 pandemic.

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 federal public health emergency, while other measures will continue for a limited time after the public health emergency ends.

The current public health emergency declaration expires May 11, 2023, and the presidential administration indicated that the public health emergency will not be further extended.

Termination of the public health emergency may impact our operations and financial results.

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

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

In June 2022, the U.S.

7 unchanged sentences

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

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, 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.

On January 10, 2023, the United States District Court for the District of Columbia declined to order HHS to pay 340B hospitals the difference between the rates under the 2018 payment policy and what should have been paid, instead allowing HHS to propose an appropriate remedy to address the underpayments to 340B hospitals that resulted from the policy.

HHS has not yet announced its proposed remedy.

I f it is determined that budget n eutrality applies to the remedy for past payment years, 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.

F or calendar year 2023, CMS finalized the payment rate for drugs acquired through the 340B program in light of the U.S.

Supreme Court decision and, to achieve budget neutrality in light of the payment rate change, implemented a reduction of approximately 3.1% to payment rates for non-drug services under the outpatient PPS for calendar year 2 023 .

Future Medicare payment policies could further decrease the reimbursement received for outpatient drugs and services by entities that operate non-340B hospitals, which would adversely impact our results on a prospective basis.

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 dispositions 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 12 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

Nine Months Ended

September 30,

Medicare Managed Care

Managed Care and other third-party payors

As shown above, we receive a substantial portion of our revenues from the Medicare and Medicaid programs.

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

In the future, we generally expect the portion of revenues received from the Medicare and Medicaid programs to increase over the long-term due to the general aging of the population and

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.

As shown above, we receive a substantial portion of our revenues from the Medicare, Medicare Managed Care, and Medicaid programs.

Included in Managed Care and other third-party payors is operating revenues from insurance companies with which we have insurance provider contracts, 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, including Medicare Managed Care, 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 Managed Care and Medicaid managed care programs, which may adversely affect our operating revenue.

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

4 unchanged sentences

In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies.

Amounts we receive for the treatment of patients covered by Medicare, Medicaid and non-governmental payors are generally less than our standard billing rates.

Amounts we receive for the treatment of patients covered by

Medicare, Medicaid and non-governmental payors are generally less than our standard billing rates.

We account for the differences between the estimated program reimbursement rates and our standard billing rates as contractual allowance adjustments, which we deduct from gross revenues to arrive at net operating revenues.

1 unchanged sentence

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 nine-month periods ended September 30, 2022 and 2021.

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net operating revenues by an insignificant amount in each of the three - month periods ended March 31, 2023 and 2022 .

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.

15 unchanged sentences

Results of Operations

Our hospitals offer a broad variety of inpatient and outpatient medical and surgical services.

Our hospitals and other sites of care offer a broad variety of inpatient and outpatient medical and surgical services.

These include general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic services, psychiatric and rehabilitation services.

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

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

Utilization of services and our results of operations are dependent on a multitude of factors including seasonal fluctuations in demand.

Historically, the strongest demand for hospital services generally occurs during the winter months and the weakest demand generally occurs during the summer months.

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

Three Months Ended

Nine Months Ended

September 30,

Operating results, as a percentage of net operating revenues:

5 unchanged sentences

Interest expense, net

Gain (loss) from early extinguishment of debt

Gain on sale of equity interests in Macon Healthcare, LLC

Loss from early extinguishment of debt

Equity in earnings of unconsolidated affiliates

1 unchanged sentence

Provision for income taxes

Net income (loss)

Net (loss) income

Net income attributable to noncontrolling interests

Net (loss) income attributable to Community Health

Net loss attributable to Community Health

Systems, Inc.

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Percentage (decrease) increase from prior year:

3 unchanged sentences

Average length of stay (d)

Net (loss) income attributable to Community Health

Net loss attributable to Community Health

Systems, Inc.

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

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

Net operating revenues

1 unchanged sentence

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 September 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 resulting from the recognition of pandemic relief funds.

Admissions represents the number of patients admitted for inpatient treatment.

2 unchanged sentences

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

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

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

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 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 $(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.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Net operating revenues decreased to $3.108 billion for the three months ended March 31, 2023, compared to $3.111 billion for the same period in 2022.

Net operating revenues on a same-store basis from hospitals that were operated throughout both periods increased $51 million, or 1.7%, during the three months ended March 31, 2023, compared to the same period in 2022.

On a period-over-period basis, the increase in net operating revenues was primarily attributable to higher inpatient and outpatient volumes and higher reimbursement rates, partially offset by lower acuity and unfavorable changes in payor mix.

Non-same-store net operating revenues decreased $54 million during the three months ended March 31, 2023, compared to the same period in 2022.

On a consolidated basis, inpatient admissions increased by 1.2% and adjusted admissions increased by 5.8% during the three months ended March 31, 2023, compared to the same period in 2022.

On a same-store basis, net operating revenues per adjusted admission decreased 7.1%, while inpatient admissions increased by 4.8% and adjusted admissions increased by 9.4% for the three months ended March 31, 2023, compared to the same period in 2022.

Operating costs and expenses, as a percentage of net operating revenues, increased from 91.3% during the three months ended March 31, 2022 to 93.2% during the three months ended March 31, 2023.

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 87.0% for the three months ended March 31, 2022 to 89.7% for the three months ended March 31, 2023.

Salaries and benefits, as a percentage of net operating revenues, increased from 42.6% for the three months ended March 31, 2022 to 43.9% for the three months ended March 31, 2023, primarily due to wage increases driven by inflation and current competitive labor market conditions.

Supplies, as a percentage of net operating revenues, increased from 16.0% for the three months ended March 31, 2022 to 16.3% for the three months ended March 31, 2023.

Other operating expenses, as a percentage of net operating revenues, decreased from 27.4% for the three months ended March 31, 2022 to 26.9% for the three months ended March 31, 2023, primarily due to lower costs for contract labor partially offset by higher costs for professional liability insurance and higher rates paid for outsourced medical specialists.

Lease cost and rent, as a percentage of net operating revenues, increased from 2.5% for the three months ended March 31, 2022 to 2.6% for the three months ended March 31, 2023.

Pandemic relief funds, as a percentage of net operating revenues, were 0.0% for the three months ended March 31, 2023, compared to (1.5)% for the same period in 2022.

Depreciation and amortization, as a percentage of net operating revenues, increased to 4.2% for the three months ended March 31, 2023 from 4.1% for the three months ended March 31, 2022.

I mpairment and (gain) loss on sale of businesses , net wa s a gain of $22 million for the three months ended March 31, 2023 , compared to expense of $ 6 million for the same period in 2022 .

The gain in 2023 and the expense in 2022 related primarily to divestitures during each respective period as discu ssed more specifically under “Acquisition, Divestiture and Closure Activity” herein.

Interest expense, net, decreased by $ 10 million to $ 207 million for the three months ended March 31, 2023, compared to $217 million for the same period in 2022 due primarily to financing activities in 2022.

There was no loss from early extinguishment of debt recognized during the three months ended March 31, 2023, compared to a loss from early extinguishment of debt of $5 million in the same period in 2022.

Equity in earnings of unconsolidated affiliates, as a percentage of net operating revenues, decreased to (0.1)% for the three months ended March 31, 2023 from (0.2)% for the three months ended March 31, 2022.

The net results of the above-mentioned changes resulted in income before income taxes decreasing $47 million to $6 million for the three months ended March 31, 2023 from $53 million for the three months ended March 31, 2022.

Our provision for income taxes for the three months ended March 31, 2023 and 2022 was $26 million and $23 million, respectively, and the effective tax rates were 433.3% and 43.4% for the three months ended March 31, 2023 and 2022, respectively.

The increase in the provision for income taxes for the three months ended March 31, 2023, compared to the same period in 2022 was due to an increase in non-deductible interest for the three months ended March 31, 2023 compared to the same period in 2022.

The difference in our effective tax rate for the year ended March 31, 2023, compared to the same period in 2022 was due to the aforementioned increase in the provision for income taxes and the decline in income before taxes.

Net loss, as a percentage of net operating revenues, was (0.6)% for the three months ended March 31, 2023, compared to net income of 1.0% for the same period in 2022.

Net income attributable to noncontrolling interests as a percentage of net operating revenues was 1.0% for both the three months ended March 31, 2023 and 2022.

Net loss attributable to Community Health Systems, Inc.

stockholders was $(51) million for the three months ended March 31, 2023, compared to $(1) million for the same period in 2022.

Liquidity and Capital Resources

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.

Net cash provided by operating activities decreased $96 million, from approximately $101 million for the three months ended March 31, 2022, to approximately $5 million for the three months ended March 31, 2023.

Cash paid for interest was $197 million during the three months ended March 31, 2023, compared to $242 million for the same period in 2022.

Cash paid for income taxes, net of refunds received, resulted in a net payment of less than $1 million and $2 million during the three months ended March 31, 2023 and 2022, respectively.

Net cash used in investing activities was approximately $19 million for the three months ended March 31, 2023, compared to approximately $121 million for the same period in 2022, a decrease of $102 million.

Net cash used in investing activities during the three months ended March 31, 2023 was primarily impacted by an increase of $7 million in cash paid for acquisitions of facilities and other related businesses, an increase of $25 million in cash used for the purchase of property and equipment, an increase of $2 million in cash used to purchase other investments and an increase of $1 million in cash used to purchase investments in unconsolidated affiliates.

These increased uses of cash were partially offset by an increase of $5 million in cash proceeds from the sale of property and equipment, an increase of $42 million in cash from the net impact of the purchases and sales of available-for-sale debt and equity securities and an increase of $90 million in cash proceeds from dispositions of hospitals and other ancillary operations.

Our net cash provided by financing activities was approximately $40 million for the three months ended March 31, 2023, compared to net cash used in financing activities of approximately $27 million for the same period in 2022, a change of $67 million.

This was primarily due to the net effect of our debt borrowings and repayments during the three months ended March 31, 2023 compared to 2022.

Net working capital was approximately $982 million at March 31, 2023 and $896 million at December 31, 2022, respectively.

Net working capital increased by approximately $86 million between December 31, 2022 and March 31, 2023.

The increase is primarily due to the increase in cash and prepaid expenses and taxes and decreases in accounts payable and accrued liabilities for employee

compensation during the t hree months ended March 31, 2023 , partially offset by a decrease in prepaid income taxes and an increase in other accrued liabilities and current maturities of long- term debt .

In addition to cash flows from operations, available sources of capital include amounts available under the asset-based loan (ABL) credit agreement, or the ABL Credit Agreement, 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 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 .

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 ABL Facility.

The maximum aggregate amount under the ABL Facility is $1.0 billion, subject to borrowing base capacity.

At March 31, 2023, we had outstanding borrowings of $125 million and approximately $792 million of additional borrowing capacity (after taking into consideration $83 million of outstanding letters of credit) under the ABL Facility.

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

Principal amounts outstanding under the ABL Facility, if any, will be due and payable in full on November 22, 2026.

2022 Financing Activity

On February 4, 2022, CHS completed a private offering of $1.535 billion aggregate principal amount of 5¼% Senior Secured Notes due May 15, 2030, or the 5¼% Senior Secured Notes due 2030.

The proceeds of the offering were used to redeem the 6⅝% Senior Secured Notes due 2025 on February 4, 2022, and to pay related fees and expenses.

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 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.

As of March 31, 2023, approximately $39 million of our outstanding debt of approximately $11.7 billion is due within the next 12 months.

Net proceeds from divestitures, if any, are expected to be used for general corporate purposes (including potential debt repayments and/or debt repurchases) and capital expenditures.

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, 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 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.

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

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

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

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 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.

However, ongoing negative economic conditions (including inflationary conditions and elevated interest rate levels) have resulted in, and may continue to result in, significant disruptions of financial and capital markets, which could reduce our ability to access capital and negatively affect our liquidity in the future.

Moreover, 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.

We may elect from time to time 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 law requirements and other factors.

There have been no material changes outside of the ordinary course of business to our upcoming cash obligations during the three months ended March 31, 2023, 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, 2023, or 2022 Form 10-K.

Capital Resources

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.

Cash expenditures for purchases of facilities and other related businesses were approximately $8 million for the three months ended March 31, 2023, compared to $1 million for the same period in 2022.

Our expenditures for the three months ended March 31, 2023 and 2022 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 three months ended March 31 , 202 3 totaled $ 118 million compared to $ 64 million in 2022 .

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

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.

Costs to construct replacement hospitals totaled less than $ 1 million and $12 million for the three months ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2023 and 2022, we also had cash expenditures of $4 million and $21 million, respectively, that represent both plannin g and cons truction costs pri marily for de novo hospitals .

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

1 unchanged sentence

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

4 unchanged sentences

These events could cause our future financial results to be adversely impacted.

We cannot estimate the impact of Medicare and Medicaid reimbursement changes that have been enacted or are under consideration.

We cannot estimate the impact of Medicare and Medicaid reimbursement changes that have been enacted or are currently or may in the future be under consideration.

We cannot predict whether additional reimbursement reductions will be made or whether any such changes or other restructuring of the financing and delivery of healthcare would have a material adverse effect on our business, financial conditions, results of operations, cash flow, capital resources and liquidity.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements.

1 unchanged sentence

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 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 .

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 2022 Form 10-K.

Revenue Recognition

2 unchanged sentences

Amounts we receive for treatment of patients covered by these programs are generally less than the standard billing rates.

Explicit price concessions are recorded for contractual allowances that are calculated and recorded through internally-developed data collection and analysis tools to automate the monthly estimation of required contractual allowances.

Within this automated system, payors’ historical paid claims data are utilized to calculate the contractual allowances.

This data is automatically updated on a monthly basis.

Explicit price concessions are recorded for contractual allowances that are calculated and recorded through a combination of internally- and externally-developed data collection and analysis tools to automate the monthly estimation of required contractual allowances.

Within these automated systems, payors’ historical paid claims data and contracted amounts are utilized to calculate the contractual allowances.

This data is updated on a monthly basis.

All hospital contractual allowance calculations are subjected to monthly review by management to ensure reasonableness and accuracy.

3 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 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.

If the actual contractual reimbursement percentage under government programs and managed care contracts dif fered by 1% at March 31, 2023 from our estimated reimbursement percentage, net loss for the three months ended March 31, 2023 would have changed by approximately $ 95 million, and net accounts receivable at March 31, 2023 would have changed by $ 122 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 nine-month periods ended September 30, 2022 and 2021.

Contractual allowance adjustments related to final settlements and previous program reimbursement estimates impacted net op erating revenues by an i nsignificant amount for the three - month periods ended March 31, 2023 and 2022 .

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 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 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.

If the actual collection percentage differed by 1% at March 31, 2023 from our estimated collection percentage as a result of a change in expected recoveries, net loss for the three months ended March 31, 2023 would have changed by $38 million, and net accounts receivable at March 31, 2023 would have changed by $48 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 operating revenues 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 $1.7 billion at both March 31, 2023 and December 31, 2022, 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.

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 99% 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 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.

Days revenue outstanding, adjusted for the impact of receivables for state Medicaid supplemental payment programs and divested facilities, was 56 days at both March 31, 2023 and December 31, 2022.

Total gross accounts receivable (prior to allowance for contractual adjustments and implicit price concessions) was approximately $16.8 billion and $ 15.9 billion as of March 31, 2023 an d December 31, 2022 , 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 September 30, 2022:

As of March 31, 2023:

% of Gross Receivables

Managed Care and Other

Medicare Managed Care

Managed Care and other third-party payors

As of December 31, 2022:

% of Gross Receivables

Managed Care and Other

Medicare Managed Care

Managed Care and other third-party payors

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 September 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 September 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.

At March 31, 2023, we had approximately $4.1 billion of goodwill recorded, all of which resides at our hospital operations reporting unit.

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

2 unchanged sentences

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

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

At 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.

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

Some of those inputs include, but are not limited to, the most recent price of our common stock and 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, costs of invested capital and a discount rate.

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 as a result of any decline in or volatility of our stock price and the fair value of our long-term debt, lower than expected hospital volumes and/or net operating revenues, higher market interest rates, increased operating costs

or other adverse impacts on our financial results .

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

Professional Liability Claims

5 unchanged sentences

The estimates are based on specific claim facts, our historical claim reporting and payment patterns, the nature and level of our hospital operations, and actuarially determined projections.

The actuarially determined projections are based on our actual claim data, including historic reporting and payment patterns which have been gathered over an approximately 20-year period.

As discussed below, since we purchase excess insurance on a claims-made basis that transfers risk to third-party insurers, the liability we accrue does include an amount for the losses covered by our excess insurance.

The actuarially determined projections are based on our actual claim data, including historic reporting and payment patterns which have been gathered over the life of the Company.

As discussed below, since we purchase excess insurance on a claims-made basis that transfers risk to third-party insurers, the estimated liability for professional and general liability claims does include an amount for the losses covered by our excess insurance.

We also record a receivable for the expected reimbursement of losses covered by our excess insurance.

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

The net present value of the projected payments was discounted using a weighted-average risk-free rate of approximately 3.8% and 1.8% at September 30, 2022 and December 31, 2021, respectively.

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.

The net present value of the projected payments was discounted using a weighted-average risk-free rate of approximately 3.8% at both March 31, 2023 and December 31, 2022.

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

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

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

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

2 unchanged sentences

The average lag period between claim occurrence and payment of a final settlement is between three and four years, although the facts and circumstances of individual claims could result in the timing of such payments being different from this average.

Since claims are paid promptly after settlement with the claimant is reached, settled claims represent less than 1.0% of the total liability at the end of any period.

Since claims are paid promptly after settlement with the claimant is reached, settled claims represent approximately less than 1% of the total liability at the end of any period.

For purposes of estimating our individual claim accruals, we utilize specific claim information, including the nature of the claim, the expected claim amount, the year in which the claim occurred and the laws of the jurisdiction in which the claim occurred.

3 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 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.

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

A 1% change in assumptions for either severity or frequency as of March 31, 2023 would have increased or decreased the reserve between $5 million to $15 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.

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.

5 unchanged sentences

The excess coverage consists of multiple layers of insurance, the sum of which totals up to $95 million per occurrence and in the aggregate for claims reported on or after June 1, 2003, up to $145 million per occurrence and in the aggregate for claims reported on or after January 1, 2008, up to $195 million per occurrence and in the aggregate for claims reported on or after June 1, 2010, and up to at least $216 million per occurrence and in the aggregate for claims reported on or after June 1, 2015.

In addition, for integrated occurrence malpractice claims, there is an additional $50 million of excess coverage for claims reported on or after June 1, 2014 and an additional $75 million of excess coverage for claims reported on or after June 1, 2015 through June 1, 2020 .

In addition, for integrated occurrence professional liability claims, there is an additional $50 million of excess coverage for claims reported on or after June 1, 2014 and an additional $75 million of excess coverage for claims reported on or after June 1, 2015 through June 1, 2020 .

The $75 million in integrated occurrence coverage will also apply to claims reported between June 1, 2020 and June 1, 2023 for events that occurred prior to June 1, 2020 but which were not previously known or reported .

2 unchanged sentences

Effective June 1, 2014, the hospitals acquired from Health Management Associates, Inc., or HMA, were insured on a claims-made basis as described above and through commercial insurance companies as described above for substantially all claims reported on or after June 1, 2014 except for physician-related claims with an occurrence date prior to June 1, 2014.

Prior to June 1, 2014, the former HMA hospitals obtained insurance coverage through a wholly-owned captive insurance subsidiary and a risk retention group subsidiary which are domiciled in the Cayman Islands and South Carolina, respectively.

Those insurance subsidiaries, which are collectively referred to as the “Insurance Subsidiaries,” provided ( i ) claims-made coverage to all of the former HMA hospitals and (ii) occurrence-basis coverage to most of the physicians employed by the former HMA hospitals.

Prior to June 1, 2014, the former HMA hospitals obtained insurance coverage through a wholly-owned captive insurance subsidiary and a risk retention group subsidiary, or Insurance Subsidiaries, that are domiciled in the Cayman Islands and South Carolina, respectively.

The Insurance Subsidiaries provided (i) claims-made coverage to all of the former HMA hospitals and (ii) occurrence-basis coverage to most of the physicians employed by the former HMA hospitals.

The employed physicians not covered by the Insurance Subsidiaries generally maintained claims-made policies with unrelated third-party insurance companies.

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

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

There were no significant changes in our estimate of the reserve for professional liability claims during the three months ended March 31, 2023.

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 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.

The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was $11 million at March 31, 2023.

A total of less than $1 million of interest and penalties is included in the amount of liability for uncertain tax positions at March 31, 2023.

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

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

however, we do not anticipate the change will have a material impact on our consolidated results of operations or consolidated financial position.

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

Our federal income tax return for the 2014, 2015 and 2018 tax years are under examination by the Internal Revenue Service.

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

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

4 unchanged sentences

These factors include, among other things:

developments related to COVID-19, including, without limitation, related to the length and severity of the pandemic;

the volume of canceled or rescheduled procedures;

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

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

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

general economic and business conditions, both nationally and in the regions in which we operate, including the current negative macroeconomic conditions, ongoing inflationary pressures that have significantly increased and may continue to significantly increase our expenses, the current high interest rate environment, ongoing challenging labor market conditions and labor shortages, and supply chain shortages and disruptions, including 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, as well as the potential impact on us of financial and capital market instability and/or disruptions to the banking system due to bank failures and other factors, including any potential impact on our ability to access and or obtain the return of cash and cash equivalents, and/or our ability to access credit, liquidity and capital market sources on acceptable terms or at all;

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 adopted in connection with the COVID-19 pandemic;

changes in, or the failure to comply with, federal, state or local laws or governmental regulations affecting our business;

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;

1 unchanged sentence

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

any security breaches, cyber-attacks, loss of data, other cybersecurity threats or incidents, and any actual or perceived failures to comply with legal requirements governing the privacy and security of health information or other regulated, sensitive or confidential information, or legal requirements regarding data privacy or data protection, and the impact of the security breach announced by us on February 13, 2023, including legal, reputational, and financial risks associated with this security breach, existing and/or any future litigation associated with this security breach, any potential regulatory inquiries to which we may become subject in connection with this security breach, and the extent of remediation and other additional costs that may be incurred by us in connection with this security breach;

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

3 unchanged sentences

the efforts of insurers, healthcare providers, large employer groups and others to contain healthcare costs, including the trend toward value-based purchasing;

the impact of competitive labor market conditions and the shortage of experienced nurses, including in connection with our ability to hire and retain qualified nurses, physicians, other medical personnel and key management, and increased labor expenses as a result of such competitive labor market conditions, inflation and competition for such positions;

the impact of competitive labor market conditions and the shortage of nurses, including in connection with our ability to hire and retain qualified nurses, physicians, other medical personnel and key management, and increased labor expenses as a result of such competitive labor market conditions, inflation and competition for such positions;

any failure to obtain medical supplies or pharmaceuticals at favorable prices;

liabilities and other claims asserted against us, including self-insured malpractice claims;

liabilities and other claims asserted against us, including self-insured professional liability claims;

trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals or via telehealth;

changes in medical or other technology;

changes in GAAP;

changes in U.S.

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

6 unchanged sentences

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

developments related to COVID-19, including, without limitation, related to the length and severity of the pandemic and the spread of potentially more contagious and/or virulent forms of the virus, including variants of the virus for which currently available vaccines, treatments and tests may not be effective or authorized;

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

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

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

the concentration of our revenue in a small number of states;

8 unchanged sentences

Quantitative and Qualitative Disclosures about Market Risk

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.

During the three months ended March 31, 2023, 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 2022 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