COMMUNITY HEALTH SYSTEMS INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read this discussion together with our condensed consolidated financial statements and the accompanying notes included herein. Throughout this Form 10-Q, we refer to Community Health Systems, Inc., or the Parent Company, and its consolidated subsidiaries in a simplified manner and on a collective basis, using words like “we,” “our,” “us” and the “Company”. This drafting style is suggested by the Securities and Exchange Commission, or SEC, and is not meant to indicate that the publicly traded Parent Company or any particular subsidiary of the Parent Company owns or operates any asset, business or property. The hospitals, operations and businesses described in this filing are owned and operated by distinct and indirect subsidiaries of Community Health Systems, Inc. Executive Overview We are one of the nation’s largest healthcare companies. Our affiliates are leading providers of healthcare services, developing and operating healthcare delivery systems in 44 distinct markets across 15 states. 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. 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. 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: Hospital Buyer City, State Licensed Beds Effective Date 2023 Divestiture: Greenbrier Valley Medical Center Vandalia Health, Inc. Ronceverte, WV 122 January 1, 2023 2022 Divestiture: AllianceHealth Seminole SSM HealthCare of Oklahoma, Inc. Seminole, OK 32 July 1, 2022 21 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. As such, we may sell additional hospitals and/or non-hospital businesses if we consider any such disposition to be in our best interests. We expect proceeds from any such divestitures to be used for general corporate purposes (including potential debt repayments and/or debt repurchases) and capital expenditures. Overview of Operating Results 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 $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 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. 22 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 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. 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. Historically, the states with the greatest reductions in the number of uninsured adult residents have expanded Medicaid. A number of states have opted out of the Medicaid coverage expansion provisions, but could ultimately decide to expand their programs at a later date. Of the 16 states in which we operated hospitals as of March 31, 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. 23 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. 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. 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. 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 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. 24 In June 2022, the U.S. Supreme Court ruled in American Hospital Association v. Becerra , a case on the 340B Drug Pricing Program that could impact Medicare reimbursement to us, both in respect of past periods and future periods. The 340B program allows certain non-profit healthcare organizations that care for many uninsured and low-income patients to purchase outpatient drugs from pharmaceutical manufacturers at discounted rates. Our hospitals do not participate in the 340B program. In 2018, HHS implemented a payment policy that reduced Medicare payments to 340B hospitals for most drugs obtained at 340B-discounted rates. These payment cuts resulted in increased payments for non-340B hospitals, including our facilities. In Becerra, the U.S. Supreme Court determined that HHS unlawfully reduced reimbursement rates for 340B hospitals. 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. Furthermore, we will continue to strive to improve operating efficiencies and procedures in order to improve the performance of our hospitals. Sources of Revenue The following table presents the approximate percentages of net operating revenues by payor source for the periods indicated. The data for the periods presented are not strictly comparable due to the effect that businesses acquired, sold, closed or opened during each of the respective periods, as applicable, have had on these statistics. Three Months Ended March 31, 2023 2022 Medicare 20.9 % 21.5 % Medicare Managed Care 17.5 16.5 Medicaid 13.6 15.0 Managed Care and other third-party payors 47.2 45.6 Self-pay 0.8 1.4 Total 100.0 % 100.0 % 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. Furthermore, in the normal course of business, managed care programs, insurance companies and employers actively negotiate the amounts paid to hospitals. Our relationships with payors may be impacted by price transparency initiatives and out-of-network billing restrictions, including those in the No Surprises Act, which took effect January 1, 2022. There can be no assurance that we will retain our existing reimbursement arrangements or that third-party payors will not attempt to further reduce the rates they pay for our services. Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-based reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for the treatment of patients covered by 25 Medicare, Medicaid and non-governmental payors are generally less than our standard billing rates. We account for the differences between the estimated program reimbursement rates and our standard billing rates as contractual allowance adjustments, which we deduct from gross revenues to arrive at net operating revenues. Final settlements under some of these programs are subject to adjustment based on administrative review and audit by third parties. We account for adjustments to previous program reimbursement 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 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. These rates are indexed for inflation annually, although increases have historically been less than actual inflation. On August 10, 2022, CMS published the final rule to increase this index by 4.1% for hospital inpatient acute care services that are reimbursed under the prospective payment system for federal fiscal year 2023 (which began October 1, 2022). Together with other changes to payment policies, payment rates for hospital inpatient acute care services are expected to increase approximately 4.3%. Hospitals that do not submit required patient quality data are subject to a reduction in payments. We are complying with this data submission requirement. Payments may also be affected by various other adjustments, including those that depend on patient-specific or hospital specific factors. For example, the “two midnight rule” establishes admission and medical review criteria for inpatient services limiting when services to Medicare beneficiaries are payable as inpatient hospital services. Reductions in the rate of increase or overall reductions in Medicare reimbursement may cause a decline in the growth of our net operating revenues. Payment rates under the Medicaid program vary by state. In addition to the base payment rates for specific claims for services rendered to Medicaid enrollees, several states utilize supplemental reimbursement programs to make separate payments that are not specifically tied to an individual’s care, some of which offset a portion of the cost of providing care to Medicaid and indigent patients. These programs are designed with input from CMS and are funded with a combination of state and federal resources, including, in certain instances, fees or taxes levied on the providers. The programs are generally authorized for a specified period of time and require CMS’s approval to be extended. We are unable to predict whether or on what terms CMS will extend the supplemental programs in the states in which we operate. Under these supplemental programs, we recognize revenue and related expenses in the period in which amounts are estimable and payment is reasonably assured. Reimbursement under these programs is reflected in net operating revenues and included as Medicaid revenue in the table above, and fees, taxes or other program related costs are reflected in other operating expenses. Results of Operations Our hospitals 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. 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 March 31, 2023 2022 Operating results, as a percentage of net operating revenues: Net operating revenues 100.0 % 100.0 % Operating expenses (a) (89.7 ) (87.0 ) Depreciation and amortization (4.2 ) (4.1 ) Impairment and (gain) loss on sale of businesses, net 0.7 (0.2 ) Income from operations 6.8 8.7 Interest expense, net (6.7 ) (7.0 ) Loss from early extinguishment of debt — (0.2 ) Equity in earnings of unconsolidated affiliates 0.1 0.2 Income before income taxes 0.2 1.7 Provision for income taxes (0.8 ) (0.7 ) Net (loss) income (0.6 ) 1.0 Less: Net income attributable to noncontrolling interests (1.0 ) (1.0 ) Net loss attributable to Community Health Systems, Inc. stockholders (1.6 )% 0.0 % 26 Three Months Ended March 31, 2023 2022 Percentage (decrease) increase from prior year: Net operating revenues (0.1 )% 3.3 % Admissions (b) 1.2 (1.7 ) Adjusted admissions (c) 5.8 2.2 Average length of stay (d) (9.8 ) 2.0 Net loss attributable to Community Health Systems, Inc. stockholders (5,000.0 ) 98.4 Same-store percentage increase (decrease) from prior year (e): Net operating revenues 1.7 % 3.8 % Admissions (b) 4.8 (0.3 ) Adjusted admissions (c) 9.4 3.2 (a) 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. (b) Admissions represents the number of patients admitted for inpatient treatment. (c) Adjusted admissions is a general measure of combined inpatient and outpatient volume. We computed adjusted admissions by multiplying admissions by gross patient revenues and then dividing that number by gross inpatient revenues. (d) Average length of stay represents the average number of days inpatients stay in our hospitals. (e) Excludes information for 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 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. 27 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 $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. Liquidity 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 28 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 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. Additional Liquidity Information Our ability to meet the restricted covenants and financial ratios and tests in the ABL Facility and the indentures governing our outstanding notes can be affected by events beyond our control, and we cannot assure you that we will meet those tests. A breach of any of these covenants could result in a default under the ABL Facility and/or the indentures that govern our outstanding notes. Upon the occurrence of an event of default under the ABL Facility or indentures that govern our outstanding notes, all amounts outstanding under the ABL Facility and the indentures that govern our outstanding notes may become immediately due and payable and all commitments under the ABL Facility to extend further credit may be terminated. As of March 31, 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. 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 $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. 29 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. 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. Construction of the replacement facility for Northwest Health - Starke is required to be completed within five years of the date we enter into a new lease with Starke County, Indiana, the hospital lessor, or in the event we do not enter into a new lease with Starke County, construction shall be completed by September 30, 2026. We have not entered into a new lease with the lessor for Northwest Health - Starke and currently anticipate completing construction of the Northwest Health - Starke replacement facility in 2026. Reimbursement, Legislative and Regulatory Changes Ongoing legislative and regulatory efforts, and judicial interpretations, could reduce or otherwise adversely affect the payments we receive from Medicare and Medicaid and other payors. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings, interpretations and discretion, and which are at times subject to court challenges, which may further affect payments made under those programs. Further, the federal and state governments might, in the future, reduce the funds available under those programs, require repayment of previously received funds or require more stringent utilization and quality reviews of hospital facilities. Additionally, there may be a continued rise in managed care programs and additional restructuring of the financing and delivery of healthcare in the United States. 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 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 U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those policies that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. We believe that our critical accounting policies are limited to those described below. 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 Net operating revenues include amounts estimated by management to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for treatment of patients covered by these programs are generally less than the standard billing rates. Explicit price concessions are recorded for contractual allowances that are calculated and recorded through 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. We account for the differences between the estimated program reimbursement rates and the standard billing rates as contractual allowance adjustments, which is one component of the deductions from gross revenues to arrive at net operating revenues. The process of estimating contractual allowances requires us to estimate the amount expected to be received based on payor contract provisions. The key assumption in this process is the estimated contractual reimbursement percentage, which is based on payor classification, historical paid claims data and, when applicable, application of the expected managed care plan reimbursement based on contract terms. 30 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 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 op erating revenues by an i nsignificant amount for the three - month periods ended March 31, 2023 and 2022 . Patient Accounts Receivable Substantially all of our accounts receivable are related to providing healthcare services to patients at our hospitals and affiliated businesses. Collection of these accounts receivable is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to uninsured patients and outstanding patient balances for which the primary insurance payor has paid some but not all of the outstanding balance, with the remaining outstanding balance (generally deductibles and co-payments) owed by the patient. For all procedures scheduled in advance, our policy is to verify insurance coverage prior to the date of the procedure. Insurance coverage is not verified in advance of procedures for walk-in and emergency room patients. We estimate any adjustments to the transaction price for implicit price concessions by reserving a percentage of all self-pay accounts receivable without regard to aging category, based on collection history, adjusted for expected recoveries and any anticipated changes in trends. Our ability to estimate the transaction price and any implicit price concessions is not impacted by not utilizing an aging of our net accounts receivable as we believe that substantially all of the risk exists at the point in time such accounts are identified as self-pay. The percentage used to reserve for all self-pay accounts is based on our collection history. We believe that we collect substantially all of our third-party insured receivables, which include receivables from governmental agencies. Patient accounts receivable can be impacted by the effectiveness of our collection efforts and, as described in our significant accounting policies included in Note 1 of the Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Form 10-Q, numerous factors may affect the net realizable value of accounts receivable. If the actual collection percentage differed by 1% at March 31, 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. Collections on amounts previously written-off are recognized as a recovery of net operating revenues when received. However, we take into consideration estimated collections of these future amounts written-off in determining the implicit price concessions used to measure the transaction price for the applicable portfolio of patient accounts receivable. All of the following information is derived from our hospitals, excluding clinics, unless otherwise noted. Patient accounts receivable from our hospitals represent approximately 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 56 days at both March 31, 2023 and December 31, 2022. 31 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 March 31, 2023: % of Gross Receivables Payor 0 - 90 Days 90 - 180 Days 180 - 365 Days Over 365 Days Medicare 12 % — % — % — % Medicare Managed Care 17 % 3 % 3 % 1 % Medicaid 7 % 1 % 1 % 1 % Managed Care and other third-party payors 18 % 3 % 2 % 2 % Self-Pay 6 % 5 % 9 % 9 % As of December 31, 2022: % of Gross Receivables Payor 0 - 90 Days 90 - 180 Days 180 - 365 Days Over 365 Days Medicare 11 % 1 % — % — % Medicare Managed Care 15 % 3 % 3 % 1 % Medicaid 7 % 1 % 1 % 1 % Managed Care and other third-party payors 18 % 3 % 3 % 2 % Self-Pay 7 % 6 % 8 % 9 % The approximate percentage of total gross accounts receivable (prior to allowances for contractual adjustments and implicit price concessions) summarized by payor is as follows: March 31, December 31, 2023 2022 Insured receivables 71.5 % 69.5 % Self-pay receivables 28.5 30.5 Total 100.0 % 100.0 % The combined total at our hospitals and clinics for the estimated implicit price concessions for self-pay accounts receivable and allowances for other self-pay discounts and contractuals, as a percentage of gross self-pay receivables, was approximately 91% at both March 31, 2023 and December 31, 2022. If the receivables that have been written-off, but where collections are still being pursued by outside collection agencies, were included in both the allowances and gross self-pay receivables specified above, the percentage of combined allowances to total self-pay receivables would have been 93% at both March 31, 2023 and December 31, 2022. Goodwill 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. Goodwill is evaluated for impairment annually and when an event occurs or circumstances change that, more likely than not, reduce the fair value of the reporting unit below its carrying value. We performed our last annual goodwill impairment evaluation during the fourth quarter of 2022 using the October 31, 2022 measurement date, which indicated no impairment. The determination of fair value in our goodwill impairment analysis is based on an estimate of fair value for the hospital operations reporting unit utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited to, the most recent price of our common stock 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 32 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 As part of our business of providing healthcare services, we are subject to legal actions alleging liability on our part. We accrue for losses resulting from such liability claims, as well as loss adjustment expenses that are out-of-pocket and directly related to such liability claims. These direct out-of-pocket expenses include fees of outside counsel and experts. We do not accrue for costs that are part of our corporate overhead, such as the costs of our in-house legal and risk management departments. The losses resulting from professional liability claims primarily consist of estimates for known claims, as well as estimates for incurred but not reported claims. The estimates are based on specific claim facts, our historical claim reporting and payment patterns, the nature and level of our hospital operations, and actuarially determined projections. The actuarially determined projections are based on our actual claim data, including historic reporting and payment patterns which have been gathered over 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. 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 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. We monitor the outcomes of the medical care services that we provide and for each reported claim, we obtain various information concerning the facts and circumstances related to that claim. In addition, we routinely monitor current key statistics and volume indicators in our assessment of utilizing historical trends. The average lag period between claim occurrence and payment of a final settlement is between three and four years, although the facts and circumstances of individual claims could result in the timing of such payments being different from this average. Since claims are paid promptly after settlement with the claimant is reached, settled claims represent approximately 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. Once the case accruals for known claims are determined, information is stratified by loss layers and retentions, accident years, reported years and geography. Several actuarial methods are used against this data to produce estimates of ultimate paid losses and reserves for incurred but not reported claims. Each of these methods uses our company-specific historical claims data and other information. Company-specific data includes information regarding our business, including historical paid losses and loss adjustment expenses, historical and current case loss reserves, actual and projected hospital statistical data, a variety of hospital census information, employed physician information, professional liability retentions for each policy year, geographic information and other data. Significant assumptions are made on the basis of the aforementioned information in estimating reserves for incurred but not reported claims. A 1% change in assumptions for either severity or frequency as of 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. The determination of management’s estimate, including the preparation of the reserve analysis that supports such estimate, involves subjective judgment of management. Changes in reserve data or the trends and factors that influence reserve data may signal fundamental shifts in our future claim development patterns or may simply reflect single-period anomalies. Even if a change reflects a fundamental shift, the full extent of the change may not become evident until years later. Moreover, since our methods and models use different types of data and we select our liability from the results of all of these methods, we typically cannot quantify the precise impact of such factors on our estimates of the liability. Due to our standardized and consistent processes for handling claims and the long history and depth of our company-specific data, our methodologies have historically produced reliably determinable estimates of ultimate paid losses. Management considers any changes in the amount and pattern of its historical paid losses up through the most recent reporting period to identify any fundamental shifts or trends in claim development experience in determining the estimate of professional liability claims. However, due to the subjective nature of this estimate and the impact that previously unforeseen shifts in actual claim experience can have, future estimates of professional liability could be adversely impacted when actual paid losses develop unexpectedly based on assumptions and settlement events that were not previously known or anticipated. We are primarily self-insured for professional liability claims; however, we obtain excess insurance that transfers the risk of loss to a third-party insurer for claims in excess of our self-insured retentions. Our excess insurance is underwritten on a claims-made basis. For claims reported prior to June 1, 2002, substantially all of our professional and general liability risks were subject to a less than 33 $1 million per occurrence self-insured retention and for claims reported from June 1, 2002 through June 1, 2003, these self-insured retentions were $2 million per occurrence. Substantially all claims reported after June 1, 2003 and before June 1, 2005 are self-insured up to $4 million per claim. Substantially all claims reported on or after June 1, 2005 and before June 1, 2014 are self-insured up to $5 million per claim. Substantially all claims reported on or after June 1, 2014 and before June 1, 2018 are self-insured up to $10 million per claim. Substantially all claims reported on or after June 1, 2018 are self-insured up to $15 million per claim. Management, on occasion, has selectively increased the insured risk at certain hospitals based upon insurance pricing and other factors and may continue that practice in the future. Excess insurance for all hospitals has been purchased through commercial insurance companies and generally covers us for liabilities in excess of the self-insured retentions. The excess coverage consists of multiple layers of insurance, the sum of which totals up to $95 million per occurrence and in the aggregate for claims reported on or after June 1, 2003, up to $145 million per occurrence and in the aggregate for claims reported on or after January 1, 2008, up to $195 million per occurrence and in the aggregate for claims reported on or after June 1, 2010, and up to at least $216 million per occurrence and in the aggregate for claims reported on or after June 1, 2015. 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 . For certain policy years prior to June 1, 2014, if the first aggregate layer of excess coverage becomes fully utilized, then the self-insured retention will increase to $10 million per claim for any subsequent claims in that policy year until our total aggregate coverage is met. Beginning June 1, 2018, this drop-down provision in the excess policies attaches over the $15 million per claim self-insured retention. Effective June 1, 2014, the hospitals acquired from 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, 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 three months ended March 31, 2023. Income Taxes We must make estimates in recording provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required against the deferred tax assets. We believe that future income will enable us to realize certain deferred tax assets, subject to the valuation allowance we have established. The total amount of unrecognized benefit that would impact the effective tax rate, if recognized, was $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 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. 34 FORWARD-LOOKING STATEMENTS This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “thinks,” and similar expressions are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results and performance to be materially different from any future results or performance expressed or implied by these forward-looking statements. A number of factors could affect the future results of the Company or the healthcare industry generally and could cause the Company’s expected results to differ materially from those expressed in this Form 10-Q. These factors include, among other things: • 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); • the extent to and manner in which states support increases, decreases or changes in Medicaid programs, implement health insurance exchanges or alter the provision of healthcare to state residents through legislation, regulation or otherwise; • the future and long-term viability of health insurance exchanges and potential changes to the beneficiary enrollment process; • risks associated with our substantial indebtedness, leverage and debt service obligations, including our ability to refinance such indebtedness on acceptable terms or to incur additional indebtedness, and our ability to remain in compliance with debt covenants; • demographic changes; • changes in, or the failure to comply with, federal, state or local laws or governmental regulations affecting our business; • 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; • our ability, where appropriate, to enter into and maintain provider arrangements with payors and the terms of these arrangements, which may be further affected by the increasing consolidation of health insurers and managed care companies and vertical integration efforts involving payors and healthcare providers; • changes in, or the failure to comply with, contract terms with payors and changes in reimbursement policies or rates paid by federal or state healthcare programs or commercial payors; • any 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; • changes in inpatient or outpatient Medicare and Medicaid payment levels and methodologies; • the effects related to the implementation of the sequestration spending reductions pursuant to both the Budget Control Act of 2011 and the Pay-As-You-Go Act of 2010 and the potential for future deficit reduction legislation; 35 • increases in the amount and risk of collectability of patient accounts receivable, including decreases in collectability which may result from, among other things, self-pay growth and difficulties in recovering payments for which patients are responsible, including co-pays and deductibles; • the efforts of insurers, healthcare providers, large employer groups and others to contain healthcare costs, including the trend toward value-based purchasing; • 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 professional liability claims; • competition; • trends toward treatment of patients in less acute or specialty healthcare settings, including ambulatory surgery centers or specialty hospitals or via telehealth; • changes in medical or other technology; • changes in U.S. GAAP; • the availability and terms of capital to fund any additional acquisitions or replacement facilities or other capital expenditures; • our ability to successfully make acquisitions or complete divestitures, our ability to complete any such acquisitions or divestitures on desired terms or at all, the timing of the completion of any such acquisitions or divestitures, and our ability to realize the intended benefits from any such acquisitions or divestitures; • the impact that changes in our relationships with joint venture or syndication partners could have on effectively operating our hospitals or ancillary services or in advancing strategic opportunities; • our ability to successfully integrate any acquired hospitals and/or outpatient facilities, or to recognize expected synergies from acquisitions; • the impact of severe weather conditions and climate change, as well as the timing and amount of insurance recoveries in relation to severe weather events; • our ability to obtain adequate levels of insurance, including cyber, general liability, professional liability, and directors and officers liability insurance; • timeliness of reimbursement payments received under government programs; • 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; • the concentration of our revenue in a small number of states; • our ability to realize anticipated cost savings and other benefits from our current strategic and operational cost savings initiatives; • any changes in or interpretations of income tax laws and regulations; and • the risk factors set forth in our 2022 Form 10-K and our other public filings with the SEC. Although we believe that these forward-looking statements are based upon reasonable assumptions, these assumptions are inherently subject to significant regulatory, economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond our control. Accordingly, we cannot give any assurance that our expectations will in fact occur, and we caution that actual results may differ materially from those in the forward-looking statements. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are made as of the date of this filing. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. 36 Item 3. Quantitative and Qualitative Disclosures about Market Risk 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.