What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-30 compared with 2020-05-06 · 242 added, 162 removed, 232 unchanged (64% of the section changed)

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measures we are taking to respond to the COVID-19

the impact of government and administrative regulation and stimulus (including the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and other enacted legislation);

the impact of government and administrative regulation and stimulus (including the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Paycheck Protection Program and Health Care Enhancement (“PPPHCE”) Act and other enacted legislation);

changes in revenues due to declining patient volumes, changes in payor mix and deteriorating macroeconomic conditions (including increases in uninsured and underinsured patients);

potential increased expenses related to labor, supply chain or other expenditures;

workforce disruptions and supply shortages and disruptions, (2) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, as well as risks associated with disruptions in the financial markets and the business of financial institutions as the result of the COVID-19

workforce disruptions;

supply shortages and disruptions;

and the timing and availability of effective medical treatments and vaccines, (2) the impact of our substantial indebtedness and the ability to refinance such indebtedness on acceptable terms, as well as risks associated with disruptions in the financial markets and the business of financial institutions as the result of the COVID-19

pandemic which could impact us from a financial perspective, (3) the impact of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”), including the effects of court challenges to, any repeal of, or changes to, the Affordable Care Act or additional changes to its implementation, the possible enactment of additional federal or state health care reforms and possible changes to other federal, state or local laws or regulations affecting the health care industry, including single-payer proposals (often referred to as “Medicare for All”), and also including any such laws or governmental regulations which are adopted in response to the COVID-19

pandemic, (4) the effects related to the continued implementation of the sequestration spending reductions required under the Budget Control Act of 2011, and related legislation extending these reductions, and the potential for future deficit reduction legislation that may alter these spending reductions, which include cuts to Medicare payments, or create additional spending reductions, (5) increases in the amount and risk of collectability of uninsured accounts and deductibles and copayment amounts for insured accounts, (6) the ability to achieve operating and financial targets, and attain expected levels of patient volumes and control the costs of providing services, (7) possible changes in Medicare, Medicaid and other state programs, including Medicaid supplemental payment programs or Medicaid waiver programs, that may impact reimbursements to health care providers and insurers and the size of the uninsured or underinsured population, (8) the highly competitive nature of the health care business, (9) changes in service mix, revenue mix and surgical volumes, including potential declines in the population covered under third-party payer agreements, the ability to enter into and renew third-party payer provider agreements on acceptable terms and the impact of consumer-driven health plans and physician utilization trends and practices, (10) the efforts of health insurers, health care providers, large employer groups and others to contain health care costs, (11) the outcome of our continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures, (12) increases in wages and the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical and technical support personnel, (13) the availability and terms of capital to fund the expansion of our business and improvements to our existing facilities, (14) changes in accounting practices, (15) changes in general economic conditions nationally and regionally in our markets, including economic and business conditions resulting from the COVID-19

pandemic, (16) the emergence of and effects related to other pandemics, epidemics and infectious diseases, (17) future divestitures which may result in charges and possible impairments of long-lived assets, (18) changes in business strategy or development plans,

pandemic, (16) the emergence of and

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Forward-Looking Statements (continued)

(19) delays in receiving payments for services provided, (20) the outcome of pending and any future tax audits, disputes and litigation associated with our tax positions, (21) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (22) the impact of potential cybersecurity incidents or security breaches, (23) our ongoing ability to demonstrate meaningful use of certified electronic health record (“EHR”) technology and the impact of interoperability requirements, (24) the impact of natural disasters, such as hurricanes and floods, or similar events beyond our control, (25) changes in the U.S.

effects related to other pandemics, epidemics and infectious diseases, (17) future divestitures which may result in charges and possible impairments of long-lived assets, (18) changes in business strategy or development plans, (19) delays in receiving payments for services provided, (20) the outcome of pending and any future tax audits, disputes and litigation associated with our tax positions, (21) potential adverse impact of known and unknown government investigations, litigation and other claims that may be made against us, (22) the impact of potential cybersecurity incidents or security breaches, (23) our ongoing ability to demonstrate meaningful use of certified electronic health record (“EHR”) technology and the impact of interoperability requirements, (24) the impact of natural disasters, such as hurricanes and floods, or similar events beyond our control, (25) changes in the U.S.

federal, state, or foreign tax laws including interpretive guidance that may be issued by taxing authorities or other standard setting bodies, and (26) other risk factors described in our annual report on Form 10-K

for the year ended December 31, 2019 and our other filings with the Securities and Exchange Commission.

for the year ended December 31, 2019, our quarterly report on Form 10-Q

for the quarter ended March 31, 2020 and our other filings with the Securities and Exchange Commission.

As a consequence, current plans, anticipated actions and future financial position and results of operations may differ from those expressed in any forward-looking statements made by or on behalf of HCA.

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We undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.

Pandemic and CARES Act Funding

On March 11, 2020, the World Health Organization designated COVID-19

as a global pandemic.

Patient volumes and the related revenues for most of our services were significantly impacted in the last two weeks of the first quarter of 2020 as various policies were implemented by federal, state and local governments in response to the COVID-19

pandemic that have caused many people to remain at home and forced the closure of certain businesses, as well as suspended elective surgical procedures by health care facilities.

We expect consolidated patient volumes and revenues to be negatively impacted until the effects of the pandemic begin to subside and the economy begins to stabilize.

Our response plan has multiple facets and continues to evolve as the pandemic unfolds.

As a precautionary measure, we have taken steps to enhance our operational and financial flexibility, and react to the risks the COVID-19

Patient volumes and the related revenues for most of our services were significantly impacted in the last two weeks of the first quarter of 2020 and continued to be impacted in the second quarter of 2020 as various policies were implemented by federal, state and local governments in response to the COVID-19

pandemic that have caused many people to remain at home and forced the closure of or limitations on certain businesses, as well as suspended elective surgical procedures by health care facilities.

While some of these restrictions have been eased across the U.S.

and most states have lifted moratoriums on non-emergent

procedures, some restrictions remain in place, and some state and local governments are re-imposing

certain restrictions due to increasing rates of COVID-19

While consolidated patient volumes and revenues experienced gradual improvement beginning in the latter part of April and continuing through the end of the quarter, we are unable to predict the future impact of the pandemic on our operations.

Our pandemic response plan has multiple facets and continues to evolve as the pandemic unfolds.

We have taken precautionary steps to enhance our operational and financial flexibility, and react to the risks the COVID-19

pandemic presents to our business, including the following:

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Reduced certain planned projects and capital expenditures;

Executed a new $2 billion 364-day

term loan facility (which was undrawn at March 31, 2020) to supplement our existing credit facilities;

Subsequent to March 31, 2020, requested accelerated Medicare payments as provided for in the CARES Act.

We believe the extent of the COVID-19

pandemic’s adverse impact on our operating results and financial condition will be driven by many factors, most of which are beyond our control and ability to forecast.

Such factors include, but are not limited to, the scope and duration of stay-at-home

policies and business closures, continued decreases in patient volumes for an indeterminable length of time, increases in the number of uninsured and underinsured patients as a result of accelerated rates of unemployment, incremental expenses required for supplies and personal protective equipment, and changes in professional and general

During March 2020, executed a new $2 billion 364-day

term loan facility (which was undrawn at June 30, 2020) to supplement our existing credit facilities;

During the second quarter of 2020, we received approximately $4.4 billion of accelerated Medicare payments and approximately $1.4 billion in general and targeted Provider Relief Fund distributions, both as provided for under the CARES Act.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Pandemic (continued)

liability exposure.

Pandemic and CARES Act Funding (continued)

We believe the extent of the COVID-19

pandemic’s adverse impact on our operating results and financial condition has been and will continue to be driven by many factors, most of which are beyond our control and ability to forecast.

Such factors include, but are not limited to, the scope and duration of stay-at-home

practices and business closures and restrictions, government-imposed or recommended suspensions of elective procedures, continued declines in patient volumes for an indeterminable length of time, increases in the number of uninsured and underinsured patients as a result of higher sustained rates of unemployment, incremental expenses required for supplies and personal protective equipment, and changes in professional and general liability exposure.

Because of these and other uncertainties, we cannot estimate the length or severity of the impact of the pandemic on our business.

Decreases in cash flows and results of operations may have an impact on the inputs and assumptions used in significant accounting estimates, including estimated implicit price concessions related to uninsured patient accounts, professional and general liability reserves, and potential impairments of goodwill and long-lived assets.

First Quarter 2020 Operations Summary

Revenues increased to $12.861 billion in the first quarter of 2020 from $12.517 billion in the first quarter of 2019.

Second Quarter 2020 Operations Summary

Revenues declined to $11.068 billion in the second quarter of 2020 from $12.602 billion in the second quarter of 2019.

Net income attributable to HCA Healthcare, Inc.

totaled $581 million, or $1.69 per diluted share, for the quarter ended March 31, 2020, compared to $1.039 billion, or $2.97 per diluted share, for the quarter ended March 31, 2019.

First quarter results for 2020 include losses on retirement of debt of $295 million, or $0.66 per diluted share, and gains on sales of facilities of $7 million, or $0.02 per diluted share.

Our revenues for the quarters ended March 31, 2020 and 2019, respectively, include $55 million, or $0.12 per diluted share, related to the settlement of Medicare outlier calculations for prior periods and $86 million, or $0.19 per diluted share, related to the resolution of transaction price differences regarding certain out-of-network

services performed in prior periods.

Our provisions for income taxes for the first quarters of 2020 and 2019 included tax benefits of $53 million, or $0.15 per diluted share, and $49 million, or $0.14 per diluted share, respectively, related to employee equity award settlements.

totaled $1.079 billion, or $3.16 per diluted share, for the quarter ended June 30, 2020, compared to $783 million, or $2.25 per diluted share, for the quarter ended June 30, 2019.

Second quarter results for 2020 include $822 million ($590 million net of tax), or $1.73 per diluted share, of government stimulus income related to general distribution funds and $60 million, or $0.13 per diluted share, of employee retention payroll tax credits, as provided for by the CARES Act.

Second quarter results for 2020 also include losses on sales of facilities of $27 million, or $0.07 per diluted share, and second quarter results for 2019 include gains on sales of facilities of $18 million, or $0.04 per diluted share.

All “per diluted share” disclosures are based upon amounts net of the applicable income taxes.

Shares used for diluted earnings per share were 344.096 million shares for the quarter ended March 31, 2020 and 350.316 million shares for the quarter ended March 31, 2019.

During 2019 and the first quarter of 2020, we repurchased 7.949 million shares and 3.287 million shares of our common stock, respectively.

Shares used for diluted earnings per share were 341.599 million shares for the quarter ended June 30, 2020 and 348.373 million shares for the quarter ended June 30, 2019.

During 2019 and the first six months of 2020, we repurchased 7.949 million shares and 3.287 million shares of our common stock, respectively.

Due to the COVID-19

pandemic, patient volumes and the related revenues for most of our services, particularly elective surgical procedures, were significantly impacted in the last two weeks of the quarter as various COVID-19

stay-at-home and business closure policies were implemented by federal, state and local governments.

Revenues increased 2.7% on a consolidated basis and increased 1.2% on a same facility basis for the quarter ended March 31, 2020, compared to the quarter ended March 31, 2019.

The increase in consolidated revenues can be primarily attributed to the net impact of a 2.9% increase in revenue per equivalent admission and a 0.1% decline in equivalent admissions.

The same facility revenues increase resulted from the net impact of a 1.6% increase in same facility revenue per equivalent admission and a 0.4% decline in same facility equivalent admissions.

During the quarter ended March 31, 2020, consolidated admissions and same facility admissions increased 1.0% and 0.6%, respectively, compared to the quarter ended March 31, 2019.

Surgeries declined 4.4% on both a consolidated basis and on a same facility basis during the quarter ended March 31, 2020, compared to the quarter ended March 31, 2019.

Emergency department visits declined 1.0% on both a consolidated basis and on a same facility basis during the quarter ended March 31, 2020, compared to the quarter ended March 31, 2019.

Consolidated and same facility uninsured admissions increased 6.9% and 7.1%, respectively, for the quarter ended March 31, 2020, compared to the quarter ended March 31, 2019.

Cash flows from operating activities increased $401 million, from $974 million for the first quarter of 2019 to $1.375 billion for the first quarter of 2020.

The increase in cash provided by operating activities was primarily related to the net effect of positive changes in working capital of $678 million, primarily from the collection of patient accounts receivable, partially offset by a decline in net income, excluding losses on retirement of debt, of $188 million.

pandemic, patient volumes and the related revenues for most of our services, particularly elective surgical procedures, were significantly impacted in April as various COVID-19

and business closure policies were implemented by federal, state and local governments.

Patient volumes gradually improved in the latter part of April and continuing through the end of the quarter as the states began to re-open

and allow for non-emergent

Revenues declined 12.2% on a consolidated basis and declined 12.1% on a same facility basis for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019.

The decline in consolidated revenues can be primarily attributed to the net impact of a 20.0% decline in equivalent admissions offset by a 9.7% increase in revenue per equivalent admission.

The same facility revenues decline primarily resulted from the net impact of a 20.1% decline in same facility equivalent admissions offset by a 10.0% increase in same facility revenue per equivalent admission.

During the quarter ended June 30, 2020, consolidated admissions and same facility admissions declined 12.6% and 12.8%, respectively, compared to the quarter ended June 30, 2019.

Surgeries declined 26.5% on both a consolidated basis and on a same facility basis during the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019.

Emergency department visits declined 32.7% and 32.9% on a consolidated basis and on a same facility basis, respectively, during the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019.

Consolidated and same facility uninsured admissions declined 10.8% and 10.0%, respectively, for the quarter ended June 30, 2020, compared to the quarter ended June 30, 2019.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Second Quarter 2020 Operations Summary (continued)

Cash flows from operating activities increased $6.726 billion, from $1.997 billion for the second quarter of 2019 to $8.723 billion for the second quarter of 2020.

The increase in cash provided by operating activities was primarily related to the combined effect of the receipt of $4.999 billion related to unapplied accelerated Medicare payments and unrecognized general and targeted distributions as provided for in the CARES Act, positive changes in working capital of $787 million, primarily from the collection of patient accounts receivable, increases related to the deferral of income taxes of $593 million and an increase in net income, excluding losses (gains) on sales of facilities, of $327 million.

Results of Operations

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Management continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.

Revenues increased 2.7% from $12.517 billion in the first quarter of 2019 to $12.861 billion in the first quarter of 2020.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

Revenues declined 12.2% from $12.602 billion in the second quarter of 2019 to $11.068 billion in the second quarter of 2020.

Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers.

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revenues at the estimated amounts we expect to collect.

Patients treated at our hospitals for non-elective care, who have income at or below 400% of the federal poverty level, are eligible for charity care.

Patients treated at our hospitals for non-elective

care, who have income at or below 400% of the federal poverty level, are eligible for charity care.

Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues.

Our revenues by primary third-party payer classification and other (including uninsured patients) for the quarters ended March 31, 2020 and 2019 are summarized in the following table (dollars in millions):

Our revenues by primary third-party payer classification and other (including uninsured patients) for the quarters and six months ended June 30, 2020 and 2019 are summarized in the following table (dollars in millions):

Managed Medicare

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International (managed care and insurers)

Managed Medicare

Managed Medicaid

Managed care and insurers

International (managed care and insurers)

Consolidated and same facility revenue per equivalent admission increased 9.7% and 10.0%, respectively, in the second quarter of 2020, compared to the second quarter of 2019.

Consolidated and same facility equivalent admissions declined 20.0% and 20.1%, respectively, in the second quarter of 2020, compared to the second quarter of 2019.

Consolidated and same facility outpatient surgeries both declined 32.6% in the second quarter of 2020, compared to the second quarter of 2019.

Consolidated and same facility inpatient surgeries declined 15.6% and 15.7%, respectively, in the second quarter of 2020, compared to the second quarter of 2019.

Consolidated and same facility emergency department visits declined 32.7% and 32.9%, respectively, in the second quarter of 2020, compared to the second quarter of 2019.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Revenue/Volume Trends (continued)

Consolidated and same facility revenue per equivalent admission increased 2.9% and 1.6%, respectively, in the first quarter of 2020, compared to the first quarter of 2019.

Consolidated and same facility equivalent admissions declined 0.1% and 0.4%, respectively, in the first quarter of 2020, compared to the first quarter of 2019.

Consolidated and same facility outpatient surgeries declined 6.0% and 5.9%, respectively, in the first quarter of 2020, compared to the first quarter of 2019.

Consolidated and same facility inpatient surgeries declined 1.6% and 1.8%, respectively, in the first quarter of 2020, compared to the first quarter of 2019.

Consolidated and same facility emergency department visits both declined 1.0% in the first quarter of 2020, compared to the first quarter of 2019.

To quantify the total impact of the trends related to uninsured patient accounts, we believe it is beneficial to view total uncompensated care, which is comprised of charity care, uninsured discounts and implicit price concessions.

A summary of the estimated cost of total uncompensated care for the quarters ended March 31, 2020 and 2019 follows (dollars in millions):

A summary of the estimated cost of total uncompensated care for the quarters and six months ended June 30, 2020 and 2019 follows (dollars in millions):

Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)

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Estimated cost of total uncompensated care

Same facility uninsured admissions increased by 2,708 admissions, or 7.1%, in the first quarter of 2020 compared to the first quarter of 2019.

Same facility uninsured admissions declined by 4,264 admissions, or 10.0%, in the second quarter of 2020 compared to the second quarter of 2019.

Same facility uninsured admissions increased 7.1%, in the first quarter of 2020 compared to the first quarter of 2019.

Same facility uninsured admissions in 2019, compared to 2018, increased 6.8% in the fourth quarter, increased 2.1% in the third quarter, increased 5.1% in the second quarter, and were flat in the first quarter.

The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and the uninsured for the quarters ended March 31, 2020 and 2019 are set forth in the following table.

The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and the uninsured for the quarters and six months ended June 30, 2020 and 2019 are set forth in the following table.

Managed Medicare

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Revenue/Volume Trends (continued)

The approximate percentages of our inpatient revenues related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers for the quarters ended March 31, 2020 and 2019 are set forth in the following table.

The approximate percentages of our inpatient revenues related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers for the quarters and six months ended June 30, 2020 and 2019 are set forth in the following table.

Managed Medicare

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Managed care and insurers

At March 31, 2020, we had 91 hospitals in the states of Texas and Florida.

During the first quarter of 2020, 56% of our admissions and 48% of our revenues were generated by these hospitals.

Uninsured admissions in Texas and Florida represented 72% of our uninsured admissions during the first quarter of 2020.

At June 30, 2020, we had 91 hospitals in the states of Texas and Florida.

During the second quarter of 2020, 56% of our admissions and 49% of our revenues were generated by these hospitals.

Uninsured admissions in Texas and Florida represented 74% of our uninsured admissions during the second quarter of 2020.

We receive a significant portion of our revenues from government health programs, principally Medicare and Medicaid, which are highly regulated and subject to frequent and substantial changes.

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In December 2017, CMS approved an extension of this waiver through September 30, 2022, but indicated that it will phase out some of the federal funding.

Our Texas Medicaid revenues included Medicaid supplemental payments of $115 million and $108 million during the first quarters of 2020 and 2019, respectively.

Our Texas Medicaid revenues included Medicaid supplemental payments of $186 million and $106 million during the second quarters of 2020 and 2019, respectively, and $301 million and $214 million during the first six months of 2020 and 2019, respectively.

In addition, we receive supplemental payments in several other states.

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Operating Results Summary

The following is a comparative summary of results of operations for the quarters ended March 31, 2020 and 2019 (dollars in millions):

The following is a comparative summary of results of operations for the quarters and six months ended June 30, 2020 and 2019 (dollars in millions):

Salaries and benefits

Other operating expenses

Government stimulus income

Equity in earnings of affiliates

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Losses (gains) on sales of facilities

Income before income taxes

Provision for income taxes

Net income attributable to noncontrolling interests

Net income attributable to HCA Healthcare, Inc.

% changes from prior year:

Income before income taxes

Net income attributable to HCA Healthcare, Inc.

Admissions(a)

Equivalent admissions(b)

Revenue per equivalent admission

Same facility % changes from prior year(c):

Admissions(a)

Equivalent admissions(b)

Revenue per equivalent admission

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Operating Results Summary (continued)

Salaries and benefits

Other operating expenses

Government stimulus income

Equity in earnings of affiliates

Depreciation and amortization

Interest expense

Losses (gains) on sales of facilities

Losses on retirement of debt

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Results of Operations (continued)

Quarters Ended March 31, 2020 and 2019

Revenues increased to $12.861 billion in the first quarter of 2020 from $12.517 billion in the first quarter of 2019.

Quarters Ended June 30, 2020 and 2019

Revenues declined to $11.068 billion in the second quarter of 2020 from $12.602 billion in the second quarter of 2019.

Net income attributable to HCA Healthcare, Inc.

totaled $581 million, or $1.69 per diluted share, for the quarter ended March 31, 2020, compared to $1.039 billion, or $2.97 per diluted share, for the quarter ended March 31, 2019.

First quarter results for 2020 include losses on retirement of debt of $295 million, or $0.66 per diluted share, and gains on sales of facilities of $7 million, or $0.02 per diluted share.

services performed in prior periods.

totaled $1.079 billion, or $3.16 per diluted share, for the quarter ended June 30, 2020, compared to $783 million, or $2.25 per diluted share, for the quarter ended June 30, 2019.

All “per diluted share” disclosures are based upon amounts net of the applicable income taxes.

Shares used for diluted earnings per share were 344.096 million shares for the quarter ended March 31, 2020 and 350.316 million shares for the quarter ended March 31, 2019.

During 2019 and the first quarter of 2020, we repurchased 7.949 million shares and 3.287 million shares of our common stock, respectively.

Shares used for diluted earnings per share were 341.599 million shares for the quarter ended June 30, 2020 and 348.373 million shares for the quarter ended June 30, 2019.

During 2019 and the first six months of 2020, we repurchased 7.949 million shares and 3.287 million shares of our common stock, respectively.

Due to the COVID-19

stay-at-home and business closure policies were implemented by federal, state and local governments.

Revenues increased 2.7%, primarily due to the net impact of revenue per equivalent admission growth of 2.9% and a 0.1% decline in equivalent admissions for the first quarter of 2020 compared to the first quarter of 2019.

Same facility revenues increased 1.2% due to the net impact of a 1.6% increase in same facility revenue per equivalent admission and a 0.4% decline in same facility equivalent admissions for the first quarter of 2020 compared to the first quarter of 2019.

Salaries and benefits, as a percentage of revenues, were 47.6% in the first quarter of 2020 and 45.1% in the first quarter of 2019.

Salaries and benefits per equivalent admission increased 8.4% in the first quarter of 2020 compared to the first quarter of 2019.

Same facility labor rate increases averaged 2.8% for the first quarter of 2020 compared to the first quarter of 2019.

Supplies, as a percentage of revenues, were 16.5% in the first quarter of 2020 and 16.3% in the first quarter of 2019.

Supply costs per equivalent admission increased 4.1% in the first quarter of 2020 compared to the first quarter of 2019.

Supply costs per equivalent admission increased 3.9% for medical devices and 6.1% for general medical and surgical items and remained flat for pharmacy supplies in the first quarter of 2020 compared to the first quarter of 2019.

Other operating expenses, as a percentage of revenues, were 18.9% in the first quarter of 2020 and 18.4% in the first quarter of 2019.

pandemic, patient volumes and the related revenues for most of our services, particularly elective surgical procedures, were significantly impacted in April as various COVID-19

and business closure policies and other restrictions were implemented by federal, state and local governments.

Patient volumes gradually improved beginning in the latter part of April and continuing through the end of the quarter as the states began to re-open

and allow for non-emergent

Revenues declined 12.2%, primarily due to the net impact of revenue per equivalent admission growth of 9.7% and a 20.0% decline in equivalent admissions for the second quarter of 2020 compared to the second quarter of 2019.

Salaries and benefits, as a percentage of revenues, were 48.2% in the second quarter of 2020 and 46.3% in the second quarter of 2019.

Salaries and benefits per equivalent admission increased 14.1% in the second quarter of 2020 compared to the second quarter of 2019.

Same facility labor rate increases averaged 0.3% for the second quarter of 2020 compared to the second quarter of 2019.

Supplies, as a percentage of revenues, were 15.8% in the second quarter of 2020 and 16.8% in the second quarter of 2019.

Supply costs per equivalent admission increased 3.2% in the second quarter of 2020 compared to the second quarter of 2019.

Supply costs per equivalent admission increased 2.3% for pharmacy supplies and 5.6% for general medical and surgical items and declined 0.2% for medical devices in the second quarter of 2020 compared to the second quarter of 2019.

Other operating expenses, as a percentage of revenues, were 19.3% in the second quarter of 2020 and 18.8% in the second quarter of 2019.

Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes.

Provisions for losses related to professional liability risks were $140 million and $136 million for the first quarters of 2020 and 2019, respectively.

Equity in earnings of affiliates was $7 million and $11 million in the first quarters of 2020 and 2019, respectively.

Depreciation and amortization increased $55 million, from $619 million in the first quarter of 2019 to $674 million in the first quarter of 2020.

The increase in depreciation relates to both acquired facilities and increased capital expenditures at our existing facilities.

Provisions for losses related to professional liability risks were $139 million and $133 million for the second quarters of 2020 and 2019, respectively.

During the second quarter of 2020, we recorded $822 million ($590 million net of tax) of government stimulus income related to general distribution funds received from the Provider Relief Fund established by the CARES Act.

Equity in earnings of affiliates was $1 million and $8 million in the second quarters of 2020 and 2019, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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Results of Operations (continued)

Quarters Ended March 31, 2020 and 2019 (continued)

Interest expense was $428 million in the first quarter of 2020 and $461 million in the first quarter of 2019.

Our average debt balance was $34.136 billion for the first quarter of 2020 compared to $34.036 billion for the first quarter of 2019.

The average effective interest rate for our long-term debt declined to 5.1% for the quarter ended March 31, 2020 from 5.5% for the quarter ended March 31, 2019.

During the first quarters of 2020 and 2019, we recorded gains on sales of facilities of $7 million and losses on sales of facilities of $1 million, respectively.

Quarters Ended June 30, 2020 and 2019 (continued)

Depreciation and amortization increased $55 million, from $636 million in the second quarter of 2019 to $691 million in the second quarter of 2020.

The increase in depreciation relates primarily to capital expenditures at our existing facilities.

Interest expense was $388 million in the second quarter of 2020 and $477 million in the second quarter of 2019.

Our average debt balance was $31.921 billion for the second quarter of 2020 compared to $35.079 billion for the second quarter of 2019.

The average effective interest rate for our long-term debt declined to 4.9% for the quarter ended June 30, 2020 from 5.5% for the quarter ended June 30, 2019.

During the second quarters of 2020 and 2019, we recorded losses on sales of facilities of $27 million and gains on sales of facilities of $18 million, respectively.

The effective tax rates were 24.2% and 25.7% for the second quarters of 2020 and 2019, respectively.

The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships.

Net income attributable to noncontrolling interests declined from $144 million for the second quarter of 2019 to $137 million for the second quarter of 2020.

The decline in net income attributable to noncontrolling interests related primarily to the operations of our surgery center partnerships.

Six Months Ended June 30, 2020 and 2019

Revenues declined to $23.929 billion in the first six months of 2020 from $25.119 billion in the first six months of 2019.

Net income attributable to HCA Healthcare, Inc.

totaled $1.660 billion, or $4.84 per diluted share, for the first six months ended June 30, 2020, compared to $1.822 billion, or $5.22 per diluted share, for the first six months ended June 30, 2019.

Results for the first six months of 2020 included $822 million ($590 million net of tax), or $1.72 per diluted share, of government stimulus income related to general distribution funds and $60 million, or $0.13 per diluted share, of employee retention payroll tax credits, as provided for by the CARES Act.

Results for the first six months of 2020 also included losses on retirement of debt of $295 million, or $0.66 per diluted share, and losses on sales of facilities of $20 million, or $0.06 per diluted share.

Results for the first six months of 2019 included gains on sales of facilities of $17 million, or $0.04 per diluted share, respectively.

Revenues for the first six months of 2020 and 2019, respectively, include $55 million, or $0.12 per diluted share, related to the settlement of Medicare outlier calculations for prior periods and $86 million, or $0.19 per diluted share, related to the resolution of transaction price differences regarding certain out-of-network

services performed in prior periods.

All “per diluted share” disclosures are based upon amounts net of the applicable income taxes.

Shares used for diluted earnings per share were 342.848 million shares for the six months ended June 30, 2020 and 349.334 million shares for the six months ended June 30, 2019.

During 2019 and the first six months of 2020, we repurchased 7.949 million shares and 3.287 million shares of our common stock, respectively.

Due to the COVID-19

and business closure policies and other restrictions were implemented by federal, state and local governments.

Patient volumes gradually improved beginning in the latter part of April and continuing through the end of the quarter as the states began to re-open

and allow for non-emergent

Revenues declined 4.7% due primarily to the net impact of revenue per equivalent admission growth of 6.0% and a 10.1% decline in equivalent admissions for the first six months of 2020 compared to the first six months of 2019.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Six Months Ended June 30, 2020 and 2019 (continued)

Salaries and benefits, as a percentage of revenues, were 47.8% in the first six months of 2020 and 45.7% in the first six months of 2019.

Salaries and benefits per equivalent admission increased 10.9% in the first six months of 2020 compared to the first six months of 2019.

Same facility labor rate increases averaged 1.5% for the first six months of 2020 compared to the first six months of 2019.

Supplies, as a percentage of revenues, were 16.2% in the first six months of 2020 and 16.6% in the first six months of 2019.

Supply costs per equivalent admission increased 3.5% in the first six months of 2020 compared to the first six months of 2019.

Supply costs per equivalent admission increased 1.6% for medical devices, 0.9% for pharmacy supplies and 5.9% for general medical and surgical items in the first six months of 2020 compared to the first six months of 2019.

Other operating expenses, as a percentage of revenues, were 19.1% in the first six months of 2020 and 18.6% in the first six months of 2019.

Provisions for losses related to professional liability risks were $279 million and $269 million for the first six months of 2020 and 2019, respectively.

During the first six months of 2020, we recorded $822 million ($590 million net of tax) of government stimulus income related to general distribution funds received from the Provider Relief Fund established by the CARES Act.

Equity in earnings of affiliates was $8 million and $19 million in the first six months of 2020 and 2019, respectively.

Depreciation and amortization increased $110 million, from $1.255 billion in the first six months of 2019 to $1.365 billion in the first six months of 2020.

The increase in depreciation relates to both acquired facilities and increased capital expenditures at our existing facilities.

Interest expense was $816 million in the first six months of 2020 and $938 million in the first six months of 2019.

Our average debt balance was $32.766 billion for the first six months of 2020 compared to $34.520 billion for the first six months of 2019.

The average effective interest rate for our long-term debt declined to 5.0% for the six months ended June 30, 2020 from 5.5% for the six months ended June 30, 2019.

During the first six months of 2020 and 2019, we recorded net losses on sales of facilities of $20 million and gains on sales of facilities of $17 million, respectively.

During February 2020, we issued $2.700 billion aggregate principal amount of 3.50% senior unsecured notes due 2030.

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The pretax loss on retirement of debt was $295 million.

The effective tax rates were 16.2% and 21.2% for the first quarters of 2020 and 2019, respectively.

The effective tax rates were 21.6% and 23.2% for the first six months of 2020 and 2019, respectively.

The effective tax rate computations exclude net income attributable to noncontrolling interests as it relates to consolidated partnerships.

Our provisions for income taxes for the first quarters of 2020 and 2019 included tax benefits of $53 million and $49 million, respectively, related to employee equity award settlements.

Excluding the effect of these adjustments, the effective tax rate for the first quarters of 2020 and 2019 would have been 23.8% and 24.8%, respectively.

Net income attributable to noncontrolling interests declined from $142 million for the first quarter of 2019 to $117 million for the first quarter of 2020.

The decline in net income attributable to noncontrolling interests related primarily to the operations of a joint venture in one of our Texas markets and our surgery center partnerships.

Liquidity and Capital Resources

Cash provided by operating activities totaled $1.375 billion in the first quarter of 2020 compared to $974 million in the first quarter of 2019.

The $401 million increase in cash provided by operating activities in the first quarter of 2020 compared to the first quarter of 2019, related primarily to the net effect of positive changes in working capital of $678 million, primarily from the collection of patient accounts receivable, partially offset by a decline in net income, excluding losses on retirement of debt, of $188 million.

The net combination of interest payments and net tax refunds in the first quarter of 2020 was $459 million, and the combined interest payments and net tax payments in the first quarter of 2019 was $590 million.

Working capital totaled $3.997 billion at March 31, 2020 and $3.439 billion at December 31, 2019.

Cash used in investing activities was $1.145 billion in the first quarter of 2020 compared to $2.165 billion in the first quarter of 2019.

Acquisitions of hospitals and health care entities declined from $1.474 billion in the first quarter of 2019 to $328 million in the first quarter of 2020, primarily related to the acquisition of a seven-hospital health system in North Carolina in 2019.

Excluding acquisitions, capital expenditures were $853 million in the first quarter of 2020 and $781 million in the first quarter of 2019.

At March 31, 2020, there were projects under construction which had estimated additional costs to complete and equip over the next five years of approximately $3.4 billion.

We expect to finance capital expenditures with internally generated and borrowed funds.

Our provisions for income taxes for the first six months of 2020 and 2019 included tax benefits of $54 million and $53 million, respectively, related to employee equity award settlements.

Excluding the effect of these adjustments, the effective tax rate for the first six months of 2020 and 2019 would have been 24.1% and 25.4%, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

Cash used in financing activities totaled $109 million in the first quarter of 2020 compared to cash provided by financing activities of $1.216 billion in the first quarter of 2019.

During the first quarter of 2020, net cash flows used in financing activities included a net increase of $813 million from net borrowings on our revolving bank credit facilities and refinancing activity, payments of dividends of $152 million, repurchases of common stock of $441 million, distributions to noncontrolling interests of $154 million and payments of debt issuance costs of $34 million.

During the first quarter of 2019, net cash flows provided by financing activities included a net increase of $1.911 billion in our indebtedness, payment of dividends of $141 million, repurchases of common stock of $278 million and distributions to noncontrolling interests of $136 million.

Results of Operations (continued)

Six Months Ended June 30, 2020 and 2019 (continued)

Net income attributable to noncontrolling interests declined from $286 million for the first six months of 2019 to $254 million for the first six months of 2020.

The decline in net income attributable to noncontrolling interests related primarily to the operations of our surgery center partnerships.

Liquidity and Capital Resources

Cash provided by operating activities totaled $10.098 billion in the first six months of 2020 compared to $2.971 billion in the first six months of 2019.

The $7.127 billion increase in cash provided by operating activities in the first six months of 2020 compared to the first six months of 2019, related primarily to the combined effect of the receipt of $4.999 billion related to the unapplied accelerated Medicare payments and unrecognized general and targeted distributions as provided for in the CARES Act, positive changes in working capital of $1.465 billion, primarily from the collection of patient accounts receivable, and an increase related to the deferral of income taxes of $445 million.

The net combination of interest payments and net tax refunds in the first six months of 2020 was $838 million, and the combined interest payments and net tax payments in the first six months of 2019 was $1.433 billion.

Interest payments decreased in 2020 due to lower average debt balances, and net tax payments decreased as quarterly estimated income tax payments were deferred until July 2020 by the IRS in response to the COVID-19

Working capital totaled $1.175 billion at June 30, 2020 and $3.439 billion at December 31, 2019.

The $2.264 billion decline in working capital is primarily related to the net effect of an increase in cash and cash equivalents of $4.017 billion, offset by a decline in accounts receivable of $1.241 billion and an increase in contract liabilities-deferred revenues of $4.999 billion.

Cash used in investing activities was $1.953 billion in the first six months of 2020 compared to $3.113 billion in the first six months of 2019.

Acquisitions of hospitals and health care entities declined from $1.504 billion in the first six months of 2019 (which included the acquisition of a seven-hospital health system in North Carolina) to $346 million in the first six months of 2020.

Excluding acquisitions, capital expenditures were $1.598 billion in the first six months of 2020 and $1.745 billion in the first six months of 2019.

Planned capital expenditures are expected to approximate $2.8 billion to $3.0 billion in 2020.

At June 30, 2020, there were projects under construction which had estimated additional costs to complete and equip over the next five years of approximately $3.0 billion.

We expect to finance capital expenditures with internally generated and borrowed funds.

Cash used in financing activities totaled $4.116 billion in the first six months of 2020 compared to cash provided by financing activities of $2.070 billion in the first six months of 2019.

During the first six months of 2020, net cash flows used in financing activities included a net decline of $3.144 billion in our indebtedness, payments of dividends of $153 million, repurchases of common stock of $441 million, distributions to noncontrolling interests of $199 million and payments of debt issuance costs of $35 million.

During the first six months of 2019, net cash flows provided by financing activities included a net increase of $3.313 billion in our indebtedness, payment of dividends of $278 million, repurchases of common stock of $520 million, distributions to noncontrolling interests of $247 million and payments of debt issuance costs of $63 million.

In response to the risks the COVID-19

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We expect to evaluate resumption of these programs at a future date.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

We are a highly leveraged company with significant debt service requirements.

Our debt totaled $34.861 billion at March 31, 2020.

Our interest expense was $428 million for the first quarter of 2020 and $461 million for the first quarter of 2019.

In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($3.798 billion and $7.718 billion available as of March 31, 2020 and April 30, 2020, respectively) and anticipated access to public and private debt markets.

The increase in the amount available under our senior secured credit facilities is due to repayment of the outstanding borrowings on these facilities using cash received in April as provided for in the CARES Act.

Our debt totaled $30.942 billion at June 30, 2020.

Our interest expense was $816 million for the first six months of 2020 and $938 million for the first six months of 2019.

In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($7.718 billion available as of both June 30, 2020 and July 28, 2020, respectively) and anticipated access to public and private debt markets.

During February 2020, we issued $2.700 billion aggregate principal amount of 3.50% senior notes due 2030.

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In response to the risks the COVID-19

pandemic presents to our business, during March 2020, we also entered into a credit agreement that provides for a 364-day

secured term loan facility for an aggregate principal amount of up to $2.000 billion.

pandemic presents to our business, during March 2020, we entered into a credit agreement that provides for a 364-day secured

term loan facility for an aggregate principal amount of up to $2.000 billion.

The facility will mature in March 2021.

If drawn, amounts outstanding under the credit agreement will bear interest at either (i) the LIBOR rate plus 2.50% or (ii) an alternate base rate as defined in the credit agreement.

As of March 31, 2020 and April 30, 2020, there were no amounts outstanding nor draw notices pending under the facility.

Subsequent to March 31, 2020, the Company requested accelerated Medicare payments as provided for in the CARES Act, which allows for eligible health care facilities to request up to six months of advance Medicare payments for acute care hospitals or up to three months of advance Medicare payments for other health care providers.

After 120 days past receipt of the advance payment, claims for services provided to Medicare beneficiaries will be applied against the advance payment balance.

As of June 30, 2020 and July 28, 2020, there were no amounts outstanding nor draw notices pending under the facility.

During the second quarter of 2020, we requested accelerated Medicare payments as provided for in the CARES Act, which allows for eligible health care facilities to request up to six months of advance Medicare payments for acute care hospitals or up to three months of advance Medicare payments for other health care providers.

After 120 days past receipt of the advance payments (beginning in August 2020), claims for services provided to Medicare beneficiaries will be applied against the advance payment balance.

Any unapplied advance payment amounts must be paid in full within one year from receipt of the advance payments for acute care hospitals and within 210 days for other health care providers.

During April 2020, the Company received approximately $4.3 billion from these accelerated Medicare payment requests.

In April 2020 the Company received approximately $900 million

based on the expected allocation methodology of the first $50 billion distributed from the CARES Act Provider Relief Fund.

Further allocation of the funds provided for in the CARES Act may be received in future periods.

However, we are not able to estimate the amount of additional funds we may receive.

These government payments are currently expected to

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

be recognized in our operations during the second quarter of 2020 and will not be subject to repayment, provided the Company is able to attest to and comply with the terms and conditions of the funding.

Further legislation enacted on April 24, 2020 provides for an additional $75 billion in emergency appropriations to eligible providers for their COVID-19 response.

Recipients will not be required to repay the government for funds received, provided they comply with terms and conditions, which have not yet been finalized.

Investments of our insurance subsidiaries, held to maintain statutory equity levels and to provide liquidity to pay claims, totaled $438 million and $462 million at March 31, 2020 and December 31, 2019, respectively.

An insurance subsidiary maintained net reserves for professional liability risks of $178 million and $175 million at March 31, 2020 and December 31, 2019, respectively.

During the second quarter of 2020, we also received approximately $1.4 billion in general and targeted distributions from the CARES Act Provider Relief Fund, and in July 2020 we received approximately $300 million in targeted distributions.

These distributions from the Provider Relief Fund will not be subject to repayment, provided we are able to attest to and comply with the terms and conditions of the funding.

Investments of our insurance subsidiaries, held to maintain statutory equity levels and to provide liquidity to pay claims, totaled $469 million and $462 million at June 30, 2020 and December 31, 2019, respectively.

An insurance subsidiary maintained net reserves for professional liability risks of $181 million and $175 million at June 30, 2020 and December 31, 2019, respectively.

Our facilities are insured by a 100% owned insurance subsidiary for losses up to $50 million per occurrence;

however, this coverage is generally subject, in most cases, to a $15 million per occurrence self-insured retention.

Net reserves for the self-insured professional liability risks retained were $1.683 billion and $1.606 billion at March 31, 2020 and December 31, 2019, respectively.

Net reserves for the self-insured professional liability risks retained were $1.744 billion and $1.606 billion at June 30, 2020 and December 31, 2019, respectively.

Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate $477 million.

We estimate that approximately $427 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention.

Considering the actions discussed above to respond to the uncertainty arising from the COVID-19 pandemic and provide additional financial flexibility, management believes that cash flows from operations, amounts available under our senior secured credit facilities and our anticipated access to public and private debt markets will be sufficient to meet expected liquidity needs during the next 12 months.

Considering the actions discussed above to respond to the uncertainty arising from the COVID-19

pandemic and provide additional financial flexibility, management believes that cash flows from operations, amounts available under our senior secured credit facilities and our anticipated access to public and private debt markets will be sufficient to meet expected liquidity needs during the next 12 months.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

Summarized Financial Information

During March 2020, HCA Healthcare, Inc.

redeemed all $1.000 billion outstanding aggregate principal amount of its 6.250% senior unsecured notes due 2021.

These notes were our only registered debt securities for which HCA Healthcare, Inc.

was the issuer.

HCA Inc., a direct wholly-owned subsidiary of HCA Healthcare, Inc., is the obligor under a substantial portion of our indebtedness, including our senior secured credit facilities, senior secured notes and senior unsecured notes.

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The senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed, subject to customary release provisions, by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are “Unrestricted Subsidiaries” under our Indenture dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our senior secured asset-based revolving credit facility).

For further information regarding such guarantees, refer to the applicable indentures that are filed as exhibits to our annual report on Form 10-K for the year ended December 31, 2019.

For further information regarding such guarantees, refer to the applicable indentures that are filed as exhibits to our annual report on Form 10-K

for the year ended December 31, 2019.

Summarized financial information is presented on a combined basis and transactions between the combining entities have been eliminated.

Financial information for nonguarantor entities has been excluded.

The summarized operating results information for the quarter ended March 31, 2020 and year ended December 31, 2019 and the summarized balance sheet information at March 31, 2020 and December 31, 2019, for HCA Healthcare, Inc., HCA Inc.

The summarized operating results information for the six months ended June 30, 2020 and year ended December 31, 2019 and the summarized balance sheet information at June 30, 2020 and December 31, 2019, for HCA Healthcare, Inc., HCA Inc.

and the subsidiary guarantors (the Parent, Subsidiary Issuer and Subsidiary Guarantors) follow (dollars in millions):

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

Summarized Financial Information (continued)

Quarter Ended March 31, 2020 and Year Ended December 31, 2019:

March 31, 2020

Six Months Ended June 30, 2020 and Year Ended December 31, 2019:

June 30, 2020

December 31, 2019

1 unchanged sentence

Net income attributable to Parent, Subsidiary Issuer and Subsidiary Guarantors

At March 31, 2020 and December 31, 2019:

At June 30, 2020 and December 31, 2019:

Current assets

9 unchanged sentences

Noncontrolling interests

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

We are exposed to market risk related to changes in market values of securities.

The investments in our 100% owned insurance subsidiaries were $438 million at March 31, 2020.

The investments in our 100% owned insurance subsidiaries were $469 million at June 30, 2020.

These investments are carried at fair value, with changes in unrealized gains and losses that are not credit-related being recorded as adjustments to other comprehensive income.

At March 31, 2020, we had a net unrealized gain of $13 million on the insurance subsidiaries’ investments.

At June 30, 2020, we had a net unrealized gain of $30 million on the insurance subsidiaries’ investments.

We are exposed to market risk related to market illiquidity.

3 unchanged sentences

We are also exposed to market risk related to changes in interest rates, and we periodically enter into interest rate swap agreements to manage our exposure to these fluctuations.

Our interest rate swap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

Market Risk (continued)

notional principal amounts and maturity dates.

Our interest rate swap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common notional principal amounts and maturity dates.

The notional amounts of the swap agreements represent balances used to calculate the exchange of cash flows and are not our assets or liabilities.

3 unchanged sentences

Changes in the fair value of these derivatives, which are designated as cash flow hedges, are included in other comprehensive income.

With respect to our interest-bearing liabilities, approximately $5.132 billion of long-term debt at March 31, 2020 was subject to variable rates of interest, while the remaining balance in long-term debt of $29.729 billion at March 31, 2020 was subject to fixed rates of interest.

With respect to our interest-bearing liabilities, approximately $1.198 billion of long-term debt at June 30, 2020 was subject to variable rates of interest, while the remaining balance in long-term debt of $29.744 billion at June 30, 2020 was subject to fixed rates of interest.

Both the general level of interest rates and, for the senior secured credit facilities, our leverage affect our variable interest rates.

2 unchanged sentences

The applicable margin for borrowings under the senior secured credit facilities may fluctuate according to a leverage ratio.

The average effective interest rate for our long-term debt was 5.1% and 5.5% for the quarters ended March 31, 2020 and 2019, respectively.

The estimated fair value of our total long-term debt was $35.548 billion at March 31, 2020.

The average effective interest rate for our long-term debt was 5.0% and 5.5% for the six months ended June 30, 2020 and 2019, respectively.

The estimated fair value of our total long-term debt was $34.000 billion at June 30, 2020.

The estimates of fair value are based upon the quoted market prices for the same or similar issues of long-term debt with the same maturities.

Based on a hypothetical 1% increase in interest rates, the potential annualized reduction to future pretax earnings would be approximately $51 million.

Based on a hypothetical 1% increase in variable interest rates, the potential annualized reduction to future pretax earnings would be approximately $12 million.

To mitigate the impact of fluctuations in interest rates, we generally target a portion of our debt portfolio to be maintained at fixed rates.

1 unchanged sentence

We currently do not consider the market risk related to foreign currency translation to be material to our consolidated financial statements or our liquidity.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Tax Examinations

The Internal Revenue Service was conducting an examination of the Company’s 2016, 2017 and 2018 federal income tax returns at March 31, 2020.

The Internal Revenue Service was conducting an examination of the Company’s 2016, 2017 and 2018 federal income tax returns at June 30, 2020.

We are also subject to examination by state and foreign taxing authorities.

4 unchanged sentences

Number of hospitals in operation at:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating Data (continued)

Number of freestanding outpatient surgical centers in operation at:

3 unchanged sentences

Admissions(d):

Equivalent admissions(e):

Average length of stay (days)(f):

Emergency room visits(g):

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

1 unchanged sentence

Operating Data (continued)

Equivalent admissions(e):

Average length of stay (days)(f):

Emergency room visits(g):

Outpatient surgeries(h):

2 unchanged sentences

Outpatient revenues as a % of patient revenues(k):

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Operating Data (continued)

Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency.

17 unchanged sentences

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