Hospital Utilization
We believe the most important factors relating to the overall utilization of a hospital are the quality and market position of the hospital and the number and quality of physicians and other health care professionals providing patient care within the facility. Generally, we believe the ability of a hospital to be a market leader is determined by its breadth of services, level of technology, quality and condition of the facilities, emphasis on quality of care and convenience for patients and physicians. Other factors that impact utilization include the growth in local population, local economic conditions and market penetration of managed care programs.
The following table sets forth certain operating statistics for our health care facilities. Health care facility operations are subject to certain seasonal fluctuations, including decreases in patient utilization during holiday periods and increases in the cold weather months.
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Number of hospitals at end of period |
|
| 182 |
|
|
| 182 |
|
|
| 185 |
|
Number of freestanding outpatient surgery centers at end of period(a) |
|
| 126 |
|
|
| 125 |
|
|
| 121 |
|
Number of licensed beds at end of period(b) |
|
| 49,281 |
|
|
| 48,803 |
|
|
| 49,265 |
|
Weighted average beds in service(c) |
|
| 41,982 |
|
|
| 42,148 |
|
|
| 42,246 |
|
Admissions(d) |
|
| 2,075,459 |
|
|
| 2,089,975 |
|
|
| 2,009,909 |
|
Equivalent admissions(e) |
|
| 3,611,299 |
|
|
| 3,536,238 |
|
|
| 3,312,330 |
|
Average length of stay (days)(f) |
|
| 5.1 |
|
|
| 5.2 |
|
|
| 5.1 |
|
Average daily census(g) |
|
| 28,778 |
|
|
| 29,752 |
|
|
| 27,734 |
|
Occupancy rate(h) |
|
| 72 | % |
|
| 74 | % |
|
| 69 | % |
Emergency room visits(i) |
|
| 8,971,951 |
|
|
| 8,475,345 |
|
|
| 7,450,307 |
|
Outpatient surgeries(j) |
|
| 1,023,239 |
|
|
| 1,008,236 |
|
|
| 882,483 |
|
Inpatient surgeries(k) |
|
| 522,151 |
|
|
| 522,069 |
|
|
| 522,385 |
|
Days revenues in accounts receivable(l) |
|
| 53 |
|
|
| 49 |
|
|
| 45 |
|
Outpatient revenues as a % of patient revenues(m) |
|
| 38 | % |
|
| 37 | % |
|
| 35 | % |
2020 | 2019 | 2018 | ||||||||||
Number of hospitals at end of period | 185 | 184 | 179 | |||||||||
Number of freestanding outpatient surgery centers at end of period(a) | 121 | 123 | 123 | |||||||||
Number of licensed beds at end of period(b) | 49,265 | 49,035 | 47,199 | |||||||||
Weighted average beds in service(c) | 42,246 | 41,510 | 39,966 | |||||||||
Admissions(d) | 2,009,909 | 2,108,927 | 2,003,753 | |||||||||
Equivalent admissions(e) | 3,312,330 | 3,646,335 | 3,420,406 | |||||||||
Average length of stay (days)(f) | 5.1 | 4.9 | 4.9 | |||||||||
Average daily census(g) | 27,734 | 28,134 | 26,663 | |||||||||
Occupancy rate(h) | 66 | % | 68 | % | 67 | % | ||||||
Emergency room visits(i) | 7,450,307 | 9,161,129 | 8,764,431 | |||||||||
Outpatient surgeries(j) | 882,483 | 1,009,947 | 971,537 | |||||||||
Inpatient surgeries(k) | 522,385 | 566,635 | 548,220 | |||||||||
Days revenues in accounts receivable(l) | 45 | 50 | 51 | |||||||||
Outpatient revenues as a % of patient revenues(m) | 35 | % | 39 | % | 38 | % | ||||||
(b) Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency. |
Competition
Generally, other hospitals and facilities in the communities we serve provide services similar to those 17 tax-supportedoffered by our hospitals.we offer. Additionally, the number of freestanding specialty hospitals, surgery centers, emergency departments, urgent care centers, and diagnostic and imaging centers and other medical facilities in the geographic areas in which we operate continues to increase. As a result, most of our hospitals and other facilities operate in a highly competitive environment. In some cases, competing facilities are more established than our hospitals.we are. Some competing facilities are physician-owned or are owned byhospitalsfacilities and may provide the
Trends toward clinical and pricing transparency may impact our competitive position, ability to obtain or maintain favorable contract terms and patient volumes in ways that aremay be difficult to predict. For example, hospitals are currently required to publish online a list of their standard charges for items and services. In 2019, CMS issued a final rule that, beginning January 2021, requires hospitals to publish additional types of standard charges for all items and services, including discounted cash prices and payer-specific andservices. Court challenges to the 2019 rule in both the District Court for the District of Columbia and the D.C. Circuit Court of Appeals were unsuccessful. It is not yet known whether the Biden administration will take any action regarding the ruleservices or, whether the matter will be appealed to the U.S. Supreme Court.alternatively, maintain an online price estimator tool. CMS plans to begin auditing hospitals for compliance with transparency requirements and may impose civil monetary penalties for noncompliance.noncompliance with these price transparency requirements. Further, CMS requires health insurers to publish online charges negotiated with providers for health care services. Starting January 1, 2023, health insurers must also provide online price comparison tools to help individuals get personalized cost estimates for covered items and services. In addition, the No Surprises Act createsimposes additional price transparency requirements, beginning on January 1, 2022, including the requirement that providers send uninsured and self-pay patients (in advance of the scheduled date for the item or service or upon request) and health plans of insured patients a good faith estimate of the expected charges and diagnostic codes priorcodes. Until HHS issues additional regulations, the agency is deferring enforcement of certain requirements regarding providing good faith estimates for insured patients and for good faith estimates sent to a patient’s appointment.
Our strategies are designed to ensure our hospitals and other facilities are competitive. We believe our hospitals and other facilities compete within local communities on the basis of many factors, including the quality of care, ability to attract and retain quality physicians, skilled clinical personnel and other health care professionals, location, breadth of services, technology offered and quality and condition of the facilities. We focus on operating outpatient services with accessibility and convenient service for patients and predictability and efficiency for physicians.
Two of the most significant factors that impact the competitive position of a hospital are the number and quality of physicians affiliated with or employed by the hospital. Although physicians may at any time terminate their relationship with a hospital we operate, our hospitals seek to retain physicians with varied specialties on the hospitals’ medical staffs and to attract other qualified physicians. We believe physicians refer patients to a hospital on the basis of the quality and scope of services it renders to patients and physicians, the quality of physicians on the medical staff, the location of the hospital and the quality of the hospital’s facilities, technology, equipment and employees. Accordingly, we strive to maintain and provide quality facilities, technology, equipment, employees and services for physicians and patients. Our hospitals face competition from competitors that are implementing physician alignment strategies, such as employing physicians, acquiring physician practice groups and participating in ACOs or other clinical integration models.
Another major factor in the competitive position of our hospitals and other facilities is our ability to negotiate service contracts with group purchasers of health care services. Managed care plans attempt to direct and control the use of hospitalhealth care services and obtain discounts from hospitals’providers’ established gross charges. Similarly, employers and
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State certificate of need (“CON”) laws, which place limitations on a health care facility’s ability to expand services and facilities, make capital expenditures and otherwise make changes in operations, may also have the effect of restricting competition. We currently operate health care facilities in a number of states with CON laws or that require other types of approvals for the establishment or expansion of certain facility types or services. Before issuing a CON or other approval, these states consider the need for additional, changes in, or expanded health care facilities or services. Removal of these requirements could reduce barriers to entry and increase competition in our service areas. In those states that do not require state approval or that set relatively high levels of expenditures before they become reviewable by state authorities, competition in the form of new services, facilities and capital spending is more prevalent. Other federal and state laws and regulations may also adversely impact our ability to expand, such as a regulation commonly known as the “36 Month Rule,” which restricts the assumption of Medicare billing privileges for certain home health agencies. In addition, changes in licensure or other laws or regulations and recognition of new provider types or payment models could impact our competitive position. See Item 1, “Business — Regulation and Other Factors.”
We and the health care industry as a whole face the challenge of continuing to provide quality patient care while dealing with rising costs and strong competition for patients. Changes in medical technology, existing and future legislation, regulations and interpretations and contracting for provider services by third-party payers remain ongoing challenges.
Admissions, average lengths of stay and reimbursement amounts continue to be negatively affected by third-party payer
Regulation and Other Factors
Licensure, Certification and Accreditation
Health care facility construction and operation are subject to numerous federal, state and local regulations relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, fire prevention, rate-setting, building codes and environmental protection. Facilities are subject to periodic inspection by governmental and other authorities to assure continued compliance with the
The Controlled Substances Act and Drug Enforcement Administration (“DEA”) regulations require every person who dispenses controlled substances to be registered with the DEA at each principal place of business or professional practice where the person dispenses controlled substances, subject to limited exceptions. Each hospital or clinic must hold a DEA registration at each location and may be subject to similar state registration requirements. In addition, we are subject to a variety of federal and state statutes and regulations that govern operational issues related to pharmaceuticals and controlled substances, such as those related to packaging, storing, and dispensing of pharmaceutical drugs, inventory control and recordkeeping requirements for controlled substances, and other standards intended to prevent diversion of controlled substances. The DEA, the Department of Justice (“DOJ”), HHS, and state boards of pharmacy have broad enforcement powers, may conduct audits and investigations and can impose substantial fines and other penalties, including revocation of registration.
Management believes our facilities are in substantial compliance with current applicable federal, state, local and independent review body regulations and standards. The requirements for licensure, certification and accreditation are subject to change, and, in order to remain qualified, it may become necessary for us to make changes in our facilities, equipment, personnel and services. The requirements for licensure, certification and accreditation also include notification or approval in the event of the transfer or change of ownership or certain other changes. Failure to provide required notifications or obtain necessary approvals in these circumstances can result in the inability to complete an acquisition or change of ownership, loss of licensure, lapses in reimbursement or other penalties.
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Certificates of Need
In some states where we operate hospitals and other health care providers, the construction or expansion of health care facilities, the acquisition of existing facilities, the transfer or change of ownership, capital expenditures and the addition of new beds or services may be subject to review by and prior approval of, or notifications to, state regulatory agencies under a CON program. Such laws generally require the reviewing state agency to determine the public need for additional or expanded health care facilities and services or other change. Failure to provide required notifications or obtain necessary state approvals can result in the inability to expand facilities, complete an acquisition or expenditure or change ownership or other penalties.
Federal Health Care Program Regulations
Participation in any federal health care program, including the Medicare and Medicaid programs, is heavily regulated by statute and regulation. If a hospital or other provider fails to substantially comply with the numerous conditions of participation in the Medicare and Medicaid programs or performs certain prohibited acts, the provider’s participation in the federal health care programs may be terminated, or civil and/or criminal penalties may be imposed. Civil monetary penalties are adjusted annually based on updates to the consumer price index and were increased under the Bipartisan Budget Act of 2018.
Anti-kickback Statute
A section of the Social Security Act known as the “Anti-kickback Statute” prohibits providers and others from directly or indirectly soliciting, receiving, offering or paying any remuneration with the intent of generating referrals or orders for services or items covered by a federal health care program. Courts have interpreted this statute broadly and held that there is a violation of the Anti-kickback Statute if just one purpose of the remuneration is to generate referrals, even if there are other lawful purposes. Furthermore, the Affordable Care Act provides that knowledge of the law or the intent to violate the law is not required. Violations of the Anti-
The HHS Office of Inspector General (the “OIG”), among other regulatory agencies, is responsible for identifying and eliminating fraud, abuse and waste. The OIG carries out this mission through a nationwide program of audits, investigations and inspections. The OIG provides guidance to the industry through various methods, including advisory opinions and “Special Fraud Alerts.” These Special Fraud Alerts do not have the force of law, but identify features of arrangements or transactions that the government believes may cause the arrangements or transactions to violate the Anti-kickback Statute or other federal health care laws. The OIG has identified several incentive arrangements that constitute suspect practices, including: (a) payment of any incentive by a hospital each time a physician refers a patient to the hospital, (b) the use of free or significantly discounted office space or equipment in facilities usually located close to the hospital, (c) provision of free or significantly discounted billing, nursing or other staff services, (d) free training for a physician’s office staff in areas such as management techniques and laboratory techniques, (e) guarantees which provide, if the physician’s income fails to reach a predetermined level, the hospital will pay any portion of the remainder,
The OIG also issues “Special Advisory Bulletins” as a means of providing guidance to health care providers. These bulletins, along with the Special Fraud Alerts, have focused on certain arrangements that could be subject to heightened scrutiny by government enforcement authorities, including: (a) contractual joint venture arrangements and other joint venture arrangements between those in a position to refer business, such as physicians, and those providing items or services for which Medicare or Medicaid pays, and (b) certain “gainsharing” arrangements, i.e., the practice of giving physicians a share of any reduction in a hospital’s costs for patient care attributable in part to the physician’s efforts.
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In addition to issuing Special Fraud Alerts and Special Advisory Bulletins, the OIG issues compliance program guidance for certain types of health care providers. The OIG guidance identifies a number of risk areas under federal fraud and abuse statutes and regulations. These areas of risk include compensation arrangements with physicians, recruitment arrangements with physicians and joint venture relationships with physicians.
As authorized by Congress, the OIG has published safe harbor regulations that outline categories of activities deemed protected from prosecution under the Anti-kickback Statute. Currently, there are statutory exceptions and safe harbors for various activities, including the following: certain investment interests, space rental, equipment rental, practitioner recruitment, personnel services and management contracts, sale of practice, referral services, warranties, discounts, employees, group purchasing organizations, waiver of beneficiary coinsurance and deductible amounts, managed care arrangements, obstetrical malpractice insurance subsidies, investments in group practices, freestanding surgery centers, ambulance replenishing, referral agreements for specialty services, care coordination arrangements, arrangements for patient engagement and support,
The fact that conduct or a business arrangement does not fall within a safe harbor or is identified in a Special Fraud Alert, Special Advisory Bulletin or other guidance does not necessarily render the conduct or business arrangement illegal under the Anti-kickback Statute. However, such conduct and business arrangements may lead to increased scrutiny by government enforcement authorities.
We have a variety of financial relationships with physicians and others who either refer or influence the referral of patients to our hospitals, other health care facilities and employed physicians, including employment contracts, leases, medical director agreements and professional service agreements. We also have similar relationships with physicians and facilities to which patients are referred from our facilities and other providers. In addition, we provide financial incentives, including minimum revenue guarantees, to recruit physicians into the communities served by our hospitals. While we endeavor to comply with the applicable safe harbors, certain of our current arrangements, including joint ventures and financial relationships with physicians and other referral sources and persons and entities to which we refer patients, do not qualify for safe harbor protection.
Although we believe our arrangements with physicians and other referral sources and referral recipients have been structured to comply with current law and available interpretations, there can be no assurance regulatory authorities enforcing these laws will determine these financial arrangements comply with the Anti-kickback Statute or other applicable laws. An adverse determination could subject us to liabilities under the Social Security Act and other laws, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other federal health care programs.
Stark Law
The Social Security Act also includes a provision commonly known as the “Stark Law.” The Stark Law prohibits physicians from referring Medicare and Medicaid patients to entities with which they or any of their immediate family members have a financial relationship, if these entities provide certain “designated health services” reimbursable by Medicare or Medicaid unless an exception applies. The Stark Law also prohibits entities that provide designated health services reimbursable by Medicare and Medicaid from billing the Medicare and Medicaid programs for any items or services that result from a prohibited referral and requires the entities to refund amounts received for items or services provided pursuant to the prohibited referral on a timely basis. “Designated health services” include inpatient and outpatient hospital services, clinical laboratory services, radiology and radiologycertain other imaging services, radiation therapy services and home health services. Sanctions for violating the Stark Law include denial of payment, substantial civil monetary penalties per claim submitted and exclusion from the federal health care programs. Failure to refund amounts received as a result of a prohibited referral on a timely basis may constitute a false or fraudulent claim and may result in civil penalties and additional penalties under the FCA. The statute also provides for a penalty for a circumvention scheme. These penalties are updated annually based on changes to the consumer price index.
There are exceptions to the self-referral prohibition for many of the customary financial arrangements between physicians and providers, including employment contracts, leases, recruitment agreements and personal service arrangements. Unlike safe harbors under the Anti-kickback Statute with which compliance is voluntary, a financial relationship must comply with every requirement of a Stark Law exception or the arrangement is in violation of the Stark Law. Although there is an exception for a physician’s ownership interest in an entire hospital, the Affordable Care Act prohibits physician-owned hospitals established after December 31, 2010 from billing for Medicare or Medicaid patients referred by their physician owners. As a result, the law effectively prevents the formation of new physician-owned hospitals that participate in Medicare or Medicaid. While the Affordable Care Act grandfathers existing physician-owned hospitals, it does not allow these hospitals to increase the percentage of physician ownership and significantly restricts their ability to expand services.
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Through a series of rulemakings, CMS has issued final regulations implementing the Stark Law. While these regulations were intended to clarify the requirements of the exceptions to the Stark Law, it is unclear how
Other Fraud and Abuse Provisions
Certain federal fraud and abuse laws apply to all health benefit programs and provide for criminal penalties. The Social Security Act also imposes criminal and civil penalties for making false claims and statements to Medicare and Medicaid. False claims include, but are not limited to, billing for services not rendered or for misrepresenting actual services rendered in order to obtain higher reimbursement, billing for unnecessary goods and services and cost report fraud. Federal enforcement officials have the ability to exclude from Medicare and Medicaid any business entities and any investors, officers and managing employees associated with business entities that have committed health care fraud, even if the officer or managing employee had no knowledge of the fraud. Criminal and civil penalties may be imposed for a number of other prohibited activities, including failure to return known overpayments, certain gainsharing arrangements, billing Medicare amounts that are substantially in excess of a provider’s usual charges, offering remuneration to influence a Medicare or Medicaid beneficiary’s selection of a health care provider, contracting with an individual or entity known to be excluded from a federal health care program, making or accepting a payment to induce a physician to reduce or limit services, and soliciting or receiving any remuneration in return for referring an individual for an item or service payable by a federal health care program. Like the Anti-kickback Statute, these provisions are very broad. Civil penalties may be imposed for the failure to report and return an overpayment within 60 days of identifying the overpayment or by the date a corresponding cost report is due, whichever is later. To avoid liability, providers must, among other things, carefully and accurately code claims for reimbursement, promptly return overpayments and accurately prepare cost reports.
Some of these provisions, including the federal Civil Monetary Penalty Law, require a lower burden of proof than other fraud and abuse laws, including the Anti-kickback Statute. Substantial civil monetary penalties may be imposed under the federal Civil Monetary Penalty Law. These penalties will be updated annually based on changes to the consumer price index. In some cases, violations of the Civil Monetary Penalty Law may result in penalties of up to three times the remuneration offered, paid, solicited or received. In addition, a violator may be subject to exclusion from federal and state health care programs. Federal and state governments increasingly use the federal Civil Monetary Penalty Law, especially where they believe they cannot meet the higher burden of proof requirements under the Anti-kickback Statute. Further, individuals can receive up to $1,000 for providing information on Medicare fraud and abuse that leads to the recovery of at least $100 of Medicare funds under the Medicare Integrity Program.
In addition, the Eliminating Kickbacks in Recovery Act of 2018 (“EKRA”) establishes criminal penalties for paying, receiving, soliciting or offering any remuneration in return for referring a patient to a laboratory, clinical treatment facility or recovery home, or in exchange for an individual using the services of one of these entities. The EKRA prohibitions apply to services covered by government health care programs and by private health plans. There is limited guidance with respect to the application of EKRA.
State Fraud and Abuse Laws
Many states in which we operate also have laws intended to prevent fraud and abuse within the health care industry. Some of these laws are similar to the Anti-kickback Statute, prohibiting payments to physicians for patient referrals, and to the Stark Law, prohibiting certain self-referrals. These state laws often apply regardless of the source of payment for care, and little precedent exists for their interpretation or enforcement. These statutes typically provide for criminal and civil penalties, as well as loss of licensure.
The Federal False Claims Act and Similar State Laws
We are subject to state and federal laws that govern the submission of claims for reimbursement and prohibit the making of false claims or statements. One of the most prominent of these laws is the FCA, which may be enforced by the federal government directly or by a
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be liable under the FCA, the defendant may be required to pay three times the actual damages sustained by the government, plus substantial mandatory civil penalties for each separate false claim. These penalties are updated annually based on changes to the consumer price index.
There are many potential bases for liability under the FCA. Liability often arises when an entity knowingly submits a false claim for reimbursement to the federal government. The FCA defines the term “knowingly” broadly. Though simple negligence will not give rise to liability under the FCA, submitting a claim with reckless disregard to its truth or falsity constitutes a “knowing” submission under the FCA and, therefore, may create liability. Submission of claims for services or items generated in violation of the Anti-kickback Statute constitutes a false or fraudulent claim under the FCA. Whistleblowers and the federal government have taken the position, and some courts have held, that providers who allegedly have violated other statutes, such as the Stark Law, have thereby submitted false claims under the FCA. False claims under the FCA also include the knowing and improper failure to report and refund amounts owed to the government in a timely manner following identification of an overpayment. An overpayment is deemed to be identified when a person has, or should have through reasonable diligence, determined that an overpayment was received and quantified the overpayment.
Every entity that receives at least $5 million annually in Medicaid payments must have written policies for all employees, contractors or agents, providing detailed information about false claims, false statements and whistleblower protections under certain federal laws, including the FCA, and similar state laws. In addition, federal law provides an incentive to states to enact false claims laws comparable to the FCA. A number of states in which we operate have adopted their own false claims provisions as well as their own whistleblower provisions under which a private party may file a civil lawsuit in state court. We have adopted and distributed policies pertaining to the FCA and relevant state laws.
HIPAA Administrative Simplification and Privacy, Security and Interoperability Requirements
The Administrative Simplification Provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and implementing regulations require the use of uniform electronic data transmission standards and code sets for certain health care claims and payment transactions submitted or received electronically. In addition, HIPAA requires that each provider to use a National Provider Identifier. These provisions are intended to encourage electronic commerce in the health care industry.
The privacy and security regulations promulgated pursuant to HIPAA extensively regulate the use and disclosure of individually identifiable health information, known as “protected health information,” and require covered entities, including health plans and most health care providers, to implement administrative, physical and technical safeguards to protect the security of such information. Certain provisions of the security and privacy regulations apply to business associates (entities that handle protected health information on behalf of covered entities), and business associates are subject to direct liability for violation of these provisions. In addition, a covered entity may be subject to penalties as a result of a business associate violating HIPAA, if the business associate is found to be an agent of the covered entity.
Covered entities must report breaches of unsecured protected health information to affected individuals without unreasonable delay but not to exceed 60 days after discovery of the breach by a covered entity or its agents. Notification must also be made to HHS and, in certain situations involving large breaches, to the media. HHS is required to publish on its website a list of all covered entities that report a breach involving more than 500 individuals. All
Violations of the HIPAA privacy and security regulations may result in criminal penalties and in substantial civil penalties per violation. These civil penalties are updated annually based on updates to the consumer price index. HHS enforces the regulations and performs compliance audits. In addition to enforcement by HHS, state attorneys general are authorized to bring civil actions seeking either injunction or damages in response to violations that threaten the privacy of state residents. HHS may resolve HIPAA violations through informal means, such as allowing a covered entity to implement a corrective action plan, but HHS has the discretion to move directly to impose monetary penalties and is required to impose penalties for violations resulting from willful neglect. We enforce compliance in accordance with HIPAA privacy and security regulations. The Information Protection and Security Department monitors our compliance with the HIPAA privacy and security regulations. The HIPAA privacy regulations and security regulations have and will continue to impose significant costs on our facilities in order to comply with these standards.
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There are numerous other laws and legislative and regulatory initiatives at the federal and state levels addressing privacy and security concerns. Our facilities remain subject to any federal or state privacy-related laws that are more restrictive than the privacy regulations issued under HIPAA. These laws vary and could impose additional penalties. For example, the Federal Trade Commission uses its consumer protection authority to initiate enforcement actions in response to data breaches. The California Consumer Privacy Act of 2018 (the “CCPA”) affords consumers expanded privacy protections effective January 1, 2020. Moreover,, which was significantly amended by the California Privacy Rights Act (“CPRA”) takes effect January 1, 2022,, the Colorado Privacy Act, the Utah Privacy Act and significantly modifies the CCPA.Virginia Consumer Data Protection Act each afford consumers expanded privacy protections. These provide for civil penalties for violations, and the CCPA and CPRA provide for a private right of action for data breaches. Additionally, several privacy bills have been proposed both at the federal and state level that may result in additional legal requirements that impact our business. The potential effects of these lawsthe CCPA and CPRA give California residents in states with comprehensive privacy laws have expanded rights to access and require deletion and portability of their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA and CPRA provide for civil penalties for violations, as well as
Many foreign data privacy regulations (including the UK Data Protection Legislation) are more stringent than those in the United States. In the case of non-compliance with these regulations, regulators may impose administrative fines which are based on a private right of action for data breaches.
Health care providers and industry participants are also subject to a growing number of requirements intended to promote the interoperability and exchange of patient health information. For example, beginning April 5, 2021, health care providers and certain other entities will beare subject to information blocking restrictions pursuant to the 21
EMTALA
All of our hospitals in the United States are subject to EMTALA. This federal law requires any hospital participating in the Medicare program to conduct an appropriate medical screening examination of every individual who presents to the hospital’s emergency room for treatment and, if the individual is suffering from an emergency medical condition, to either stabilize the condition or make an appropriate transfer of the individual to a facility able to handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of an individual’s ability to pay for treatment. There are severe penalties under EMTALA if a hospital fails to screen or appropriately stabilize or transfer an individual or if the hospital delays appropriate treatment in order to first inquire about the individual’s ability to pay. Penalties for violations of EMTALA include exclusion from participation in the Medicare program and civil monetary penalties. These civil monetary penalties are
The government broadly interprets EMTALA to cover situations in which individuals do not actually present to a hospital’s emergency room, but present for emergency examination or treatment to the hospital’s campus, generally, or to a hospital-based clinic that treats emergency medical conditions or are transported in a hospital-owned ambulance, subject to certain exceptions. At least one court has interpreted the law also to apply to a hospital that has been notified of a patient’s pending arrival in a
Corporate Practice of Medicine/Fee Splitting
Some of the states in which we operate have laws prohibiting corporations and other entities not owned by physicians or other permitted health professionals from employing physicians or certain other health professionals, practicing medicine for a profit and making certain direct and indirect payments to, or entering into
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the physician or other health professional may be considered void and unenforceable. These statutes vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies.
Health Care Industry Investigations
Significant media and public attention has focused in recent years on the hospital industry. This media and public attention, changes in government personnel and other factors have led to increased scrutiny of the health care industry. Except as may be disclosed in our SEC filings, we are not aware of any material investigations of the Company under federal or state health care laws or regulations. It is possible that governmental entities could initiate investigations or litigation in the future at facilities we operate and that such matters could result in significant penalties, as well as adverse publicity. It is also possible that our executives and managers could be included in governmental investigations or litigation or named as defendants in private litigation.
Our substantial Medicare, Medicaid and other governmental billings result in heightened scrutiny of our operations. We continue to monitor all aspects of our business and have developed a comprehensive ethics and compliance program that is designed to meet or exceed applicable federal guidelines and industry standards.
However, because the law in this area is complex and constantly evolving, governmental investigations or litigation may result in interpretations that are inconsistent with our practices or industry practices.
In public statements surrounding current investigations, governmental authorities have taken positions on a number of issues, including some for which little official interpretation previously has been available, that appear to be inconsistent with practices that have been common within the industry and that previously have not been challenged in this manner. In some instances, government investigations that have in the past been conducted under the civil provisions of federal law may now be conducted as criminal investigations.
Both federal and state government agencies have increased their focus on and coordination of civil and criminal enforcement efforts in the health care area. Through the national Health Care Fraud and Abuse Control Program, the OIG and the DOJ coordinate federal, state and local law enforcement activities with respect to health care fraud against both public and private health plans. The OIG and the Department of Justice (“DOJ”)DOJ have, from time to time, established national enforcement initiatives targetingthat target all hospital providers, that focusfocusing on specific billing practices or other suspected areas of abuse. The Affordable Care Act included additional federal funding of $350 million over 10 years to fight health care fraud, waste and abuse, which expired in 2020. In addition, governmental agencies and their agents, such as MACs, fiscal intermediaries and carriers, may conduct audits of our health care operations. Private third-party payers may conduct similar post-payment audits, and we also perform internal audits and monitoring.
In addition to national enforcement initiatives, federal and state investigations have addressed a wide variety of routine health care operations such as: cost reporting and billing practices, including for Medicare outliers; financial arrangements with referral sources; physician recruitment activities; physician joint ventures; and hospital charges and collection practices for
Health Care Reform
The health care industry is subject to changing political, regulatory and other influences, along with various scientific and technological initiatives.initiatives and innovations. In recent years, the U.S. Congress and certain state legislatures have passed a large number of laws and regulations intended to effect major change within the U.S. health care system, includingindustry has undergone significant changes at the Affordable Care Act.federal and state levels, many of which have been aimed at reducing costs and government spending and increasing access to health insurance. The most prominent of these efforts, the Affordable Care Act, affects how health care services are covered, delivered and reimbursed through expandedreimbursed. The Affordable Care Act increased health insurance coverage reduced growth in Medicarethrough a combination of private sector health insurance requirements, public program spending, reductions in Medicareexpansion and Medicaid DSH payments, and the establishment of programs that tie reimbursement to quality and integration. However, thereother reforms.
There is uncertainty regarding the futureongoing net effect of the Affordable Care Act. The lawAct, particularly as it has been, and continues to be, subject to legislative and regulatory changes and court challenges. For example, final rules issued in 2018 expand the availability of association health plans and allow the sale of short-term, limited-duration health plans, neither of which are required to cover all of the essential health benefits mandated by the Affordable Care Act. A number of members of Congress have stated their desire to repeal or make additional significant changes to the Affordable Care Act, its implementation or interpretation. Effectiveeffective January 1, 2019, the penalty associated with the individual mandate to maintain health insurance was effectively eliminated. As a result of this change, in December 2018,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 COVID-19, the United States District CourtARPA enhanced subsidies for the North District of Texas found the individual mandateindividuals eligible to be unconstitutional and determined that the rest of thepurchase coverage through Affordable Care Act was, therefore, invalid.marketplaces. The Inflation Reduction Act, enacted in August 2022, extends these enhanced subsidies through 2025. In December 2019,addition, in a final rule published in September 2021,
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HHS extended the Fifth Circuit Court of Appeals upheld this decision with respectannual open enrollment period for coverage through federal marketplaces and granted state exchanges flexibility to the individual mandate, but remanded for further consideration of how this affects the rest of the law. On November 10, 2020, the U.S. Supreme Court heard oral arguments regarding this case,lengthen their open enrollment periods. These changes and the law remains in place pending the appeals process. The elimination of the individual mandate penalty and other changesinitiatives may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased.
The expansion in public program coverage under the Affordable Care Act expands coverage through a combination of private sector health insurance requirements, public program expansion and other reforms. Expansion of coverage through the private sector has been driven by requirements applicable to health insurers, employers, and individuals. For example, health insurers are prohibited from imposing annual coverage limits, dropping coverage, excluding persons based uponpre-existingconditions or denying coverage for any individual who is willing to pay the premiums for such coverage. Expansion in public program coverage has been driven primarily by expanding the categories of individuals eligible for Medicaid coverage and permitting individuals with relatively higher incomes to qualify. AHowever, a number of states, including Texas and Florida, have opted out of the Medicaid expansion provisions, which they may do without losing federal funding. For states that have not participated in the Medicaid expansion, the maximum income level required for individuals and families to qualify for Medicaid varies widely from state to state.provisions. Some states are usinguse, or have applied to use, waivers granted by CMS to expand their Medicaid programs,implement expansion, impose different eligibility or enrollment restrictions,conditions, or otherwise implement programs that vary from federal standards. The Medicaid landscape is constantly evolving as the federal and state governments consider and test various models of delivery and payment system reform.
In addition, some states are proposing or have implemented various health reform initiatives at the state level. For example, some states have proposed public health insurance options, and some states have passed or are considering legislation to addressout-of-networkbilling.
Other trends toward transparency and value-based purchasing may impact the competitive position and patient volumes of providers. For example, the CMS Care Compare website makes available to the public certain data that hospitals, home health agencies, hospices, and other Medicare-certified providers submit in connection with Medicare reimbursement claims, including performance data on quality measures and patient satisfaction. Medicare reimbursement may be adjusted based on quality and efficiency measures and/or compliance with quality reporting requirements. In addition, hospitals are required by federal regulation to publish online payer-specific negotiated charges and de-identified minimum and maximum charges. Some price transparency obligations apply only to payers. For example, CMS requires health insurers to publish online charges negotiated with providers for health care services. Starting January 1, 2023, health insurers must provide online price comparison tools to help individuals get personalized cost estimates for covered items and services. Other industry participants, such as private payers and large employer groups and their affiliates, may also introduce financial or delivery system reforms. For example, in recent years, there have been trends influenced by private and/or public payers toward enrollment in managed care programs, favoring outpatient care over inpatient care, and provider consolidation. These issues are further discussed in Item 1A, “Risk Factors.”
General Economic and Demographic Factors
The health care industry is impacted by changes in or uncertainty regarding the overall United StatesU.S. economy. The COVID-19 pandemic has led,adversely impacted, and may continue to lead, to a general worseningin the future adversely impact, economic conditions in the United States. In addition, outside of economic conditions. BudgetCOVID-19-related stimulus and relief measures, budget deficits at the federal level and within some state and local government entities have had a negative impact on spending for many health and human service programs, including
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Medicare, Medicaid and similar programs, which represent significant payer sources for our hospitals and other providers. We anticipate that the federal deficit, the growing magnitude of Medicare and Medicaid expenditures and the aging of the United StatesU.S. population will continue to place pressure on government health care programs. Other risks we face during periods of economic weakness and high unemployment include potential declines in the population covered under managed care agreements, increased patient decisions to postpone or cancel elective and nonemergency health care procedures (including delaying surgical procedures), potential increases in the uninsured and underinsured populations, increased adoption of health plan structures that shift financial responsibility to patients and increased difficulties in collecting patient receivables for copayment and deductible amounts.
Compliance Program
We maintain a comprehensive ethics and compliance program that is designed to meet or exceed applicable federal guidelines and industry standards. The program is intended to monitor and raise awareness of various regulatory issues among employees and to emphasize the importance of complying with governmental laws and regulations. As part of the ethics and compliance program, we provide annual ethics and compliance training to our employees and encourage all employees to report any violations to their supervisor, an ethics and compliance officer or to the Company’s ethics line available 24 hours a day by phone and internet portal.
Antitrust Laws
The federal government and most states have enacted antitrust laws that prohibit certain types of conduct deemed to be anti-competitive. These laws prohibit price fixing, market allocation,DOJ.DOJ, including with respect to hospital and physician practice acquisitions. We believe we are in compliance with such federal and state laws, but courts or regulatory authorities may reach a determination in the future that could adversely affect our operations.
Environmental Matters
We are subject to various federal, state and local statutes and ordinances regulating the discharge of materials into the environment. We do not believe that we will be required to expend any material amounts in order to comply with these laws and regulations.regulations as presently in effect. Regulations limiting greenhouse gas emissions and energy inputs may increase in coming years, which may increase our costs associated with compliance, disrupt and adversely affect our operations and could materially, adversely affect our financial performance.
Our environmental strategy is designed to complement our mission of the care and improvement of human life, which extends to the environment. This strategy is centered on incorporating the following four pillars into our operations:
We are pursuing a plan to reduce our scope 1 and scope 2 greenhouse gas emissions by 2030 in line with the Paris Agreement 1.5℃ emissions reduction goal. Our initiatives contemplate operational changes intended to reduce energy consumption, including by accelerating related capital investments, new technology pilots, renewable energy contracting and investments, and medical gas initiatives. We have baselined our scope 1 and scope 2 greenhouse gas emissions for 2021, and we are updating those calculations for 2022 activity to measure trends in our greenhouse gas emissions. We are exploring a process to measure scope 3 greenhouse gas emissions in the future.
In 2022, we released our inaugural Task Force on Climate-related Financial Statements
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While we currently believe that compliance with existing environmental laws and regulations does not have a material impact on our operations, changes in consumer preferences and additional legislation or regulatory requirements, including those associated with the transition to a low-carbon economy, may increase costs associated with compliance, the operation of our facilities and supplies.
Insurance
As is typical in the health care industry, we are subject to claims and legal actions by patients in the ordinary course of business. Subject, in most cases, to a $15 million per occurrence self-insured retention, our facilities are insured by our 100% owned insurance subsidiary for losses up to $50$80 million per occurrence.occurrence (effective January 1, 2023). The insurance subsidiary has obtained reinsurance for professional liability risks generally above a retention level of either $25 million or $35 million per occurrence, depending on the jurisdiction for the related claim. We also maintain professional liability insurance with unrelated commercial carriers for losses in excess of amounts insured by our insurance subsidiary.
We purchase, from unrelated insurance companies, coverage for cyber security incidents, directors and officers liability and property loss in amounts we believe are adequatereasonable and subject to terms of coverage we believe to be reasonable.
Human Capital Resources
Our workforce is comprised of approximately 275,000294,000 employees (as of December 31, 2020)2022), including approximately 80,00087,000 part-time and PRN employees (references herein to “employees” refer to employees of our affiliates). Our Board of Directors and its committees oversee human capital matters through regular reporting from management and advisors.
Diversity, Equity and Inclusion
We are committed to fostering a culture of inclusion that embraces and supports our patients, colleagues, partners, physicians and communities. Our workforce is comprised of approximately 80%78% women and 41%44% people of color. Our policies prohibit discrimination on the basis of age, gender, disability, race, color, ancestry, citizenship, religion, pregnancy, sexual orientation, gender identity or expression, national origin, medical condition, marital status, veteran status, payment source or ability, or any other basis prohibited by federal, state or local law.
We are dedicated to being an employer of choice. We seek to recruit diverse candidates at all stages of their careers and through a variety of venues and programs. We recently launchedOur Chief Diversity Officer leads a data-driventeam that is responsible for advancing diversity, equity and inclusion (“DEI”) and cultural competence initiatives across the Company. Our Executive Diversity Council, sponsored by our Chief Executive Officer and comprised of executive leaders from the Company, champions DEI across the Company and informs strategic decisions towards DEI goals and objectives. In addition to the Executive Diversity Council, we have implemented DEI Councils comprised of diversity leaders and facility representatives and added division-based DEI leaders to support local deployment of DEI strategies and programs across the enterprise.
In the beginning of 2020, we launched a DEI strategy based on internal and external research to support the advancement of women and people of color and women into leadership roles. We also partnerhave since established nine employee resource groups to provide colleagues opportunities to convene around shared experiences, including groups for Black colleagues, women, young professionals, LGBTQ+, Hispanic/Latinx, and Asian colleagues, veterans, colleagues with national organizationsdisabilities, and a group focused on mental health and wellness – each with a senior leader serving as executive sponsor. In addition, the Company launched a sponsorship program in 2022 for a cohort of Black colleagues to support leadership and advancement, which promotehas since expanded to include a broader focus on Black, Asian, and Hispanic leaders.
The Company’s Corporate Governance Guidelines reinforce its commitment to diversity by requiring the initial pool of candidates from which the Nominating and Corporate Governance Committee may recommend director nominees to include qualified female and racially/ethnically diverse candidates and the Nominating and Corporate Governance Committee to request that any third-party search firm that it engages to identify such candidates to include qualified female and racially/ethnically diverse candidates in leadership positions. Our Chief Diversity Officer leads a 20-person team that is responsible for advancing diversity, inclusion, equity and cultural competence initiatives across the Company.
We encourage you to review the “Inclusion, Compassion“Diversity, Equity and Respect”Inclusion” section of our website, which includes our EEO-1 data, as well as the “Excellent People Make Excellence Happen” section of our 20202022 Impact Report (located on our website)(available at www.hcahealthcareimpact.com) for more detailed
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information regarding our diversity, equity, inclusionDEI and pay equity programs and initiatives. Nothing on our website, including our 20202022 Impact Report or sections thereof, shall be deemed incorporated by reference into this annual report on Form 10-K.
Compensation and Benefits
To recruit and retain a highly qualified and diverse workforce, we design competitive compensation and benefits programs to help meetattract, retain, recognize and reward the needsperformance of our employees. In addition to salaries, theseThese programs (which vary by location) include an Employee Stock Purchase Plan, a 401(k) Plan, health care and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, employee assistance and wellbeing programs, tuition and student loan payment assistance and on-site services, such as cafeterias and fitness centers, among many others.
Recruitment and Workforce Development
We continue to invest in numerous initiatives to attract and acquire the talent needed to deliver on our mission and business objectives. We are working within our communities to expand access to health care programs and careers, including our expansion of Galen College of Nursing, to specifically address the growing nursing shortage. We are broadening our access to talent through early outreach programs, internships, career paths, and college and diversity recruitment efforts.
Serving the Community
We strive to provide not only the quality health care that our patients deserve, but also to address needs in the communities we serve. We provide opportunities for our colleagues with opportunities to learn, serve, leadget involved and give in their communities.be a part of something bigger than our organization. By joining forces with other leading organizations, we maximizebelieve our ability to provide care for patientscollective talents and populations.
Culture and Talent Development
HCA Healthcare’s culture is critical to our success. We seek to instill a culture across our system that includes making a positive impact on our patients, communities and each other. We seek toother, and nurture a collaborativethat culture built onthrough inclusion, compassion and respect.
We are highly committed to developing leaders who support our culture, grow our business and award-winninglead the industry. We invest in award winning programs offered through the HCA Healthcare Leadership Institute.
Health, Safety and Wellness
We focus on supporting employees in ways that have a positive impact on their physical, mental and financial health so they can take care of themselves, their families, their patients and each other. We provide our employees and their families with access to a variety of health and wellness programs. In response to the COVID-19 pandemic, we implemented changes to address the interests of our patients, employees, medical staff membersprograms that can help with burnout, stress, depression, anxiety, and contractors,other health concerns as well as relationship issues, career development, work challenges, retirement planning and financial support. For 2022, this included the communities in which we operate, such as providing PPE, COVID-19 screening for patients and certain hospital staff, and scrub laundering. During 2020:following touchpoints:
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Labor Matters
We are subject to various state and federal laws that regulate wages, hours, benefits and other terms and conditions relating to employment. At December 31, 2020,2022, certain employees at 37 of our domestic hospitals are represented by various labor unions. TwoNo union elections were held in January 2020 that resulted in the addition of a number of employees to existing bargaining unitsoccurred at oneany of our domestic facilities in California and one facility in Missouri. During September 2020, an election was held that resulted in the creation of a new bargaining unit at one of our facilities in North Carolina, and a decertification election was held that resulted in the elimination of a bargaining unit at a facility in Virginia.2022. While no other elections are scheduled in 2021,2023, it is possible that employees at additional hospitals may unionize in the future.future, or employees currently represented by labor unions may choose to reject that representation. We consider our employee relations to be good and have not experienced work stoppages that have materially, adversely affected our business or results of operations. However, it is possible that a material work stoppage at one or more of our hospitals may occur in the
Our facilities, like most health care facilities, have experienced rising labor costs and turnover. In some markets, nurse and medical support personnel availability and retention have become significant operating issues for health care providers, including the Company. These challenges have been exacerbated by the effects that COVID-19 has had on health care personnel. Nurse and medical support shortages have resulted in a number of adverse impacts to our business, including capacity and growth constraints, reduced patient satisfaction, reduced physician satisfaction, impact on services offered and increased costs, among others. To address this challenge, we have implemented several initiatives to improve retention, recruiting, compensation programs and productivity.
We may be required to continue to enhance wages and benefits to recruit and retain nurses and other medical support personnel orand to hireutilize more expensive temporary or contract personnel. As a result, our labor costs could increase.continue to increase at rates in excess of historical levels. We also depend on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate.operate to fill other necessary positions. If there is additional union organizing activity or a significant portion of our employee base unionizes, our costs could increase. In addition, thewe operate in several states that have adopted mandatory nurse-staffing ratios, mandate staffing committees to develop staffing plans or require public reporting of nurse staffing levels. If these states reduce mandatory nurse to patient ratios or additional states in which we operate could adopt mandatory nurse-staffingnurse to patient ratios, or could reduce mandatory nurse-staffing ratios already in place. State-mandated nurse-staffing ratiossuch changes could significantly affect labor costs and have an adverse impact on revenues if we are required to limit patient admissions in order to meet the required ratios.
The inability to attract, retain and utilize sufficient, quality clinical and non-clinical personnel could impair our capacity, ability to grow and our results of operations.
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Information about our Executive Officers
As of February 1, 2021,2023, our executive officers were as follows:
Name | Age | Position(s) | ||
Samuel N. Hazen | 62 | Chief Executive Officer and Director | ||
Erol R. Akdamar | 55 | President — American Group | ||
Jennifer L. Berres | 52 | Senior Vice President and Chief Human | ||
Phillip G. Billington | 55 | Senior Vice President — Internal Audit Services | ||
Jeff E. Cohen | 51 | Senior Vice President — Government Relations | ||
Michael S. Cuffe, M.D. | 57 | Executive Vice President and Chief Clinical Officer | ||
Jon M. Foster | 61 | Executive Vice President and Chief Operating Officer | ||
Richard A. Hammett | 53 | President — | ||
Michael A. Marks | 53 | Senior Vice President — Finance | ||
Michael R. McAlevey | 59 | Senior Vice President and Chief | ||
Timothy M. | 51 | |||
President — National Group | ||||
Sammie S. Mosier | 48 | |||
Senior Vice President | ||||
P. Martin Paslick | 63 | Senior Vice President and Chief Information Officer | ||
Deborah M. Reiner | 61 | Senior Vice President — Marketing and Communications | ||
William B. Rutherford | 59 | Executive Vice President and Chief Financial Officer | ||
Joseph A. Sowell, III | 66 | Senior Vice President and Chief Development Officer | ||
Kathryn A. Torres | 59 | Senior Vice President — Payer Contracting and Alignment | ||
Kathleen M. Whalen | 59 | Senior Vice President and Chief Ethics and Compliance Officer | ||
Christopher F. Wyatt | 45 | Senior Vice President and Controller |
Samuel N. Hazen
Erol R. Akdamar was appointed President – American Group effective January 1, 2023. Mr. Akdamar previously served as President of the North Texas Division from October 2013 to December 2022. Prior to that, he served as CEO of Medical City Dallas Hospital in Dallas, Texas from 2010 to 2013 and CEO of St. David’s South Austin Medical Center in Austin, Texas from 2004 to 2010. Mr. Akdamar began his career with HCA in 1993 with Rapides Regional Medical Center.
Jennifer L. Berres
Phillip G. Billington
Jeff E. Cohen
Michael
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Jon M. Fosterwas appointed SeniorExecutive Vice President and Chief NursingOperating Officer ineffective January 2015. Dr. Englebright previously1, 2023. Prior to that time, he served as Vice President and Chief Nursing Officer from 2007 to January 2015. Dr. Englebright joined HCA in 1992 as a critical care nurse at Lewisville Medical Center in Texas and became Chief Nursing Officer of HCA’s San Antonio Community Hospital in 1996. Dr. Englebright currently serves on The Joint Commission’s Board of Commissioners.
Richard A. Hammett was appointed President — NationalAtlantic Group in February 2011. Prior to that,effective January 1, 2023. Mr. HallHammett previously served as President — Eastern Group from October 2006 to February 2011. Mr. Hall had previously servedof the Company as President — North Florida Division from April 2003 until October 2006, as President of the East Florida Division from January 1999 until April 2003, as a Market President in the East Florida Division from January 1998 untilJune 2020 to December 1998, as President of the South Florida Division from February 1996 until December 1997, and as President of the Southwest Florida Division from October 1994 until February 1996, and in various other capacities since 1987.
Michael A. Markswas appointed Senior Vice President — Finance and Treasurer in February 2017.effective January 1, 2023. Mr. MorrowMarks previously served as Vice President — FinanceFinancial Operations Support from March 2021 to December 2022. Prior to that time, he served as CFO of the National Group from December 2008 to February 2021 and TreasurerCFO of the West Florida Division from July 2016 through January 2017. From 20112006 to 2016,November 2008. Mr. MorrowMarks joined HCA Healthcare in 1996.
Michael R. McAlevey was appointed Senior Vice President and Chief Legal Officer in January 2022. Prior to joining HCA, Mr. McAlevey served the Companyin senior legal and executive roles at General Electric, most recently as Vice President, — Development/Special Assets. Mr. MorrowGeneral Counsel and Business Development Leader for GE Healthcare since 2018. Prior to that, he served as General Counsel and Business Development Leader for GE Aviation from 2011 to 2018 and Chief Corporate, Securities and Finance Counsel for GE from 2003 to 2011. Before joining GE, Mr. McAlevey served as Deputy Director of the United States Securities and Exchange Commission’s Division of Corporation Finance from 1998 to 2002.
Timothy M. McManus was appointed President — National Group effective January 1, 2023. Mr. McManus previously served as President of the Capital Division from August 2016 to December 2022. Mr. McManus joined HCA Healthcare in 2007 and served as CEO of Chippenham and Johnston-Willis Medical Center in Richmond, Virginia from June 2012 to July 2016, CEO of Reston Medical Center in Reston, Virginia from June 2010 to June 2012 and CEO of Garden Park Medical Center in Gulfport, Mississippi from September 2007 to May 2010.
Sammie S. Mosier was appointed Senior Vice President and Chief Nurse Executive effective December 1, 2021. Dr. Mosier joined HCA in 1992 as a partner in the law firm of Waller Lansden Dortch & Davismedical-surgical bedside nurse at Frankfort Regional Medical Center and has held progressive leadership roles, including as Vice President and Assistant Chief Nursing Executive — Clinical Services Group from 20062019 to October 2011. Prior to becoming a partner, Mr. Morrow was an associate at Waller Lansden Dortch & Davis and at Cleary Gottlieb Steen & Hamilton.
P. Martin Paslick
Deborah M. Reiner
William B. Rutherford
Joseph A. Sowell, III
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financing, tax law and general corporate law. He also
Kathryn A. Torres
Kathleen M. Whalen
Christopher F.
Item 1A. Risk Factors
If any of the events discussed in the following risk factors were to occur, our business, financial position, results of operations, cash flows or prospects could be materially, adversely affected. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect us. COVID-19 amplifies and exacerbates many of the risks we face in our business operations, including those discussed below. Our business is subject to the following principalmaterial risks and uncertainties.
Risks related to thepandemic and other potential pandemics:
COVID-19 pandemic
As a front-line provider of health care services, we have been and continue to be negatively impactedaffected by theCOVID-19pandemic, particularly if health and economic effects of COVID-19. Although vaccines and booster shots for the U.S. economy remains unstable for a significant amount of time.
We continue to the concentration of our hospitals in Texas and Florida, we are particularly sensitive to the increase inCOVID-19cases in those states where the pandemic could have a disproportionate effect on our business.
We have been and will continue to be impacted by the health and economic effectsof COVID-19.Although we are implementingimplemented considerable safety measures within our hospitals and other facilities in response to COVID-19. Nonetheless, treatmentto our employees,which may include the manner in which patients and physicians. These risks,our physicians and how clinical staff perceive and respond to them,such risks. These risks may adversely affect ourresult in reduced operating capacity. Despite considerable effortscapacity, impaired employee morale and increased exposure to source vital supplies,workforce disruptions. Furthermore, we have experienced and may continue to experience supply chain disruptions, including delays and price increases in equipment, pharmaceuticals and medical supplies particularly PPE, and we may experiencesupply shortages. Our current PPE inventory is satisfactory, but we cannot be certain that our supplies will remain sufficient in the future. In addition, restrictive measures taken to address theCOVID-19pandemic may impact the availability of employedContinued constraints on staffing and contract labor staffing for corporate support services, including, but not limited to, coding, billing, collection and other business office functions, which could adversely affect our execution of established control procedures that may not be sufficiently mitigated through execution of our business continuity plans. Staffing, equipment, laboratory resources and pharmaceutical and medical supplies shortages may impact our ability to schedule, admit and treat patients. Thepandemic has also resulted at our facilities. Such actions may involve large demands, as well as substantial defense costs. Our insurance, a portion of which is provided through our insurance subsidiaries, may not cover all claims against us.
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Our operations and financial performance have been, and may continue to be, affected by actions taken by governmental authorities in an increased number of early retirements in our workforce and resulted in fewer graduate nurses being ableresponse to enter the workforce. The combined impactCOVID-19. Some of these factors, despite our efforts to mitigate their effect, could result in reduced employee morale and increased exposure to labor unrest, work stoppages or other workforce disruptions.
Beginning in 2020 and continuing through 2022, we experienced increased patient acuity as a result of COVID-19 cases at our hospitals, which led to increased reimbursements. However, the impacts of COVID-19, including high unemploymentpatient acuity levels, in future periods may vary, and underemployment ratescould exert unpredictable and reduced consumer spendingpotentially negative effects on clinical performance metrics that impact reimbursement levels and confidence, also affect our service mix, revenue mix, payer mix and patient volumes, as well as our ability to collect outstanding receivables. Business closings and layoffs in the areas where we operate may lead to increases in the uninsured and underinsured populations and adversely affect demand for our services, as well as the ability of patients and other payers to pay for services rendered. Any increase in the amount or deterioration in the collectability of patient accounts receivable willcould adversely affect our cash flowsresults of operations.
Developments related to COVID-19, including broad economic factors related to COVID-19 and public health conditions, may have a material, adverse effect on our business, results of operations, requiring an increased levelfinancial position and cash flows. The ongoing impact of working capital. In addition,COVID-19 on our resultsbusiness will depend on, among other factors, the duration and financial condition may be adversely affected by federal, stateseverity of any severe or local laws, regulations, orders,widespread outbreaks of COVID-19; the impact of COVID-19 on economic conditions; the volume of canceled or other governmental rescheduled procedures at our facilities; the volume of COVID-19 patients cared for across our health systems; the availability, acceptance of, and need for effective vaccines and medical treatments; the spread of potentially more contagious and/or regulatoryvirulent forms of the virus; and the impact of government actions addressingon thecurrent COVID-19 pandemicor the U.S. health care system, which could result in direct or indirect restrictionsindustry and broader economy. COVID-19 continues to our business, financial condition, results of operationsevolve, and cash flow. We may also be subject to claims from patients, employees and others exposedto COVID-19 atour facilities. Such actions may involve large demands, as well as substantial defense costs, though there is no certainty at this time whether any such claims will be filed or the outcome of such claims if filed. Our professional and general liability insurance, a portion of which is provided through a 100% owned insurance subsidiary, may not cover all claims against us.
The foregoing and other continued disruptions to our business as a result ofthe COVID-19 pandemic
We are unable to predict the implementation andultimate impact of the CARES Act and other existingstimulus and relief legislation or future stimulusthe effect that such legislation if any. There can be no assurance as to the total amount of financial assistance or types of assistance we will receive, that we will be able to comply with the applicable terms and conditions to retain such assistance, that we will be able to benefit from provisionsother governmental responses intended to increase accessassist providers in responding to resourcesCOVID-19 may have on our business, financial condition, results of operations or cash flows.
In response to COVID-19, federal and ease regulatory burdens forstate governments have passed legislation, promulgated regulations and taken other administrative actions intended to assist health care providers or that additional stimulus legislation will be enacted.
The CARES Act and related legislation include provisions intendedhave also made other forms of financial assistance available to increase access to medical supplies and equipment and ease financial, legal and regulatory burdens on health care providers. For example, the CARES Act, the CAA and related legislation suspend the Medicare sequestration payment adjustment from May 1, 2020 through March 31, 2021 (but extend sequestration through 2030), provide for a 20%add-on
The CARES Act and related legislation 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
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adjustment was phased back in with a 1% reduction beginning April 1, 2022, and returned to 2% on July 1, 2022. The BCA sequestration has been extended through the first six months of 2032. The APRA, in addition to providing funding for health care providedproviders, 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 payment reduction of up to patients withCOVID-19,
Beyond financial assistance, federal and state governments have enacted legislation, established regulations and issued waivers intended to expand access to and payment for telehealth services, under Medicare,increase access to medical supplies and equipment, prioritize review of drug applications to help with shortages of emergency drugs, delay Medicaid DSH reductions, and provide funding to reimburse providers for conductingCOVID-19testing for the uninsured.ease various legal and regulatory burdens on health care providers. HHS and CMS have announced other flexibilities for health care providers in response toextensions fortemporary modifications of certain value-based care programs, implementing special scoring and relief from data submission requirements forpayment policies intended to mitigate negative effects of the PHE on providers participating in certain quality reportingsome of these programs. It is unclear how changes to these and other value-based programschanges will affect our financial condition.
COVID-19 continues to the recent enactment of the CARES Act, the PPPHCE Act, the CAAevolve, and other enacted legislation, there is stilluncertainty regarding the ultimate impact to our business of governmental efforts to assist health care providers responding to and otherwise affected by COVID-19. As the United States has experienced a high degreemoderation of uncertainty surrounding their implementation,infection and theCOVID-19pandemic continuesrelated hospitalization rates in comparison to evolve. Someearlier periods, federal and state governments have shifted to reducing or terminating certain temporary measures that were implemented earlier in the COVID-19 PHE. Many of the measures allowing for flexibility in delivery of care and various financial supports for health care providers are available only until funds expire or for the duration of the PHE, and it is unclear whether or for how long the PHE declaration will be extended.PHE. The current PHE determinationdeclared by HHS expires April 21, 2021.May 11, 2023. The HHS Secretary may choose to renewpresidential administration has indicated that the public health emergency will not be extended. Termination of the PHE declaration for successive90-dayperiods for as long as the emergency continues to existmay impact our operations and may terminate the declaration whenever he determines that the PHE no longer exists. The federal government may consider additional stimulus and relief efforts, but we are unable to predict whether additional stimulus measures will be enacted or their impact. There can be no assurance as to the total amount of financial and other types of assistance we will receive under the CARES Act, PPPHCE Act, the CAA or future
The emergence and effects related to a potential future pandemic, epidemic or outbreak of an infectious disease could adversely affect our operations.
If a pandemic, epidemic, outbreak of an infectious disease or other public health crisis were to occur in an area in which we operate, our operations could be adversely affected. Such a crisis could diminish the public trust in health care facilities, especially hospitals that fail to accurately or timely diagnose, or are treating (or have treated) patients affected by infectious diseases. If any of our facilities were involved, or perceived as being involved, in treating patients from such an infectious disease, patients might cancel elective procedures or fail to seek needed care at our facilities, and our reputation may be negatively affected. Patient volumes may decline or volumes of uninsured and underinsured patients may increase, depending on the economic circumstances surrounding the pandemic, epidemic or outbreak. Further, a pandemic, epidemic or outbreak might adversely affect our operations by causing a temporary shutdown or diversion of patients, disrupting or delaying production and delivery of materials and products in the supply chain or causing staffing shortages in our facilities. We have disaster plans in place and operate pursuant to infectious disease protocols, but the potential emergence of a pandemic, epidemic or outbreak, as well as the public’s and the government’s response to the pandemic, epidemic or outbreak, is difficult to predict and could adversely affect our operations.
Risks related to our indebtedness:
Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations.
We are highly leveraged. As of December 31, 2020,2022, our total indebtedness was $31.004$38.084 billion. As of December 31, 2020,2022, we had availability of $1.962$1.935 billion under our senior secured revolvingcash flow credit facility $3.750and $1.600 billion under our senior secured asset-based revolving credit facility, after giving effect to letters of credit and borrowing base limitations and $2.000 billion under our senior secured364-dayterm loan facility (which was terminated during January 2021).limitations. Our high degree of leverage could have important consequences, some of which may be exacerbated by the impact of theCOVID-19, including:
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We and our subsidiaries have the ability to incur additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facilities and the indentures governing our outstanding notes. If new indebtedness is added to our current debt levels, interest rates and the related risks that we now face could intensify.
We may not be able to generate sufficient cash to service all of our indebtedness and may not be able to refinance our indebtedness on favorable terms. If we are unable to do so, we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions, including the impact of thepandemic, and to certain financial, business and other factors beyond our control. We cannot assure you we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
In addition, we conduct our operations through our subsidiaries. Accordingly, repayment of our indebtedness is dependent on the generation of cash flows by our subsidiaries and their ability to make such cash available to us by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries.
We may find it necessary or prudent to refinance our outstanding indebtedness, the terms of which may not be favorable to us. Our ability to refinance our indebtedness on favorable terms, or at all, is directly affected by the then current global economic and financial conditions which affect the availability of debt financing and the rates at which such financing is available. In addition, our ability to incur secured indebtedness (which would generally enable us to achieve better pricing than the incurrence of unsecured indebtedness) depends in part on the value of our assets, which depends, in turn, on the strength of our cash flows and results of operations, and on economic and market conditions and other factors.
If our cash flows and capital resources are insufficient to fund our debt service obligations or we are unable to refinance our indebtedness, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating results and available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions, or the proceeds from the dispositions may not be adequate to meet any debt service obligations then due.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
Our senior secured credit facilities and, to a lesser extent, the indentures governing our outstanding notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and certain of our subsidiaries’ ability to, among other things:
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Under our asset-based revolving credit facility, borrowing availability is subject to a borrowing base of 85% of eligible accounts receivable less customary reserves, with any reduction in the borrowing base commensurately reducing our ability to access this facility as a source of liquidity. In addition, under the asset-based revolving credit facility, when (and for as long as) the combined availability under our asset-based revolving credit facility and the revolving facility under our senior secured revolvingcash flow credit facility is less than a specified amount for a certain period of time or, if a payment or bankruptcy event of default has occurred and is continuing, funds deposited into any of our depository accounts will be transferred on a daily basis into a blocked account with the administrative agent and applied to prepay loans under the asset-based revolving credit facility and to collateralize letters of credit issued thereunder.
Under our senior secured credit facilities, we are required to satisfy and maintain specified financial ratios. Our ability to meet those financial ratios may be affected by events beyond our control, and there can be no assurance we will continue to meet those ratios. A breach of any of these covenants could result in a default under both the cash flow credit facility and the asset-based revolving credit facility. Upon the occurrence of an event of default under these senior secured credit facilities, the lenders thereunder could elect to declare all amounts outstanding under the senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit, which would also result in an event of default under a significant portion of our other outstanding indebtedness. If we were unable to repay those amounts, the lenders under the senior secured credit facilities could proceed against the collateral granted to them to secure such indebtedness. We have pledged a significant portion of our assets under our senior secured credit facilities and that collateral is also pledged as collateral under our first lien notes.facilities. If any of the lenders under the senior secured credit facilities accelerate the repayment of borrowings, there can be no assurance there will be sufficient assets to repay the senior secured credit facilities the first lien notes and our other indebtedness.
Risks related to human capital:
Our results of operations may be adversely affected by competition for staffing, the shortage of experienced nurses and other health care professionals and labor union activity.
Our operations are dependent on the efforts, abilities and experience of our management and medical support personnel, such as nurses, pharmacists and lab technicians, as well as our physicians. We compete with other health care providers in recruiting and retaining qualified management and personnel responsible for the daily operations of each of our hospitals and other facilities, including nurses and other nonphysician health care professionals. In some markets, the availability of nurses and other medical support personnel has been a significant operating issue to health care providers, including at certain of our facilities. The impact of labor shortages across the health care industry may result in other health care facilities, such as nursing homes, limiting admissions, which may constrain our ability to discharge patients to such facilities and further exacerbate the demand on our resources, supplies and staffing.
COVID-19 has exacerbated workforce competition, shortages and capacity restraints, including due to the impact of vaccine mandates on our workforce, and may continue to exacerbate workforce competition, shortages and capacity constraints beyond the duration of COVID-19. We may be required to continue to enhance wages and benefits to recruit and retain nurses and other medical support personnel and to hire more expensive temporary or replacementcontract personnel. As a result of LIBORshortages, competition and inflationary pressures, our labor costs could continue to increase and/or our capacity could be negatively impacted. We also depend on the available labor pool of employees in each of the markets in which we operate to fill other necessary positions. If there is continued competition for these employees or additional union organizing activity or a significant portion of our employee base unionizes, it is possible our labor costs could increase. When negotiating collective bargaining agreements with unions, whether such agreements are renewals or first contracts, there is the possibility that strikes could occur during the negotiation process, and our continued operation during any strikes could increase our labor costs. The unavailability of staff, or the inability of the Company to control labor costs, could have a material, adverse effect on our capacity, growth prospects and results of operations.
In addition, federal and state laws and regulations may increase our costs of maintaining qualified nurses and other medical support personnel. We operate in several states that have adopted mandatory nurse-staffing ratios, mandate staffing committees to develop staffing plans, or require public reporting of nurse staffing levels. If these states reduce, or if additional states in which we operate adopt, mandatory nurse-staffing ratios or related measures, such changes could significantly affect labor costs and have an adverse impact on revenues if we are required to limit admissions in order to meet the required ratios. If our labor costs continue to increase, we may not be able to offset these increased costs as a significant percentage of our revenues consists of fixed, prospective payments.
We may be unable to attract, hire and retain a highly qualified and diverse workforce, including key management.
The talents and efforts of our employees, particularly our key management, are vital to our success. Our management team has significant industry experience and would be difficult to replace. In addition, institutional knowledge may be lost in any potential managerial transition. We may be unable to retain them or to attract other highly qualified employees, particularly if we do not offer employment terms that are competitive with the rest of the labor market. Our management is focused on mitigating the impact of COVID-19, which has required and will continue to
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require a substantial investment of time and resources across our enterprise. Failure to attract, hire, develop, motivate, and retain highly qualified and diverse employee talent, or failure to develop and implement an adequate succession plan for the management team, could disrupt our operations and adversely affect our business.
Our performance depends on our ability to recruit and retain quality physicians.
The success of December 31, 2020,our hospitals depends in part on the number and quality of the physicians on the medical staffs of our hospitals, the admitting and utilization practices of those physicians, maintaining good relations with those physicians and controlling costs related to the employment of physicians. Although we had $3.671 billionemploy some physicians, physicians are often not employees of borrowings underthe hospitals at which they practice, and, in many of the markets we serve, physicians may have admitting privileges at other hospitals in addition to our senior secured credithospitals. We continue to face increasing competition to recruit and retain quality physicians, as well as increasing cost to contract with hospital-based physicians. Such physicians may terminate their affiliation with our hospitals at any time. We anticipate facing increased challenges in this area as the physician population reaches retirement age, especially if there is a shortage of physicians willing and able to provide comparable services. If we are unable to recruit and retain quality physicians to affiliate with our hospitals or adequately contract with hospital-based physicians, our admissions may decrease, our operating performance may decline, and our capacity and growth prospects may be materially adversely affected. If we are unable to provide adequate support personnel or technologically advanced equipment and hospital facilities that bore interest at a floating rate basedmeet the needs of those physicians and their patients, they may be discouraged from referring patients to our facilities, admissions may decrease and our operating performance may decline.
Risks related to technology, data privacy and cybersecurity:
A cybersecurity incident or other form of data breach could result in the compromise of our facilities, confidential data or critical data systems. A cybersecurity incident or other form of data breach could also give rise to potential harm to patients; remediation and other expenses; and exposure to liability under HIPAA, consumer protection laws, common law theories or other laws. Such incidents could subject us to litigation and foreign, federal and state governmental inquiries, damage our reputation, and otherwise be disruptive to our business.
We, directly and through our vendors and other third parties, collect and store on LIBORour networks and $7.712 billiondevices and third-party technology platforms sensitive information, including intellectual property, proprietary business information and personally identifiable information of unfunded commitments under those facilities.our patients and employees. We have made significant investments in technology to adopt and meaningfully use EHR and in the use of medical devices that store sensitive data and are integral to the provision of patient care and to protect our systems, software, equipment, devices and data from cybersecurity risks. In addition, medical devices manufactured by third parties that are used within our facilities are increasingly connected to the internet, hospital networks and other medical devices. The U.K. Financial Conduct Authority announced in 2017secure maintenance of this information and technology is critical to our business operations. We have implemented multiple layers of security measures to protect the confidentiality, integrity and availability of this data and the systems and devices that it intendsstore and transmit such data. We embed security measures into software and system development processes and utilize current security technologies, and our defenses are monitored and routinely tested internally and by external parties. We vet the security and integrity of third-party technology platforms hosting infrastructure, applications, and data supporting our operations, and set contractual terms holding them to phase out LIBOR byour security standards.
Despite these efforts, even the endmost advanced internal control environment is vulnerable to compromise. Threats from malicious persons and groups, new vulnerabilities and advanced new attacks against information systems and devices against us or our vendors and other third parties create risk of 2021. However, the ICE Benchmark Administration, in its capacity as administrator of LIBOR, has published a consultation regarding its intention to continue publication of certain LIBOR tenors by 18 months to June 2023. Notwithstanding this possible extension, a joint statement by key regulatory authorities called on banks to cease entering into new contracts that use LIBOR as a reference rate by no later than December 31, 2021,cybersecurity incidents, including ransomware, malware and it is impossible to predict whether LIBOR ratesphishing incidents. We have seen, and believe we will continue to see, widely spread vulnerabilities that could affect our or other parties’ systems. Mitigation and remediation recommendations continue to evolve, and addressing this and other critical vulnerabilities is a priority for us. The volume and intensity of cyberattacks on hospitals, health systems and other health care entities continue to increase. We are regularly the target of attempted cybersecurity and other threats that could have a security impact, including those by third parties to access, misappropriate or manipulate our information or disrupt our operations, and we expect to continue to experience an increase in cybersecurity threats in the future. While we are periodically exposed to such threats and expect them to continue, we have not experienced any material losses or other material consequences relating to technology failure, cyberattacks or other information or security incidents, whether directed at us or third parties. Internal access management failures could result in the compromise or unauthorized exposure of confidential data. Moreover, hardware, software or applications we use may have inherent vulnerabilities or defects of design, manufacture or operations or could be publishedinadvertently or supported afterintentionally implemented or used in a manner that could compromise information security. There can be no assurance that we or our vendors and other third parties will not be subject to cybersecurity threats and incidents that bypass our or their security measures, impact the endintegrity, availability or privacy of 2021. If LIBOR becomes unavailable,personal health information or other data subject to privacy laws or disrupt our or their information systems, devices or business, including our ability to provide various health care services. In such an
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event, we may incur substantial costs, including but not limited to, costs associated with remediating the interest rateeffects of the cybersecurity incident, costs for security measures to guard against similar future incidents and costs to recover data. Further, consumer confidence in the integrity and security of personal information and critical operations data in the health care industry generally could be shaken to the extent there are successful cyberattacks at other health care services companies, which could have a material, adverse effect on our business, financial position or results of operations.
As a result, cybersecurity, privacy, physical security and the continued development and enhancement of our controls, processes and practices designed to protect our facilities, information systems and data from attack, damage or unauthorized access remain a priority for us. Our Audit and Compliance Committee includes the topic of cybersecurity risk and information security as one of its standing agenda items, and is frequently updated on management’s ongoing actions to monitor, identify, assess and mitigate significant cybersecurity matters. Committee meetings regularly include a report from our Chief Security Officer to provide an update on (i) activities within our internal cybersecurity defense center to monitor and respond to both internal and third-party cyber events, (ii) ongoing threats that are being monitored and (iii) the current threat level assessment for the Company. As cyber threats continue to evolve, along with their increased volume and sophistication, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities or incidents. Although to date no cyberattack or other information or security breach, whether experienced by us or a third party, has resulted in material losses or other material consequences to us, there can be no assurance that our controls and procedures in place to monitor and mitigate the risks of cyber threats, including the remediation of critical information security and software vulnerabilities, will be sufficient and/or timely and that we will not suffer material losses or consequences in the future. Additionally, while we have in place insurance coverage designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise. The occurrence of any of these events could result in (i) harm to patients; (ii) business interruptions and delays; (iii) the loss, misappropriation, corruption or unauthorized access of data; (iv) litigation and potential liability under privacy, security, breach notification and consumer protection laws, common law theories or other applicable laws; (v) reputational damage; and (vi) foreign, federal and state governmental inquiries, any of which could have a material, adverse effect on our financial position and results of operations and harm our business reputation.
Our operations could be impaired by a failure of our information systems.
The performance of our information systems is critical to our floating rate debt willbusiness operations. In addition to our shared services initiatives, our information systems are essential to a number of critical areas of our operations, including:
Information systems may be calculated basedvulnerable to damage from a variety of sources, including telecommunications or network failures, human acts such as inadvertent or intentional misuse by employees and cyberattacks, including ransomware and data theft, and natural disasters. Moreover, we rely on an alternative, comparablevarious third-party technology platforms, which are increasingly important to our business and continue to grow in complexity and scope. Failure to adequately manage implementations of new technology, updates or successor rate, which mayenhancements of such platforms or interfaces between platforms could place us at a competitive disadvantage, disrupt our operations, and have a material, adverse impact on the costour business and results of the floating rate portionoperations.
We have taken precautionary measures to prevent unanticipated problems that could affect our information systems. Nevertheless, we or our vendors and other third parties that we rely upon may experience system failures and disruptions. The occurrence of our indebtedness. The timing and result of the phase out of LIBOR are unclear, and efforts of industry groups to develop a suitable successor are not guaranteed toany system failure could result in a viableinterruptions, delays, the loss or widely adopted replacement for LIBOR. If LIBOR becomes unavailable before a suitable replacement is widely adopted, itcorruption of data and cessations or interruptions in the availability of systems, any of which could have a material, adverse impacteffect on our financial position and results of operations and harm our business reputation.
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Health care technology initiatives, particularly those related to sharing patient data and interoperability, may adversely affect our operations.
The federal government is working to promote the availabilityadoption of floating rate financing.
We may not be reimbursed for the cost of expensive, new technology.
As health care technology continues to advance, the price of purchasing such new technology has significantly increased for providers. Some payers have not adapted their payment systems to adequately cover the cost of these technologies for providers and patients. If payers do not adequately reimburse us for these new technologies, we may be unable to acquire such technologies or we may nevertheless determine to acquire or utilize these technologies in order to treat our patients. In either case, our results of operations and financial position could be adversely affected.
Risks related to governmental regulation and other legal matters:
Our business and results of operations may be adversely affected by health care reform efforts, including court challenges to, and efforts to repeal, replace or otherwise significantly change the Affordable Care Act.efforts. We are unable to predict whether, what, if any, and when such changesadditional health reform measures will be made inadopted or implemented, and the future.
In recent years, the U.S. Congress and certain state legislatures have passed a large number of laws and regulations intended to effect major change within the U.S. health care system, includingindustry has undergone significant changes at the federal and state levels, many of which have been aimed at reducing costs and government spending and increasing access to health insurance. The most prominent of these legislative reform efforts is the Affordable Care Act. The Affordable Care Act, which affects how health care services are covered, delivered and reimbursed, throughand expanded health insurance coverage reduced growth in Medicarethrough a combination of public program spending, reductions in Medicareexpansion and Medicaid DSH payments, and the establishment of programs that tie reimbursement to quality and integration. However, there is uncertainty regarding the future of theprivate sector health insurance reforms. The Affordable Care Act. The lawAct has been, and continues to be, subject to legislative and regulatory changes and court challenges. For example, final rules issued in 2018 expand the availability of association health plans and allow the sale of short-term, limited-duration health plans, neither of which are required to cover all of the essential health benefits mandated by the Affordable Care Act. A number of members of Congress have stated their desire to repeal or make additional significant changes to the Affordable Care Act, its implementation or interpretation. Effectiveeffective January 1, 2019, the penalty associated with the individual mandate to maintain health insurance was effectively eliminated. As a result of this change, in December 2018,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 COVID-19, the United States District CourtARPA enhanced subsidies for the North District of Texas found the individual mandateindividuals eligible to be unconstitutional and determined that the rest of thepurchase coverage through Affordable Care Act was, therefore, invalid. In December 2019, the Fifth Circuit Court of Appeals upheld this decision with respect to the individual mandate, but remanded for further consideration of how this affects the restmarketplaces as part of the law. On November 10, 2020, the U.S. Supreme Court heard oral arguments regarding this case,APRA. The Inflation Reduction Act, enacted in August 2022, extends these enhanced subsidies through 2025. These changes and the law remains in place pending the appeals process. The elimination of the individual mandate penalty and other changesinitiatives may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased, either of which may have an adverse effect on our business.
There is uncertainty regarding whether, when and how the Affordable Care Act may be further changed, the ultimate outcome of court challenges and how the law will be interpreted and implemented. Changes by Congress or government agencies could eliminate or alter provisions beneficial to us, while leaving in place provisions reducing our reimbursement or otherwise negatively impacting our business.
There is also uncertainty regarding whether, when, and what other health reform initiatives will be adopted and the impact of such efforts on providers and other health care industry participants. Further, the potential impact of the 2020 federal election on health reform efforts is unknown. Some members of Congress have proposed measures that would expand government-sponsored coverage, including proposals to expand coverage of federally-funded insurance programs as an alternative to private insurance or establish a single-payer system (such reforms often referred to as “Medicare for All”), and some. CMS administrators may grant states are considering similar measures. CMS has indicated that it intends to increaseadditional flexibility in the administration of state Medicaid programs including by expanding the scope of waivers under which states may implement Medicaid expansion provisions, impose different eligibility or enrollment restrictions, or otherwise implement programs that vary from federal standards. CMS administrators have also signaled interest in changingand make changes to Medicaid payment models. Other recent health reform initiatives and proposals such asat the limitationsfederal and prohibitionsstate levels include those focused on surprise billing imposed by the No Surprises Act, enacted as part of the CAA,price transparency and out-of-network charges, which may impact prices, our relationships with patients, payers or ancillary providers (such as anesthesiologists, radiologists and pathologists), and our competitive position. For example, among other consumer protections, the No Surprises Act imposes various requirements on providers and health plans intended to prevent “surprise” medical bills. It also establishes an IDR process for providers and payers to handle payment disputes that cannot be resolved through direct negotiations. Trends toward transparency and value-based pricing may impact our competitive position and patient volumes. For example, the
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CMS Care Compare website makes publicly available certain data on performance of hospitals and other Medicare-certified providers on quality measures and patient satisfaction, and our patient volumes could decline if any of our facilities achieve poor results. Further, Medicare reimbursement for hospitals is adjusted based on quality and efficiency measures. Other industry participants, such as private payers and large employer groups and their affiliates, may also introduce financial or delivery system reforms. We are unable to predict the nature and success of such initiatives. Health care reform initiatives, including changes to or repeal or invalidation of the Affordable Care Act, may have an adverse effect on our business, results of operations, cash flow, capital resources and liquidity.
Changes in government health care programs may adversely affect our revenues.
A significant portion of our patient volume is derived from government health care programs, principally Medicare and Medicaid. Specifically, we derived 42.7%43.6% of our revenues from the Medicare and Medicaid programs in 2020.2022. Changes in government health care programs, including Medicaid waiver programs,as a result of health reform efforts, may reduce the reimbursement we receive and could adversely affect our business and results of operations. The Affordable Care Act has made significant changesIn addition, in some cases, private third-party payers rely on all or portions of Medicare payment systems to Medicare and Medicaid, and futuredetermine payment rates. Changes to government health reform efforts or further efforts to repeal or significantly change the Affordable Care Actcare programs that reduce payments under these programs may negatively impact these programs.
In recent years, legislative and regulatory changes have resulted in limitations on and, in some cases, reductions in levels of payments to health care providers for certain services under the Medicare program. For example, Congress has established automatic spending reductions that extend through 2030. However,under the percentageBCA, resulting in a 2% reduction forin Medicare may not be more than 2% for a fiscal year, with a uniform percentage reduction across all Medicare programs. While this reduction has been suspended by thepayments beginning in 2013. The CARES Act and related legislation it is scheduledtemporarily suspended these reductions through March 31, 2022, and reduced the sequestration adjustment from 2% to be reinstated1% from April 1 2021. We are unablethrough June 30, 2022. The full 2% reduction resumed on July 1, 2022. The BCA sequestration has been extended through the first six months of 2032. In addition, as a result of the ARPA, an additional Medicare payment reduction of up to predict what other deficit4% was required to take effect in January 2022; however, Congress has delayed implementation of this reduction initiatives may be proposed by Congress.until 2025. These reductions are in addition to reductions mandated by the Affordable Care Act and other laws. Further, fromIt is difficult to predict whether, when or what other deficit reduction initiatives may be proposed by Congress, but future legislation may include additional Medicare spending reductions.
From time to time, CMS revises the reimbursement systems used to reimburse health care providers, including changes to theCMS plans to use data that hospitals are required to report to CMS for cost reports ending on or after January 1, 2021 regarding their median negotiated charges byMS-DRGfor Medicare Advantage payers to determineMS-DRGrelative weights beginning in 2024. We cannot predict how this change might impact Medicare payment in the future, but the scope and magnitude have the potential to be material to our business. Further, under a site neutrality policy, clinic visit services provided bySchedule, subjectSchedule. Further, due to certain exceptions that were phased out through calendar years 2019 and 2020. CMS has also issued final rules reducing Medicare payment rates under the outpatient PPS for drugs obtained underchanges to the 340B Drug Pricing Program.Program in prior years and resulting litigation, hospitals that do not participate in the 340B program (including our hospitals) will receive decreased reimbursement going forward for outpatient drugs and services, and may be required to repay previously received payments. As another example, CMS is also considering proposalshas previously implemented and proposed changes to reduce drug costs suchDSH payment formulas, some of which are the subject of court challenges, and has indicated that the agency will return to DSH payment formulas in future rulemaking. Future changes to these payment policies may adversely impact our results of operations, and any potential legal challenges to changes may take years to resolve. Additionally, as required under the most-favored nation drug pricingIMPACT Act, HHS and the Medicare Payment Advisory Commission are working toward a unified post-acute care payment model that would aligninclude home health agencies and IRFs. A unified post-acute care payment system would pay post-acute care providers under a single framework according to a patient’s characteristics, rather than based on the post-acute care setting where the patient receives treatment. In a July 2022 report, CMS acknowledged that universal implementation of such a system would require congressional approval. Under the IMPACT Act, the Medicare Payment Advisory Commission must submit a report to Congress by June 2023. Payment policies for the 50 Medicare Part B drugs with the highest expendituresdifferent types of providers and for various items and services continue to the payment amounts for those drugs in international markets.evolve. Congress and/or CMS may implement further changes to howreimbursement for items or services are reimbursed that result in payment reductions for other services.
Because most states must operate with balanced budgets and the Medicaid program is often a state’s largest program, some states have enacted or may consider enacting legislation designed to reduce their Medicaid expenditures. Further, many states have also adopted, or are considering, legislation designed to reduce coverage, enroll Medicaid recipients in managed care programs,dis-enrollMedicaid recipients who fail to meet work requirements and/or impose additional taxes on hospitals to help finance or expand the states’ Medicaid systems. Periods of economic weakness may increase the budgetary pressures on many states, and these budgetary pressures may result in decreased spending, or decreased spending growth, for Medicaid programs and the Children’s Health Insurance Program in many states. Some states that provide Medicaid supplemental payments are reviewing these programs or have filed waiver requests with CMS to replace these programs, and CMS has performed and continues to perform compliance reviews of some states’ programs and is considering changes to the requirements for such programs, which could result in Medicaid supplemental payments being reduced or eliminated. Further, legislation and administrative actions at the federal level may significantly alterimpact the funding for, or structure of, the Medicaid program. For example, from time to time, Congress considers proposals to restructureprogram, and may shape the administration of the Medicaid program at the state level. Federal Medicaid policies are subject to involvechange, including as a result of changes in the presidential administration. For example, where states had
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previously been permitted to condition Medicaid enrollment on work or other community engagement, the approvals of waivers permitting these conditions have been rescinded. However, a federal court is permitting Georgia to impose work and community engagement requirements under a Medicaid demonstration program that is expected to launch in mid-2023. The federal government is also reexamining block grants that would be administered by the states. CMS has announced its intent to introduce additional flexibilities for Medicaid program operation, including block grants and increased use of value-based care models.
Current or future health care reform and deficit reduction efforts, changes in laws or regulations regarding government health care programs, other changes in the administration of government health care programs and changes by private third-party payers in response to health care reform and other changes to government health care programs could have a material, adverse effect on our financial position and results of operations.
If we fail to comply with extensive laws and government regulations, we could suffer penalties or be required to make significant changes to our operations.
The health care industry is required to comply with extensive and complex laws and regulations at the federal, state and local government levels relating to, among other things:
Among these laws are the federal Anti-kickback Statute, EKRA, the federal Stark Law, the FCA, the No Surprises Act and similar state laws. We have a variety of financial relationships with physicians and others who either refer or influence the referral of patients to our hospitals, other health care facilities, laboratories and employed physicians or who are the recipients of referrals, and these laws govern those relationships. The OIG has enacted safe harbor regulations that outline practices deemed protected from prosecution under the Anti-kickback Statute. While we endeavor to comply with the applicable safe harbors, certain of our current arrangements, including joint ventures and financial relationships with physicians and other referral sources and persons and entities to which we refer patients, do not qualify for safe harbor protection. Failure to qualify for a safe harbor does not mean the arrangement necessarily violates the Anti-kickback Statute but may subject the arrangement to greater scrutiny. However, we cannot offer assurance that practices outside of a safe harbor will not be found to violate the Anti-kickback Statute. Allegations of violations of the Anti-kickback Statute
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may be brought under the federal Civil Monetary Penalty Law, which requires a lower burden of proof than other fraud and abuse laws, including the Anti-kickback Statute.
Our financial relationships with referring physicians and their immediate family members must comply with the Stark Law by meeting an exception. We attempt to structure our relationships to meet an exception to the Stark Law, but the regulations implementing the exceptions are detailed and complex and are subject to continuing legal and regulatory change. Thus, we cannot provide assurance that every relationship complies fully with the Stark Law. Unlike the Anti-kickback Statute, failure to meet an exception under the Stark Law results in a violation of the Stark Law, even if such violation is technical in nature.
Additionally, if we violate the Anti-kickback Statute or Stark Law, or if we improperly bill for our services, we may be found to violate the FCA, either under a suit brought by the government or by a private person under a
We develop software programs utilizing machine learning/artificial intelligence for use within our network to improve care. In some cases, software can be considered a medical device under the federal Food, Drug, and Cosmetic Act (“FDCA”). Medical devices are subject to extensive regulation by the Food and Drug Administration (“FDA”) under the FDCA. In September 2022, FDA issued non-binding final guidance that describes the types of clinical decision support software that FDA will regulate as a medical device, potentially including software programs that were not previously treated as medical devices. Application of the new guidance may result in our current and/or future software programs providing clinical decision support being subject to FDA regulation. If FDA determines that any of our software programs are medical devices under the FDCA, the distribution and/or use of those software programs may require premarket approval or clearance, and we may be required to cease distribution and/or use of such programs until we obtain any required premarket approval or clearance, which could adversely affect our operations. Failure to seek FDA approval or clearance or noncompliance with other applicable FDA requirements could adversely affect our business, financial condition or results of operations.
We also operate health care facilities in the United Kingdom and have operations and commercial relationships with companies in other foreign jurisdictions and, as a result, are subject to certain U.S. and foreign laws applicable to businesses generally, including anti-corruption and anti-bribery laws. The Foreign Corrupt Practices Act regulates U.S. companies in their dealings with foreign officials, prohibiting bribes and similar practices, and requires that they maintain records that fairly and accurately reflect transactions and appropriate internal accounting controls. In addition, the United Kingdom Bribery Act has wide jurisdiction over certain activities that affect the United Kingdom.
A variety of state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and other processing of personal data. For example, the CCPA, which affords consumers expanded privacy protections such as the right to know what personal information is collected and how it is used, went into effect on January 1, 2020, and was recently significantly amended by the CPRA, which will go into effect on January 1, 2022.CPRA. California residents also have the right to request that a business delete their personal information unless it is necessary for the business to maintain for certain purposes, to direct a business to correct errors in their personal information, and to restrict the use and disclosure of sensitive information. They have the right to know if their personal information is being sold or shared and the right toopt-outFailureBeginning in 2023, under the CPRA’s amendments, as well as comprehensive privacy legislation passed in other states, including Colorado, Utah and Virginia, residents of those states will have additional rights with respect to comply with the CCPAtheir personal information, such as a right to opt out of certain processing activities for sensitive data and CPRA may result in regulator enforcement action and damagea right to our reputation.a portable copy of their personal information. The CPRA creates a new regulator responsible for enforcement of the CPRA, and enforcement priorities of thisthe regulatory bodies responsible for enforcing new regulatory bodystate privacy laws have yet to be determined. The CCPA and CPRA alsodetermined or may change in the future. These new state privacy laws provide for civil penalties for violations, as well asand the CCPA and CPRA provide a private right of action for data breaches that may increase data breach litigation. Failure to comply with these and any other comprehensive privacy laws passed at the state or federal level may result in regulatory enforcement action and damage to our reputation. The potential effects of thissuch legislation areTheMoreover, several privacy bills have been proposed both at the federal and state level that may result in additional legal requirements that impact our business. With the United Kingdom’s departure from the European Union (“Brexit”), our United Kingdom operations are no longer subject to the European Union’s General Data Protection Regulation (“GDPR”) but are subject to the UK Data Protection Legislation, which has been amended in connection with Brexit to be functionally similar to the GDPR and which contains stricter privacy restrictions than laws and regulations in the United States and provides for significant fines in the event of violations. These administrative fines are based on a multi-factored approach. Moreover, rules for data transfers outside of the United Kingdom and European Economic Area have changed significantly with Brexit and a recent Court of European Justice decision, and are subject to further revision and updated regulator guidance, making necessary compliance measures challenging to ascertain and implement
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with respect to our United Kingdom operations. We expect that there will continue to be new laws, regulations, regulatory guidance, and industry standards concerning privacy, data protection and information security proposed and enacted in various jurisdictions, which could impact our operations and cause us to incur substantial costs.
We send short message service, or SMS, text messages to patients. While we obtain consent from these individuals to send text messages, federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, form of consents we obtain or our SMS texting practices are not adequate or violate applicable law. In addition, we must ensure that our SMS texting practices comply with regulations and agency guidance under the Telephone Consumer Protection Act (the “TCPA”), a federal statute that protects consumers from unwanted telephone calls, faxes and text messages. While we strive to adhere to strict policies and procedures that comply with the TCPA, the Federal Communications Commission, as the agency that implements and enforces the TCPA, may disagree with our interpretation of the TCPA and subject us to penalties and other consequences for noncompliance. Determination by a court or regulatory agency that our SMS texting practices violate the TCPA could subject us to civil penalties and could require us to change some portions of our
We engage in consumer debt collection for HCA-affiliated hospitals and certain non-affiliated hospitals. We also engage in credit reporting for certain non-affiliated hospitals. The federal Fair Debt Collection Practices Act, the Fair Credit Reporting Act and the TCPA restrict the methods that companies may use to contact and seek payment from consumer debtors regarding past due accounts and to report to consumer reporting agencies on the status of those accounts. Many states impose additional requirements on debt collection and credit reporting practices, and some of those requirements may be more stringent than the federal requirements.
Finally, we are subject to various federal, state and local statutes and ordinances regulating the discharge of materials into the environment. For example, our health care operations generate medical waste, such as pharmaceuticals, biological materials and disposable medical instruments, that must be handled, stored, transported, treated and disposed of in compliance with federal, state and local environmental laws and regulations. Environmental regulations also may apply when we build new facilities or renovate existing facilities. If we are found not to be in compliance with such laws and regulations, we may be liable for significant investigation and clean-up costs or be subject to enforcement actions by governmental authorities or lawsuits by private plaintiffs. Moreover, any changes in the environmental regulatory framework (including legislative or regulatory efforts designed to address climate change) could have a material, adverse effect on our business.
If we fail to comply with these or other applicable laws and regulations, which are subject to change, we could be subject to liabilities, including civil penalties, money damages, lapses in reimbursement, the loss of our licenses to operate one or more facilities, exclusion of one or more facilities from participation in the Medicare, Medicaid and other federal and state health care programs, civil lawsuits and criminal penalties. In addition, different interpretations or enforcement of, or amendments to, these and other laws and regulations in the future could subject our current or past practices to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services, capital expenditure programs and operating expenses. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, result in interruptions or delays in the availability of systems and/or result in a patient volume decline. We may also face audits or investigations by one or more domestic or foreign government agencies relating to our compliance with these regulations. An adverse outcome under any such investigation or audit, a determination that we have violated these or other laws or a public announcement that we are being investigated for possible violations could result in liability, result in adverse publicity, and adversely affect our business.
State efforts to regulate the construction or expansion of health care facilities could impair our ability to operate and expand our operations.
Some states, particularly in the eastern part of the country, require health care providers to obtain prior approval, often known as a CON, for the purchase, construction or expansion of health care facilities, to make certain capital expenditures or to make changes in services or bed capacity. In giving approval, these states consider the need for additional or expanded health care facilities or services. We currently operate health care facilities in a number of states with CON laws or that require other types of approvals for the establishment or expansion of certain facility types or services. The failure to obtain any required CON or other required approval could impair our ability to operate or expand operations. Any such failure could, in turn, adversely affect our ability to attract patients and physicians to our facilities and grow our revenues, which would have an adverse effect on our results of operations.
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We may incur additional tax liabilities.
We are subject to tax in the United States as well as those states and foreign jurisdictions in which we do business. Changes in tax laws, including increases in tax rates, or interpretations of tax laws by taxing authorities or other standard setting bodies could increase our tax obligations and have a material, adverse impact on our results of operations.
We are also subject to examination by federal, state and foreign taxing authorities. Management believes HCA Healthcare, Inc., its predecessors, subsidiaries and affiliates properly reported taxable income and paid
We have been and could become the subject of government investigations, claims and litigation.
Health care companies are subject to numerous investigations by various government agencies. Further, under the FCA, private parties have the right to bring
Government agencies and their agents, such as the MACs, fiscal intermediaries and carriers, as well as the OIG, CMS and state Medicaid programs, conduct audits of our health care operations. CMS and state Medicaid agencies contract with RACs and other contractors on a contingency fee basis to conduct post-payment reviews to detect and correct improper payments in the Medicare program, including managed Medicare plans, and the Medicaid programs. RAC denials are appealable; however, in recent years, there are currentlyhave been significant delays in the Medicare appeals process. HHS has taken steps to streamline the process which negatively impacts our ability to appealand improve efficiency, and has significantly reduced a years-long backlog. Nevertheless, we may experience delays in appealing RAC payment denials. Private third-party payers may conduct similar post-payment audits, and we also perform internal audits and monitoring. Depending on the nature of the conduct found in such audits and whether the underlying conduct could be considered systemic, the resolution of these audits could have a material, adverse effect on our financial position, results of operations and liquidity.
Should we be found out of compliance with applicable laws, regulations or programs, depending on the nature of the findings, our business, our financial position and our results of operations could be negatively impacted.
We may be subject to liabilities from claims brought against our facilities.
We are subject to litigation relating to our business practices, including claims and legal actions by patients and others in the ordinary course of business alleging malpractice, product liability or other legal theories. Many of these actions seek large sums of money as damages and involve significant defense costs. We insure a portion of our professional liability risks through a 100% ownedour insurance subsidiary. Management believes our reserves for self-insured retentions and insurance coverage are sufficient to cover insured claims arising out of the operation of our facilities.facilities, although some claims may exceed the scope or amount of the coverage limits of our insurance policies. Our 100% owned insurance subsidiary has entered into certain reinsurance contracts; however, the subsidiary remains liable to the extent that the reinsurers do not meet their obligations under the reinsurance contracts. If payments for claims exceed actuarially determined estimates, are not covered by insurance, or reinsurers, if any, fail to meet their obligations, our results of operations and financial position could be adversely affected.
Risks related to operations, strategy, demand and competition:
Our hospitals and other facilities face competition for patients from other hospitals and health care providers.
The health care business is highly competitive, and competition among hospitals and other health care providers for patients has intensified in recent years. Generally, other hospitals and health care facilities in the communities we serve provide services similar to those offered bywe offer. Trends toward transparency and value-based purchasing may have an impact on our hospitals.competitive position, ability to obtain and maintain favorable contract terms, and patient volumes in ways that are difficult to predict. CMS publicizes on its HospitalCare Compare website performance data related to quality measures and data on patient satisfaction surveys that hospitals, home health agencies, hospices and various other types of Medicare-certified facilities submit in connection with their Medicare reimbursement. The HospitalCare Compare website provides an overall rating that synthesizes various quality measures into a single star rating for each hospital. Federal law provides for the future expansion of the number of quality measures that must be reported. Further, hospitals are currently required by law to publish online a list of their standard charges for itemshospital, home health agency and services. A CMS final rule implements expanded transparency requirements beginning in 2021. The rule was recently upheld by the D.C. Circuit Court of Appeals. It is unclear whether the final rule will be subject to further court challenges or other changes under the Biden administration.
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hospice. If any of our hospitals or other provider types achieve poor results (or results that are lower than our competitors) on quality measures or on patient satisfaction surveys, our competitive position could be negatively affected. Further, hospitals are required to publish online a list of their standard charges for all items and services, including discounted cash prices and payer-specific and de-identified negotiated charges, and must also publish a consumer-friendly list of standard charges for certain “shoppable” services or, alternatively, maintain an online price estimator tool for the shoppable services. HHS also requires health insurers to publish online charges negotiated with providers for health care services, and starting January 1, 2023, health insurers must provide online price comparison tools to help individuals get personalized cost estimates for covered items and services. The No Surprises Act imposes additional price transparency requirements, including requiring providers to send uninsured or self-pay patients (in advance of the date of the scheduled item or service or upon request) and health plans (prior to the scheduled date of the item or service) of insured patients a good faith estimate of the expected charges and diagnostic codes. HHS is deferring enforcement of certain requirements of the No Surprises Act applicable to providing estimates for insured individuals, and is also deferring enforcement with regard to good faith estimates sent to uninsured or self-pay patients that do not include expected charges for co-providers or co-facilities. It is not entirely clear how price transparency requirements will affect consumer behavior, our relationships with payers, or our ability to set and negotiate prices, but our competitive position could be negatively affected if our standard charges are higher or are perceived to be higher than the charges of our competitors, our competitive position could be negatively affected.
The number of freestanding specialty hospitals, surgery centers, emergency departments, urgent care centers and diagnostic and imaging centers in the geographic areas in which we operate has increased. Many individuals are seeking a broader range of services at outpatient facilities as a result of the growing availability of stand-alone outpatient health care facilities, the increase in payer reimbursement policies that restrict inpatient coverage and the increase in the services that can be provided on an outpatient basis, including high margin services. Consequently, most of our hospitals operate in a highly competitive environment, which may put pressure on our pricing, ability to contract with third-party payers and the Company’s strategy for volume growth. Some of the
Our hospitals compete with specialty hospitals and with both our own and unaffiliated freestanding ASCs and other outpatient providers for market share in certain high margin services and for quality physicians and personnel. If ASCs and other outpatient providers are better able to compete in this environment than our hospitals, our hospitals may experience a decline in patient volume, and we may experience a decrease in margin, even if those patients use our providers. In states that do not require a CON or other type of approval for the purchase, construction or expansion of health care facilities or services, competition in the form of new services, facilities and capital spending is more prevalent. Some states that have historically imposed CON or similar prior approval requirements have removed or are considering removing these requirements, which may reduce barriers to entry and increase competition in our service areas. Changes in licensure or other regulations and recognition of new provider types or payment models could also impact our competitive position. If our competitors are better able to attract patients, make capital expenditures and maintain modern and technologically upgraded facilities and equipment, recruit physicians, expand services or obtain favorable third-party payer contracts at their facilities than our hospitals and other providers, we may experience an overall decline in patient volume. See Item 1, “Business — Competition.”
Any increase in the volume of uninsured patients or deterioration in the collectability of uninsured and patient due accounts could adversely affect our results of operations.
The primary collection risks for our accounts receivable relate to the uninsured patient accounts and patient accounts for which the primary third-party payer has paid the amounts covered by the applicable agreement, but patient responsibility amounts (exclusions, deductibles and copayments) remain outstanding. Medicare reimburses hospitals for 65% of eligible Medicare bad debts. To be eligible for reimbursement, the amounts claimed must meet certain criteria, including that the debt is related to unpaid deductible or coinsurance amounts and that the hospital first attempted to collect the fees from the Medicare beneficiary.
Any increase in the amountvolume of uninsured patients or deterioration in the collectability of uninsured accounts receivable willcould adversely affect our cash flows and results of operations. Our facilities may experience growth in total uncompensated care as a result of a number of factors, including conditions impacting the overall economy and high
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unemployment bothlevels. In addition, legislative and regulatory changes, such as the effective elimination of which have been, and may continue to be, negatively impacted by theCOVID-19pandemic. Effective January 2019, Congress eliminated the financial penalty associated with the Affordable Care Act’s individual mandate. Further, final rules issued in 2018 expand the availability of association health plans and allow the sale of short-term, limited-duration health plans, neither of which are required to cover all of the essential health benefits mandated by the Affordable Care Act. These changesmandate, may impact the number of individuals that elect to obtain public or private health insurance or the scope of such coverage, if purchased. We are unable to predict what, if any, and when such changes will be made in the future.
We provide uninsured discounts and charity care for individuals, including for those residing in states that choose not to implement the Medicaid expansion or that modify the terms of the program, for undocumented aliens who are not permitted to enroll in an Exchange or government health care programs and for certain others who may not have insurance. Some patients may choose to enroll in lower cost Medicaid plans or other health insurance plans with lower reimbursement levels. We may also be adversely affected by the growth in patient responsibility accounts as a result of increases in the adoption of health plan structures that shift greater payment responsibility for care to individuals through greater exclusions and copayment and deductible amounts.
If our volume of patients with private health insurance coverage declines or we are unable to retain and negotiate favorable contracts with private third-party payers, including managed care plans, our revenues may be reduced.
Broad economic factors, resulting from theCOVID-19pandemic, including inflationary pressures, supply chain disruptions, labor shortages, increased unemployment and underemployment rates and reduced consumer spending and confidence, the continued shift of care to an outpatient setting and the aging population may impact our revenue mix. Private third-party payers, including HMOs, PPOs and other managed care plans, typically reimburse health care providers at a higher rate than Medicare, Medicaid or other government health care programs. Reimbursement rates are set forth by contract when our facilities are51.5%48.3%, 51.6% and 52.4%51.5% of our revenues for 2020, 20192022, 2021 and 2018,2020, respectively. As a result, our ability to maintain or increase patient volumes covered by private third-party payers and to maintain and obtain favorable contracts with private third-party payers significantly affects the revenues and operating results of our facilities.
Private third-party payers, including managed care plans, continue to demand discounted fee structures, and the ongoing trend toward consolidation among payers tends to increase their bargaining power over fee structures. Payers may utilize plan structures such as narrow networks and tiered networks that limit beneficiary provider choices, or impose significantly higher cost sharing obligations when care is obtained from providers in a disfavored tier. tier or otherwise shift greater financial responsibility for care to individuals.
Other health care providers may impact our ability to enter into managed care contracts or negotiate increases in our reimbursement and other favorable terms and conditions. For example, some of our competitors may negotiate exclusivity provisions with managed care plans or otherwise restrict the ability of managed care plans to contract with us. In addition to increasing negotiating leverage of private third-party payers, alignment efforts between third-party payers and health care providers may result in other competitive advantages, such as greater access to performance and pricing data. Our future success will depend, in part, on our ability to retain and renew our third-party payer contracts and enter into new contracts on terms favorable to us, which may be impacted by price transparency initiatives. For example, the No Surprises Act requires providers to send health plans of insured patients a good faith estimate of the expected charges and diagnostic codes prior to the scheduled date of the service or item. Further, hospitals are required to publish online payer-specific negotiated charges and de-identified minimum and maximum charges. In addition, starting January 1, 2023, health insurers must provide online price comparison tools to help individuals get personalized cost estimates for covered items and services. Cost-reduction strategies by large employer groups and their affiliates, such as directly contracting with a limited number of providers, may also limit our ability to negotiate favorable terms in our contracts and otherwise intensify competitive pressure. It is not clear what impact, if any, these and future health reform efforts or the repeal of, or further changes to, the Affordable Care Act will have on our ability to negotiate reimbursement increases and participate in third-party payer networks on favorable terms. If we are unable to retain and negotiate favorable contracts with third-party payers or experience reductions in payment increases or amounts received from third-party payers, our revenues may be reduced.
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Under early COVID-related legislation, states that maintain continuous Medicaid enrollment until the end of the month in which the PHE ends are eligible for a temporary increase in federal funds for state Medicaid expenditures. Under recent legislation, the continuous coverage requirement was decoupled from the PHE timeline and will now expire as of April 1, 2023, and the increase in federal funding will be phased out through calendar year 2023. The resumption of redeterminations for Medicaid enrollees may lead to coverage disruptions and dis-enrollments of current Medicaid enrollees. Furthermore, the number and identity of states that choose to expand or otherwise modify Medicaid programs and the terms of expansion and other program modifications continue to evolve. Some states have imposed individual health insurance mandates with financial penalties for noncompliance. Other states have explored or offer public health insurance options. These variables, among others, make it difficult to predict the number of uninsured individuals.
Changes to physician utilization practices and treatment methodologies, third-party payer controls designed to reduce inpatient services or surgical procedures and other factors outside our control that impact demand for medical services may reduce our revenues.
Controls imposed by Medicare, managed Medicare, Medicaid, managed Medicaid and private third-party payers designed to reduce admissions, intensity of services, surgical volumes and lengths of stay, in some instances referred to as “utilization review,” have affected and are expected to increasingly affect our facilities. Utilization review entails the review of the admission and course of treatment of a patient by third-party payers, and may involve prior authorization requirements. The Medicare program also issues national or local coverage determinations that restrict the circumstances under which Medicare pays for certain services. Inpatient
Volume, admission andthe Medicare program’s three-year phase outour operations may be impacted by expansion of in-home acute care models, and eventual elimination of the Inpatient Only List, a list of surgeries andour inpatient volumes may decline if various inpatient hospital procedures that are only coveredbecome eligible for reimbursement by Medicare when providedperformed in an inpatient setting, may reduce inpatient volumes.outpatient settings. These factors may reduce the demand for services we offer and decrease the reimbursement that we receive. Significant limits on the scope of services reimbursed, cost controls, changes to physician utilization practices, treatment methodologies, reimbursement rates and fees and other factors beyond our control could have a material, adverse effect on our business, financial position and results of operations.
We may encounter difficulty acquiring hospitals and other health care businesses, andencounter challenges integrating the operations of acquired hospitals and other health care businesses andand/or become liable for unknown or contingent liabilities as a result of acquisitions.
A component of our business strategy is acquiring hospitals and other health care businesses. We may encounter difficulty acquiring new facilities or other businesses as a result of competition from other purchasers that may be willing to pay purchase prices that are higher than we believe are reasonable. Antitrust enforcement in the health care industry is currently a priority of the Federal Trade Commission and the DOJ, including with respect to hospital and physician practice acquisitions. Some states require CONs in order to acquire a hospital or other facility, or to expand facilities or services. In addition, the acquisition of health care facilities often involves licensure approvals or reviews and complex change of ownership processes for Medicare and other payers. Further, many states have laws that restrict the conversion or sale of
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We may be unable to timely and effectively integrate hospitals and other businesses that we acquire with our ongoing operations, or we may experience delays implementing operating procedures and systems. Hospitals and other health care businesses that we acquire may have unknown or contingent liabilities, including liabilities for failure to comply with health care and other laws and regulations, medical and general professional liabilities, workers’ compensation liabilities and tax liabilities. Although we typically exclude significant liabilities from our acquisition transactions and seek indemnification from the sellers for these matters, we could experience difficulty enforcing those obligations, experience liability in excess of any indemnification obtained or otherwise incur material liabilities for the
Our facilities are heavily concentrated in Florida and Texas, which makes us sensitive to regulatory, economic, public health, environmental and competitive conditions and changes in those states.
We operated 185182 hospitals at December 31, 2020,2022, and 91 of those hospitals are located in Florida and Texas. Our Florida and Texas facilities’ combined revenues represented 49%50% of our consolidated revenues for the year ended December 31, 2020.2022. This geographic concentration makes us particularly sensitive to regulatory, economic, public health, environmental and competitive conditions and changes in those states. Any material change in the current payment programs or regulatory, economic, public health, environmental or competitive conditions in those states could have a disproportionate effect on our overall business results.
In addition, our hospitals and other facilities in Florida, Texas and other coastal states are located in hurricane-prone areas. In the past, hurricanes have had a disruptive effect on the operations of our hospitals and other facilities in Florida, Texas and other coastal states and the patient populations in those states. Global climate change could also increase the intensity or frequency of hurricanes or other natural disasters. Our business activities could be harmed by a particularly active hurricane season or even a single storm, either of which may be intensified by climate change, and the property insurance we obtain may not be adequate to cover losses from future hurricanes or other natural disasters.
Our business and operations are subject to risks related to climate change.
Global climate change presents both immediate and long-term physical risks (such as potential increases in the intensity or frequency of hurricanes, extreme weather conditions or other natural disasters) and risks associated with the transition to a low-carbon economy (such as regulatory or technology changes). These changes could result in, for example, temporary declines in the number of patients seeking our services, closures of our hospitals and related facilities, and supply chain disruptions, as well as increased costs of products, commodities and energy (including utilities), and disruptions in our information systems, which in turn could negatively impact our business and results of operations. In addition, certain of our operations and facilities are located in regions that may be disproportionately impacted by the physical risks of climate change (resulting in potential increases in the intensity or frequency of hurricanes, extreme weather conditions or other natural disasters), and we face the risk of losses incurred as a result of physical damage to our hospitals and related facilities and business interruptions caused by such events. We maintain property insurance coverage to address the impact of physical damage to our facilities and for business interruption losses. However, such insurance coverage may be insufficient to cover all losses and we may experience a material, adverse effect on our results of operations that is not recoverable through our insurance policies. Additionally, if we experience a significant increase in climate-related events that result in material losses we may be unable to obtain similar levels of property insurance coverage in the future. In addition, changes in consumer preferences and additional legislation and regulatory requirements, including those associated with the transition to a low-carbon economy, may increase costs associated with compliance, the operation of our facilities and supplies. Regulations limiting greenhouse gas emissions and energy inputs may also increase in coming years, which may adversely impact us through increased compliance costs for us and our suppliers and vendors. Our response to climate change, our climate change strategies, policies, goals, commitments and disclosure, and/or our ability to achieve our climate-related goals and commitments (which are subject to risks and uncertainties, many of which are outside of our control) could result in reputational harm as a result of negative public sentiment, regulatory scrutiny, litigation and reduced investor and stakeholder confidence.
We may be adversely affected if we are not able to achieve our environmental, social and governance (“ESG”) goals or otherwise meet the expectations of our stakeholders with respect to ESG matters.
We strive to deliver shared value through our business, and our diverse stakeholders expect us to make significant progress with respect to certain ESG-related matters. From time to time, we announce certain aspirations and goals relevant to our priority ESG matters. We periodically publish information about our ESG priorities, strategies, goals, targets and progress on our corporate website and update our ESG reporting from time to time. Achievement of these aspirations, targets, plans and goals is subject to risks and uncertainties, many of which are outside of our control, and it is possible that we may not achieve, or be perceived to have not achieved, our ESG goals or certain of our stakeholders
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might not be satisfied with our efforts, which could result in reputational harm as a result of negative public sentiment, regulatory scrutiny, litigation and reduced investor and stakeholder confidence. Certain challenges we face in the achievement of our ESG objectives are also captured within our ESG reporting, which is not incorporated by reference into and does not form any part of this Annual Report on Form 10-K or our other filings with the SEC. Standards for tracking and reporting ESG matters continue to evolve. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time to time or differ from those of others. This may result in a lack of consistent or meaningful comparative data from period to period or between us and other companies in the same industry. In addition, our processes and controls may not always comply with evolving standards for identifying, measuring and reporting ESG metrics, including ESG-related disclosures that may be required of public companies by the SEC, and such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future. A delay or inability to meet our goals and aspirations, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could adversely affect public perception of our business, employee morale or patient or shareholder support, expend corporate resources, result in substantial costs and expenses, result in legal or regulatory proceedings against the Company and negatively impact our financial condition and results of operations.
The industry trend toward value-based purchasing may negatively impact our revenues.
There is a trend in the health care industry toward value-based purchasing of health care services. These value-based purchasing programs include both public reporting of quality data and preventable adverse events tied to the quality and efficiency of care provided by facilities. Governmental programs including Medicare currently require hospitals, ASCs, home health agencies, hospices and other providers to report certain quality data to receive full reimbursement updates. In addition, Medicare does not reimburse for care related to certain preventable adverse events (also called “never events”). The Affordable Care Act also, and federal law prohibits the use of federal funds under the Medicaid program to reimburse providers for medical assistance provided to treat HACs. The 25% of hospitals with the worst risk-adjusted HAC scores in the designated performance period receive a 1% reduction in their inpatient PPS Medicare payments.
Hospitals with excess readmission rates for conditions designated by HHSCMS receive a reduction in their inpatient PPS operating Medicare payments for all Medicare inpatient discharges, not just discharges relating to the conditions subject to the excess readmission standard. The reduction in payments to hospitals with excess readmissions can be up to 3% of a hospital’s base payments.
CMS has implemented a value-based purchasing program for inpatient hospital services that reduces inpatient hospital payments for all discharges by 2% in each federal fiscal year. HHSCMS pools the amount collected from these reductions to fund payments to reward hospitals that meet or exceed certain quality performance standards established by HHS. HHS estimates that $1.9 billion in value-based incentive payments will be available to hospitals in federal fiscal year 2021CMS. CMS scores each hospital based on achievement (relative to other hospitals) and improvement (relative to the hospital’s own past performance). Hospitals that meet or exceed the quality performance standards will receive greater reimbursement under the value-based purchasing program than they would have otherwise.
In January 2022, CMS began implementing a nationwide expansion of the HHVBP Model. Under the model, home health agencies will receive increases or reductions to their Medicare fee-for-service payments of up to 5%, based on performance against specific quality measures relative to the performance of other home health providers. Calendar year 2023 is the first performance year under the expanded HHVBP Model, and data collected in 2023 will impact payments in calendar year 2025.
CMS has developed several alternative payment models that are intended to reduce costs and improve quality of care for Medicare beneficiaries and has signaled its intent to have states apply similar strategies in the Medicaid context. Examples of alternative payment models include bundled payment models in which, depending on whether overall CMS spending per episode exceeds or falls below a target specified by CMS and whether quality standards are met, hospitals may receive supplemental Medicare payments or owe repayments to CMS. Generally, participation in bundled payment programs is voluntary, but CMS has requiredcurrently requires hospitals in selected markets to participate in a bundled payment initiative for specified orthopedic procedures which is scheduled to run through September 30, 2021. CMS will require hospitalsand in selected markets to participate in bundled payment initiativesa model for end-stage renal disease treatment, which begantreatment. In addition, a mandatory radiation oncology model was expected to begin January 1, 2021, and radiation oncology, beginning as early as January 1, 2022.2023, but CMS has indefinitely delayed its implementation. CMS has indicated that it is developing more voluntary and mandatory bundled payment models. Participation in mandatory or voluntary demonstration projects, particularly demonstrations with the potential to affect payment, may negatively impact our results of operations.
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There are also several state-driven value-based care initiatives. For example, some states have aligned quality metrics across payers through legislation or regulation. Some private third-party payers are also transitioning toward alternative payment models or implementing other value-based care strategies. For example, many large private third-party payers currently require hospitals to report quality data, and several private third-party payers do not reimburse hospitals for certain preventable adverse events. Further, we have implemented a policy pursuant to which we do not bill patients or third-party payers for fees or expenses incurred due to certain preventable adverse events.
We expect value-based purchasing programs, including programs that condition reimbursement on patient outcome measures, to become more common and to involve a higher percentage of reimbursement amounts. It is unclear whether these and other alternative payment models will successfully coordinate care and reduce costs or whether they will decrease aggregate reimbursement. We are unable at this time to predict our future payments or whether we will be subject to payment reductions under these programs or how this trend will affect our results of operations. If we are unable to meet or exceed the quality performance standards under any applicable value-based purchasing program, perform at a level below the outcomes demonstrated by our competitors, or otherwise fail to effectively provide or coordinate the efficient delivery of quality health care services, our reputation in the industry may be negatively impacted, we may receive reduced reimbursement amounts and we may owe repayments to payers, causing our revenues to decline.
Risks related to macroeconomic conditions:
Our overall business results may suffer during periods of general economic weakness.
COVID-19 has adversely impacted, and may in the future adversely impact, economic conditions in the United States. Outside of the governmental response to COVID-19, budget deficits at the federal level and within some state and local government entities have had a negative impact on spending, and may continue to negatively impact spending for health and human service programs, including Medicare, Medicaid and similar programs, which represent significant third-party payer sources for our hospitals. TheCOVID-19pandemic has led, and may continue to lead, to a general worsening of economic conditions. In addition, weWe anticipate that the federal deficit, the growing magnitude of Medicare and Medicaid expenditures and the aging of the United StatesU.S. population will continue to place pressure on government health care programs.programs, and it is possible that future deficit reduction legislation will mandate additional Medicare spending reductions. Other risks we face during periods of economic weakness and high unemployment include potential declines in the population covered under managed care agreements, increased patient decisions to postpone or cancel elective and nonemergency health care procedures (including delaying surgical procedures), which may lead to poorer health and higher acuity interventions, potential increases in the uninsured and underinsured populations, increased adoption of health plan structures that shift financial responsibility to patients and further difficulties in collecting patient receivables for copayment and deductible receivables.
We are exposed to market risk related to changes in the market values of securities and interest rates.
We are exposed to market risk related to changes in market values of securities. Thepandemic has increased volatility of the capital and credit markets and has led to a general worsening ofadversely impacted economic conditions. The investments ofinvestment securities held by our 100% owned insurance subsidiaries were $504$473 million at December 31, 2020.2022. These investments are carried at fair value, with changes in unrealized gains and losses related to factors other than credit loss allowances being recorded as adjustments to other comprehensive income. At December 31, 2020,2022, we had a net unrealized gainlosses of $32$38 million on the insurance subsidiaries’ investment securities.
We are exposed to market risk related to market illiquidity. Investment securities of our insurance subsidiaries could be impaired by the inability to access the capital markets. Should the insurance subsidiaries require significant amounts of cash in excess of normal cash requirements to pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less than what we might otherwise have
51
been able to in a normal market environment. We may be required to recognize credit-related impairments on long-term investments in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to ratings downgrades or other issue specific factors.
We are also exposed to market risk related to changes in interest rates that impact the amount of the interest expense we incur with respect to our floating rate obligations as well as the value of certain investments. We
Risks related to ownership of our common stock:
There can be no assurance that we will continue to pay dividends.
In January 2018, the Board of Directors initiated a cash dividend program under which the Company commenced a regular quarterly cash dividend. However, in response to theCOVID-19pandemic, the Company took the precautionary step to enhance its financial flexibility by suspending its quarterly dividend program in the second quarter of 2020. In February 2021,During 2022, the Board of Directors approveddeclared four quarterly dividends of $0.56 per share, or $2.24 per share in the resumptionaggregate, on our common stock. On January 26, 2023, our Board of Directors declared a quarterly dividend of $0.60 per share on our common stock payable on March 31, 2023 to stockholders of record at the Company’s quarterly cash dividend program following evaluationclose of the Company’s financial position.
The declaration, amount and timing of such dividends are subject to capital availability and determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws and our agreements applicable to the declaration and payment of cash dividends. Our ability to pay dividends will depend upon, among other factors, our cash flows from operations, our available capital and potential future capital requirements for strategic transactions, including acquisitions, debt service requirements, share repurchases and investing in our existing markets as well as our results of operations, financial condition and other factors beyond our control that our Board of Directors may deem relevant. A reduction in or suspension or elimination of our dividend payments could have a negative effect on our stock price.
Certain of our investors may continue to have influence over us.
On November 17, 2006, HCA Inc. was acquired by a private investor group, including affiliates of HCA founder, Dr. Thomas F. Frist, Jr. and certain other investors. Through their investment in Hercules Holding II and other holdings, certain of the Frist-affiliated investors continue to hold a significant interest in our outstanding common stock (approximately 21%25% as of January 31, 2021)2023). In addition, pursuant to a shareholders agreement we entered into with Hercules Holding II and the Frist-affiliated investors, certain representatives of these investors have the continued right to nominate certain of the members of our Board of Directors. As a result, certain of these investors potentially have the ability to influence our decisions to enter into corporate transactions (and the terms thereof) and prevent changes in the composition of our Board of Directors andor any transaction that requires stockholder approval.
Item 1B.Unresolved Staff Comments
None.
52
Item 2.Properties
The following table lists, by state, the number of hospitals (general, acute care, psychiatric and rehabilitation) directly or indirectly owned and operated by us as of December 31, 2020:
State | Hospitals | Beds | ||||||
Alaska | 1 | 250 | ||||||
California | 5 | 1,852 | ||||||
Colorado | 7 | 2,451 | ||||||
Florida | 45 | 12,491 | ||||||
Georgia | 9 | 2,477 | ||||||
Idaho | 2 | 454 | ||||||
Indiana | 1 | 278 | ||||||
Kansas | 4 | 1,374 | ||||||
Kentucky | 2 | 384 | ||||||
Louisiana | 3 | 923 | ||||||
Missouri | 5 | 1,058 | ||||||
Nevada | 3 | 1,452 | ||||||
New Hampshire | 3 | 418 | ||||||
North Carolina | 7 | 1,181 | ||||||
South Carolina | 3 | 951 | ||||||
Tennessee | 13 | 2,632 | ||||||
Texas | 46 | 13,456 | ||||||
Utah | 8 | 1,011 | ||||||
Virginia | 11 | 3,284 | ||||||
International | ||||||||
England | 7 | 888 | ||||||
| 185 | 49,265 | |||||||
State |
| Hospitals |
|
| Beds |
| ||
Alaska |
|
| 1 |
|
|
| 250 |
|
California |
|
| 5 |
|
|
| 1,883 |
|
Colorado |
|
| 7 |
|
|
| 2,471 |
|
Florida |
|
| 46 |
|
|
| 12,988 |
|
Georgia |
|
| 5 |
|
|
| 1,487 |
|
Idaho |
|
| 2 |
|
|
| 442 |
|
Indiana |
|
| 1 |
|
|
| 278 |
|
Kansas |
|
| 4 |
|
|
| 1,400 |
|
Kentucky |
|
| 2 |
|
|
| 384 |
|
Louisiana |
|
| 3 |
|
|
| 923 |
|
Missouri |
|
| 5 |
|
|
| 1,072 |
|
Nevada |
|
| 3 |
|
|
| 1,524 |
|
New Hampshire |
|
| 3 |
|
|
| 432 |
|
North Carolina |
|
| 7 |
|
|
| 1,181 |
|
South Carolina |
|
| 3 |
|
|
| 989 |
|
Tennessee |
|
| 14 |
|
|
| 2,742 |
|
Texas |
|
| 45 |
|
|
| 13,609 |
|
Utah |
|
| 8 |
|
|
| 1,038 |
|
Virginia |
|
| 11 |
|
|
| 3,300 |
|
|
|
|
|
|
|
| ||
International |
|
|
|
|
|
| ||
England |
|
| 7 |
|
|
| 888 |
|
|
|
| 182 |
|
|
| 49,281 |
|
In addition to the hospitals listed in the above table, we directly or indirectly operate 121126 freestanding surgery centers and 21 freestanding endoscopy centers. We also operate medical office buildings in conjunction with some of our hospitals. These office buildings are primarily occupied by physicians who practice at our hospitals. FourteenTwelve of our general, acute care hospitals and twofive of our other properties have been mortgaged to support our obligations under our senior secured cash flow credit facility and first lien secured notes.
We maintain our headquarters in approximately 2,072,0002,031,000 square feet of space in the Nashville, Tennessee area. In addition to the headquarters in Nashville, we maintain regional service centers related to our shared services initiatives. These service centers are located in markets in which we operate hospitals.
We believe our headquarters, hospitals and other facilities are suitable for their respective uses and are, in general, adequate for our present needs. Our properties are subject to various federal, state and local statutes and ordinances regulating their operation. Management does not believe that compliance with such statutes and ordinances will materially affect our financial position or results of operations.
Item 3.Legal Proceedings
The information set forth in Note 1110 – Contingencies in the notes to the consolidated financial statements is incorporated herein by reference.
Item 4.Mine Safety Disclosures
None.
53
During February 2021, January 20202022 and 2019,January 2023, our Board of Directors authorized share repurchase programs for up to $4 billion ($2 billion for each authorization) of our outstanding common stock. During March 2020 in response to the risks theCOVID-19pandemic presents to our business, we announced the suspension of our share repurchase programs. There were no share repurchases of our outstanding common stock during the second through fourth quarters of 2020. At December 31, 2020, we had $2.800 billion of repurchase authorization available under the January 2019 and 2020 authorizations. During February 2021, our Board of Directors authorized the resumption of the share repurchase program, and an additional $6 billion, was authorized$8 billion and $3 billion, respectively, for share repurchases of the Company’s outstanding common stock ($8.8stock. The February 2021 authorization was completed during 2022, and at December 31, 2022, there was $1.586 billion of totalshare repurchase authorization includingthat remained available under the February 2021 authorization)January 2022 authorization. All repurchases made during the fourth quarter of 2022, as detailed below, were made pursuant to the January 2022 share repurchase authorization and were made in the open market.
The following table provides certain information with respect to our repurchases of common stock from October 1, 2022 through December 31, 2022 (dollars in billions, except per share amounts).
Period |
| Total Number |
|
| Average Price |
|
| Total Number |
|
| Approximate |
| ||||
October 2022 |
|
| 1,753,666 |
|
| $ | 205.58 |
|
|
| 1,753,666 |
|
| $ | 2.745 |
|
November 2022 |
|
| 2,733,018 |
|
| $ | 222.84 |
|
|
| 2,733,018 |
|
| $ | 2.136 |
|
December 2022 |
|
| 2,294,497 |
|
| $ | 239.71 |
|
|
| 2,294,497 |
|
| $ | 1.586 |
|
Total for Fourth Quarter 2022 |
|
| 6,781,181 |
|
| $ | 224.09 |
|
|
| 6,781,181 |
|
| $ | 1.586 |
|
Our common stock is traded on the New York Stock Exchange (“NYSE”) (symbol “HCA”). During January 2020,2022, our Board of Directors declared onefour quarterly dividenddividends of $0.43$0.56 per share, or $2.24 per share in the aggregate, on our common stock. In response to theCOVID-19pandemic concerns, the Company suspended its quarterly dividend program for the second, third and fourth quarters of 2020. On February 1, 2021,January 26, 2023, our Board of Directors reinstated the quarterly dividend program and declared a quarterly dividend of $0.48$0.60 per share on our common stock payable on March 31, 20212023 to stockholders of record at the close of business on March 17, 2021.2023. Future declarations of quarterly dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors. Our ability to declare future dividends may also from time to time be limited by the terms of our debt agreements. At the close of business on February 8, 2021,1, 2023, there were approximately 400 holders of record of our common stock.
54
STOCK PERFORMANCE GRAPH
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among HCA Healthcare, Inc., the S&P 500 Index and the S&P Health Care Index
12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | |||||||||||||||||||
HCA Healthcare, Inc. | $ | 100.00 | $ | 109.45 | $ | 129.88 | $ | 186.23 | $ | 223.94 | $ | 250.01 | ||||||||||||
S&P 500 | 100.00 | 111.96 | 136.40 | 130.42 | 171.49 | 203.04 | ||||||||||||||||||
S&P Health Care | 100.00 | 97.31 | 118.79 | 126.47 | 152.81 | 173.36 | ||||||||||||||||||
|
| 12/31/2017 |
|
| 12/31/2018 |
|
| 12/31/2019 |
|
| 12/31/2020 |
|
| 12/31/2021 |
|
| 12/31/2022 |
| ||||||
HCA Healthcare, Inc. |
| $ | 100.00 |
|
| $ | 143.38 |
|
| $ | 172.41 |
|
| $ | 192.49 |
|
| $ | 303.33 |
|
| $ | 286.20 |
|
S&P 500 |
|
| 100.00 |
|
|
| 95.62 |
|
|
| 125.72 |
|
|
| 148.85 |
|
|
| 191.58 |
|
|
| 156.89 |
|
S&P Health Care |
|
| 100.00 |
|
|
| 106.47 |
|
|
| 128.64 |
|
|
| 145.93 |
|
|
| 184.07 |
|
|
| 180.47 |
|
The graph shows the cumulative total return to our stockholders beginning as offor the five-year period ended December 31, 2015 through December 31, 2020,2022, in comparison to the cumulative returns of the S&P 500 Index and the S&P Health Care Index. The graph assumes $100 invested on December 31, 20152017 in our common stock and in each index with the subsequent reinvestment of dividends. The stock performance shown on the graph represents historical stock performance and is not necessarily indicative of future stock price performance.
Item 6. [Reserved]
55
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The accompanying consolidated financial statements present certain information with respect to the financial position, results of operations and cash flows of HCA Healthcare, Inc. which should be read in conjunction with the following discussion and analysis. The terms “HCA,” “Company,” “we,” “our,” or “us,” as used herein, refer to HCA Healthcare, Inc. and its affiliates. The term “affiliates” means direct and indirect subsidiaries of HCA Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners.
Forward-Looking Statements
This annual report on Formwhichthat contain “forward-looking statements”statements,” within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include statements regarding expected share-based compensation expense, expected capital expenditures, expected dividends, expected share repurchases, expected net claim payments, expected inflationary pressures and all other statements that do not relate solely to historical or current facts, and can be identified by the use of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These forward-looking statements are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control, which could significantly affect current plans and expectations and our future financial position and results of operations. These factors include, but are not limited to, (1) developments related topandemic;spread of virus strains with new epidemiological characteristics; the volume of canceled or rescheduled procedures and the volume and acuity oftheCOVID-19pandemic;COVID-19; the impact and terms (including the termination or expiration) of government and administrative regulation and stimulus and relief measures (including the Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Paycheck Protection Program and Health Care Enhancement Act, the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021 (“ARPA”) and other enacted and potential future legislation); and whether various stimulus and relief programs continue or new similar programs are enacted in the future; changes in revenues due to declining patient volumes, changes in payer mix, and deteriorating macroeconomic conditions (including increases in uninsured and underinsured patients); and capacity constraints; potential increased expenses related to inflation or labor, supply chain or other expenditures; workforce disruptions; supply shortages and disruptions; and the timing, availability and availabilityadoption of effective medical treatments and vaccines (including boosters), (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 theCOVID-19pandemic which could impact us from a financial perspective, (3) the impact of current and future federal and state health reform initiatives and possible changes to other federal, state or local laws and regulations affecting the health care industry, including but not limited to, 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, oradditional changes to the Affordable Care Act, or additional changes to its implementation, the possible enactment of additional federal or state health care reformsinterpretation (including through executive orders and possible changes to other federal, state or local laws or regulations affecting the health care industry, includingcourt challenges), and proposals to expand coverage of federally-funded insurance programs as an alternative to private insurance or establish a single-payer system (such reforms often referred to as “Medicare for All”), and also including any such laws or governmental regulations which are adopted in response to theCOVID-19pandemic, (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 those required under the Pay-As-You-Go Act of 2010 (“PAYGO Act”) as a result of the federal budget deficit impact of the ARPA, 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
56
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Forward-Looking Statements (continued)
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, physical risks from climate change 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 this annual report on Form
COVID-19
We believe the extent of theCOVID-19pandemic’sCOVID-19’s impact on our operating results and financial condition has been and willcould 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 severity or duration of the pandemic, including whether there will be additional periods of increases in the number of COVID-19 cases in the areas in which we operate, the rollout and availability of effective medical treatments and vaccines, the efficacy of public health controls, including vaccines, and the impact of any mutations of the virus; the scope and duration ofstay-at-homepractices and business closures and restrictions; recommended or required 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 how long or how severely the pandemicto what extent COVID-19 will impact our business. If we experience declines in cash flows and results of operations, such declines could 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.
2022 Operations Summary
Net income attributable to HCA Healthcare, Inc. totaled $3.754$5.643 billion, or $10.93$19.15 per diluted share, for 2020,2022, compared to $3.505$6.956 billion, or $10.07$21.16 per diluted share, for 2019.2021. The 20202022 results included $60 million, or $0.13 per diluted share, of employee retention payroll tax credits, as provided for by the CARES Act. The 2020 results also include lossesgains on sales of facilities of $7 million,$1.301 billion, or $0.02$2.46 per diluted share, and losses on retirement of debt of $295$78 million, or $0.66$0.20 per diluted share. The 20192021 results include gains on sales of facilities of $18 million,$1.620 billion, or $0.04$3.69 per diluted share, and losses on retirement of debt of $211$12 million, or $0.47$0.03 per diluted share. Revenues for 2020 include $55 million, or $0.12 per diluted share, related to the settlement of Medicare outlier calculations for prior periods and $69 million, or $0.15 per diluted share, related to the resolution of transaction price differences regarding certain services performed in prior periods. Revenues for 2019 include $86 million, or $0.19 per diluted share, related to the resolution of transaction price differences regarding certain services performed in prior periods. During 2020 and 2019, we recorded reductions to the provision for professional liability risks of $112 million, or $0.25 per diluted share, and $50 million, or $0.11 per diluted share, respectively. Our provisions for income taxes for 20202022 and 2019 included2021 include tax benefits of $92$77 million, or $0.27$0.26 per diluted share, and $65$119 million, or $0.19$0.36 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 343.605294.666 million shares and 348.226328.752 million shares for the years ended December 31, 20202022 and 2019,2021, respectively.
Revenues increased to $51.533$60.233 billion for 20202022 from $51.336$58.752 billion for 2019.2021. Revenues increased 0.4%2.5% and declined 0.1%3.2%, respectively, on a consolidated basis and on a same facility basis for 2020,2022, compared to 2019.2021. The consolidated revenues increase can be primarily attributed to the netcombined impact of a 10.5%0.4% increase in revenue per equivalent admission offset byand a 9.2% decline2.1% increase in equivalent admissions. The same facility revenues decline
During 2020,2022, consolidated admissions declined 4.7%0.7% and same facility admissions declined 4.8%increased 0.5%, compared to 2019.2021. Inpatient surgical volumes declined 7.8%were flat on both a consolidated basis and increased 0.9% on a same facility basis during 2020,2022, compared to 2019.2021. Outpatient surgical volumes declined 12.6%increased 1.5% on a consolidated basis and declined 12.4%increased 1.8% on a same facility basis during 2020,2022, compared to 2019.2021. Emergency room visits declined 18.7%increased 5.9% on a consolidated basis and declined 18.8%increased 7.6% on a same facility basis during 2020,2022, compared to 2019.
The estimated cost of total uncompensated care declined $250increased $141 million for 2020,2022, compared to 2019.2021. Consolidated and same facility uninsured admissions both declined 7.0%6.0% and 4.6%, respectively, and consolidated and same facility uninsured emergency room visits declined 20.9%increased 4.4% and 21.0%6.6%, respectively, for 2020,2022, compared to 2019.
Interest expense totaled $1.584$1.741 billion for 2020,2022, compared to $1.824$1.566 billion for 2019.2021. The $240$175 million declineincrease in interest expense for 20202022 was primarily due to declinesan increase in both the average debt balance, andwhich was partially offset by a decline in the average effective interest rate.
Cash flows from operating activities increased $1.630 billion,declined $437 million, from $7.602$8.959 billion for 20192021 to $9.232$8.522 billion for 2020.2022. The increasedecline in cash flows from operating activities was related primarily related to the increasea negative change in working capital items of $649 million, mainly from a decline in accounts payable and accrued expenses, and a decline in net income of $687 million, excluding losses and gains on sales of facilities and losses on retirement of debt, offset by a decline in cash payments for interest and income taxes of $330$847 million and positive changes in working capital items of $1.366 billion, primarily from the increases in accounts payable and accrued expenses and the collection of accounts receivable.
57
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Business Strategy
We are committed to providing the communities we serve with high quality, convenient and cost-effective health care while growing our business and creating long-term value for our stockholders. We strive to be the providerhealth care system of choice in the communities we serve by developing comprehensive networks locally and to support our operationssupporting these networks with unique enterprise capabilitiesexpertise and best in class economies of scale. Our strategy is organized around a framework that seeks to drive sustained growth by delivering operational excellence, attracting exceptional physicians and other health care professionals, developing comprehensive services, creating greater access, and coordinating higher quality care for patients. To achieve these objectives, we align our efforts around the following growth agenda:
Grow Our Presence in Existing Markets.
Achieve Industry-Leading Performance in Clinical, Operational and Satisfaction Measures.
Recruit and EmployRetain Physicians and Other Health Care Professionals to Meet the NeedsNeed for High Quality Health Services.
Continue to Leverage OurUtilize Economies of Scale and Market Positions to Grow the Company.
Pursue a Disciplined Development Strategy.
Our strategy also emphasizes investments that advance our clinical systems and we believedigital capabilities, transform care models with innovative care solutions, expand our size, scale, national presenceworkforce development programs and access to capital will position us well to participate in any such consolidation.
58
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. Our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results may differ from these estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenues
Revenues are recorded during the period the health care services are provided, based upon the estimated amounts due from payers. Estimates of contractual allowances under managed care health plans are based upon the payment terms specified in the related contractual agreements. Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. The estimated reimbursement amounts are made on a payer-specific basis and are recorded based on the best information available regarding management’s
Patients treated at hospitals forwereare eligible for charity care, and we limit the patient responsibility amounts for these patients to a percentage of their annual household income, computed on a sliding scale based upon their annual income and the applicable percentage of the federal poverty level. Patients treated at hospitals for non-elective care, who have income above 400% of the federal poverty level, wereare eligible for certain other discounts which limit the patient responsibility amounts for these patients to a percentage of their annual household income, computed on a sliding scale based upon their annual income and the applicable percentage of the federal poverty level. We apply additional discounts to limit patient responsibility for certain emergency services. The federal poverty level is established by the federal government and is based on income and family size. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care. We may attempt to provide assistance to uninsured patients to help determine whether they may qualify for Medicaid, other federal or state assistance, or charity care. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.
Implicit price concessions relate primarily to amounts due directly from patients. Estimated implicit price concessions are recorded for all uninsured accounts, regardless of the age of those accounts. Accounts are written off when all reasonable collection efforts have been performed. The estimates for implicit price concessions are based upon management’s assessment of historical writeoffs and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. Management relies on the results of detailed reviews of historical writeoffs and collections at facilities that represent a majority of our revenues and accounts receivable (the “hindsight analysis”) as a primary source of information in estimating the collectability of our accounts receivable. We perform the hindsight analysis quarterly, utilizing rolling twelve-months accounts receivable collection and writeoff data. We believe our quarterly updates to the estimated implicit price concession amounts at each of our hospital facilities provide reasonable estimates of our revenues and valuations of our accounts receivable. These routine, quarterly changes
59
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Critical Accounting Policies and December 31, 2019, estimated implicit price concessions of $6.108 billion and $6.953 billion, respectively, had been recorded to adjust our revenues and accounts receivable to the estimated amounts we expect to collect.
Revenues (continued)
To quantify the total impact of and 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 years ended December 31, follows (dollars in millions):
2020 | 2019 | 2018 | ||||||||||
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization) | $ | 44,271 | $ | 44,118 | $ | 40,035 | ||||||
Cost-to-charges | 12.0 | % | 12.0 | % | 12.4 | % | ||||||
Total uncompensated care | $ | 29,029 | $ | 31,105 | $ | 26,757 | ||||||
Multiply by the cost-to-charges | 12.0 | % | 12.0 | % | 12.4 | % | ||||||
Estimated cost of total uncompensated care | $ | 3,483 | $ | 3,733 | $ | 3,318 | ||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Patient care costs (salaries and benefits, supplies, other operating |
| $ | 51,180 |
|
| $ | 49,074 |
|
| $ | 44,271 |
|
Cost-to-charges ratio (patient care costs as percentage of gross |
|
| 11.0 | % |
|
| 11.3 | % |
|
| 12.0 | % |
Total uncompensated care |
| $ | 31,734 |
|
| $ | 29,642 |
|
| $ | 29,029 |
|
Multiply by the cost-to-charges ratio |
|
| 11.0 | % |
|
| 11.3 | % |
|
| 12.0 | % |
Estimated cost of total uncompensated care |
| $ | 3,491 |
|
| $ | 3,350 |
|
| $ | 3,483 |
|
Management expects a continuation of the challenges related to the collection of the patient due accounts. Adverse changes in the percentage of our patients having adequate health care coverage, increases in patient responsibility amounts under certain health care coverages, general economic conditions, patient accounting service center operations, payer mix, or trends in federal, state, and private employer health care coverage could affect the collection of accounts receivable, cash flows and results of operations.
Professional Liability Claims
We, along with virtually all health care providers, operate in an environment with professional liability risks. Our facilities are insured by our 100% owned insurance subsidiary for losses up to $50$75 million per occurrence, subject, in most cases, to a $15 million per occurrence self-insured retention. The insurance subsidiary has obtained reinsurance for professional liability risks generally above a retention level of either $25 million or $35 million per occurrence, depending on the jurisdiction for the related claim. We purchase excess insurance on an occurrence reported basis for losses in excess of $50 million per occurrence.amounts insured by our insurance subsidiary. Provisions for losses related to professional liability risks were $435$517 million, $497$453 million and $447$435 million for the years ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively. During 2020, 20192022, 2021 and 2018,2020, we recorded reductions to the provision for professional liability risks of $112$55 million, $50$87 million and $70$112 million, respectively, due to the receipt of updated actuarial information.
Reserves for professional liability risks represent the estimated ultimate cost of all reported and unreported losses incurred through the respective consolidated balance sheet dates. The estimated ultimate cost includes estimates of direct expenses and fees paid to outside counsel and experts, but does not include the general overhead costs of our insurance subsidiary or corporate office. Individual case reserves are established based upon the particular circumstances of each reported claim and represent our estimates of the future costs that will be paid on reported claims. Case reserves are reduced as claim payments are made and are adjusted upward or downward as our estimates regarding the amounts of future losses are revised. Once the case reserves for known
60
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Critical Accounting Policies and Estimates (Continued)
Professional Liability Claims (continued)
Reserves and provisions for professional liability risks are based upon actuarially determined estimates. The estimated reserve ranges, net of amounts receivable under reinsurance contracts, were $1.710$1.802 billion to $2.050$2.159 billion at December 31, 20202022 and $1.589$1.752 billion to $1.903$2.098 billion at December 31, 2019.2021. Our estimated reserves for professional liability claims may change significantly if future claims differ from expected trends. We perform sensitivity analyses which model the volatility of key actuarial assumptions and monitor our reserves for adequacy relative to all our assumptions in the aggregate. Based on our analysis, we believe the estimated professional liability reserve ranges represent the reasonably likely outcomes for ultimate losses. We consider the number and severity of claims to be the most significant assumptions in estimating reserves for professional liabilities. A 2.5% change in the expected frequency trend could be reasonably likely and would increase the reserve estimate by $26$29 million or reduce the reserve estimate by $25$28 million. A 2.5% change in the expected claim severity trend could be reasonably likely and would increase the reserve estimate by $126$135 million or reduce the reserve estimate by $116$123 million. We believe adequate reserves have been recorded for our professional liability claims; however, due to the complexity of the claims, the extended period of time to resolve the claims and the wide range of potential outcomes, our ultimate liability for professional liability claims could change by more than the estimated sensitivity amounts and could change materially from our current estimates.
The reserves for professional liability risks cover approximately 2,3002,000 and 2,100 individual claims at both December 31, 20202022 and 20192021, respectively, and estimates for unreported potential claims. The time period required to resolve these claims can vary depending upon the jurisdiction and whether the claim is settled or litigated. The average time period between the occurrence and final resolution for our professional liability claims is approximately fourfive years, although the facts and circumstances of each individual claim can result in an
Reserves for professional liability risks were $1.963$2.043 billion and $1.827$2.022 billion at December 31, 20202022 and 2019,2021, respectively. The current portion of these reserves, $477$515 million and $457$508 million at December 31, 20202022 and 2019,2021, respectively, is included in “other accrued expenses.” Obligations covered by reinsurance and excess insurance contracts are included in the reserves for professional liability risks, as we remain liable to the extent reinsurers and excess insurance carriers do not meet their obligations. Reserves for professional liability risks (net of $39$60 million and $46$55 million receivable under reinsurance and excess insurance contracts at December 31, 20202022 and 2019,2021, respectively) were $1.924$1.983 billion and $1.781$1.967 billion at December 31, 20202022 and 2019,2021, respectively. The estimated total net reserves for professional liability risks at December 31, 20202022 and 20192021 are
Changes in our professional liability reserves, net of reinsurance recoverable, for the years ended December 31, are summarized in the following table (dollars in millions):
2020 | 2019 | 2018 | ||||||||||
Net reserves for professional liability claims, January 1 | $ | 1,781 | $ | 1,692 | $ | 1,603 | ||||||
Provision for current year claims | 519 | 499 | 486 | |||||||||
Favorable development related to prior years’ claims | (84 | ) | (2 | ) | (39 | ) | ||||||
Total provision | 435 | 497 | 447 | |||||||||
Payments for current year claims | 5 | 8 | 3 | |||||||||
Payments for prior years’ claims | 287 | 400 | 355 | |||||||||
Total claim payments | 292 | 408 | 358 | |||||||||
Net reserves for professional liability claims, December 31 | $ | 1,924 | $ | 1,781 | $ | 1,692 | ||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Net reserves for professional liability claims, January 1 |
| $ | 1,967 |
|
| $ | 1,924 |
|
| $ | 1,781 |
|
|
|
|
|
|
|
|
|
|
| |||
Provision for current year claims |
|
| 538 |
|
|
| 530 |
|
|
| 519 |
|
Favorable development related to prior years’ claims |
|
| (21 | ) |
|
| (77 | ) |
|
| (84 | ) |
Total provision |
|
| 517 |
|
|
| 453 |
|
|
| 435 |
|
|
|
|
|
|
|
|
|
|
| |||
Payments for current year claims |
|
| 4 |
|
|
| 5 |
|
|
| 5 |
|
Payments for prior years’ claims |
|
| 493 |
|
|
| 379 |
|
|
| 287 |
|
Total claim payments |
|
| 497 |
|
|
| 384 |
|
|
| 292 |
|
|
|
|
|
|
|
|
|
|
| |||
Effect of new retroactive reinsurance contracts |
|
| (4 | ) |
|
| (26 | ) |
|
| — |
|
Net reserves for professional liability claims, December 31 |
| $ | 1,983 |
|
| $ | 1,967 |
|
| $ | 1,924 |
|
61
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Critical Accounting Policies and Estimates (Continued)
Income Taxes
We calculate our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences that arise from the recognition of items in different periods for tax and accounting purposes. Deferred tax assets generally represent the tax effects of amounts expensed in our income statement for which tax deductions will be claimed in future periods. Interest and penalties payable to taxing authorities are included as a component of our provision for income taxes. We have elected to treat taxes incurred on global intangible
Although we believe we have properly reported taxable income and paid taxes in accordance with applicable laws, federal, state or foreign taxing authorities may challenge our tax positions upon audit. Significant judgment is required in determining and assessing the impact of uncertain tax positions. We report a liability for unrecognized tax benefits from uncertain tax positions taken or expected to be taken in our income tax returns. During each reporting period, we assess the facts and circumstances related to uncertain tax positions. If the realization of unrecognized tax benefits is deemed probable based upon new facts and circumstances, the estimated liability and the provision for income taxes are reduced in the current period. Final audit results may vary from our estimates.
Results of Operations
Revenue/Volume Trends
Our revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charge and negotiated payment rates for such services. Patient volumes and the related revenues were negatively impacted by COVID-19 beginning in the first half of 2020, and subsequent periods through the first half of 2022 have experienced fluctuations in COVID-19 volumes and revenues through the various surges, impacting comparisons for most of our patient volume and revenues operating statistics. Gross charges typically do not reflect what our facilities are actually paid. Our facilities have entered into agreements with third-party payers, including government programs and managed care health plans, under which the facilities are paid based upon the cost of providing services, predetermined rates per diagnosis, fixed per diem rates or discounts from gross charges. We do not pursue collection of amounts
Revenues increased 0.4%2.5% to $60.233 billion for 2022 from $58.752 billion for 2021 and increased 14.0% for 2021 from $51.533 billion for 2020 from $51.336 billion for 2019 and increased 10.0% for 2019 from $46.677 billion for 2018.2020. The increase in revenues in 20202022 can be primarily attributed to the netcombined impact of a 10.5%0.4% increase in revenue per equivalent admission offset byand a 9.2% decline2.1% increase in equivalent admissions compared to the prior year. The increase in revenues in 20192021 can be primarily attributed to the combined impact of a 3.2%6.8% increase in revenue per equivalent admission and a 6.6%6.8% increase in equivalent admissions compared to the prior year.
Same facility revenues declined 0.1%increased 3.2% for the year ended December 31, 20202022 compared to the year ended December 31, 20192021 and increased 5.9%14.4% for the year ended December 31, 20192021 compared to the year ended December 31, 2018.2020. The 0.1% decline3.2% increase for 20202022 can be primarily attributed to the net impact of a 9.3%3.3% increase in equivalent admissions and a 0.1% decline in same facility equivalent admissions offset by a 10.1% increase in same facility revenue per equivalent admission and.admission. The 5.9%14.4% increase for 20192021 can be primarily attributed to the combined impact of a 2.3%6.3% increase in same facility revenue per equivalent admission and a 3.5%7.6% increase in same facility equivalent admissions.
Consolidated admissions declined 4.7%0.7% during 20202022 compared to 20192021 and increased 5.2%4.0% during 20192021 compared to 2018.2020. Consolidated surgeries declined 10.9%increased 1.0% during 20202022 compared to 20192021 and increased 3.7%8.9% during 20192021 compared to 2018.2020. Consolidated emergency room visits declined 18.7%increased 5.9% during 20202022 compared to 20192021 and increased 4.5%13.8% during 20192021 compared to 2018.
Same facility admissions declinedincreased 0.5% during 2022 compared to 2021 and increased 4.8% during 20202021 compared to 2019 and increased 2.8% during 2019 compared to 2018.2020. Same facility surgeries declined 10.7%increased 1.5% during 20202022 compared to 20192021 and increased 1.4%9.0% during 20192021 compared to 2018.2020. Same facility emergency room visits declined 18.8%increased 7.6% during 20202022 compared to 20192021 and increased 2.8%15.1% during 20192021 compared to 2018.
62
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
Same facility uninsured emergency room visits increased 6.6% and same facility uninsured admissions declined 4.6% during 2022 compared to 2021. Same facility uninsured emergency room visits declined 21.0%6.3% and same facility uninsured admissions declined 7.0%3.5% during 20202021 compared to 2019. Same facility uninsured emergency room visits increased 3.9% and same facility uninsured admissions increased 3.7% during 2019 compared to 2018.
The approximate percentages of our admissions related to Medicare, managed Medicare, Medicaid, managed Medicaid, managed care and insurers and the uninsured for the years ended December 31, 2020, 20192022, 2021 and 20182020 are set forth below.
Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Medicare | 26 | % | 29 | % | 30 | % | ||||||
Managed Medicare | 20 | 18 | 17 | |||||||||
Medicaid | 5 | 5 | 5 | |||||||||
Managed Medicaid | 12 | 12 | 12 | |||||||||
Managed care and insurers | 29 | 28 | 28 | |||||||||
Uninsured | 8 | 8 | 8 | |||||||||
100 | % | 100 | % | 100 | % | |||||||
|
| Years Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Medicare |
|
| 22 | % |
|
| 23 | % |
|
| 26 | % |
Managed Medicare |
|
| 23 |
|
|
| 21 |
|
|
| 20 |
|
Medicaid |
|
| 4 |
|
|
| 5 |
|
|
| 5 |
|
Managed Medicaid |
|
| 14 |
|
|
| 13 |
|
|
| 12 |
|
Managed care and insurers |
|
| 30 |
|
|
| 31 |
|
|
| 29 |
|
Uninsured |
|
| 7 |
|
|
| 7 |
|
|
| 8 |
|
|
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
The approximate percentages of our inpatient revenues related to Medicare, managed Medicare, Medicaid, managed Medicaid, and managed care and insurers for the years ended December 31, 2020, 20192022, 2021 and 20182020 are set forth below.
Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Medicare | 27 | % | 28 | % | 28 | % | ||||||
Managed Medicare | 15 | 15 | 14 | |||||||||
Medicaid | 5 | 5 | 4 | |||||||||
Managed Medicaid | 6 | 5 | 6 | |||||||||
Managed care and insurers | 47 | 47 | 48 | |||||||||
100 | % | 100 | % | 100 | % | |||||||
|
| Years Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Medicare |
|
| 23 | % |
|
| 23 | % |
|
| 27 | % |
Managed Medicare |
|
| 17 |
|
|
| 16 |
|
|
| 15 |
|
Medicaid |
|
| 7 |
|
|
| 6 |
|
|
| 5 |
|
Managed Medicaid | �� |
| 8 |
|
|
| 6 |
|
|
| 6 |
|
Managed care and insurers |
|
| 45 |
|
|
| 49 |
|
|
| 47 |
|
|
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
At December 31, 2020,2022, we owned and operated 4546 hospitals and 3130 surgery centers in the state of Florida. Our Florida facilities’ revenues totaled $11.442$13.812 billion, $11.494$13.670 billion and $10.892$11.442 billion for the years ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively. At December 31, 2020,2022, we owned and operated 4645 hospitals and 3237 surgery centers in the state of Texas. Our Texas facilities’ revenues totaled $13.528$16.450 billion, $13.101$15.344 billion and $12.023$13.528 billion for the years ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively. During 2022, 2021 and 2020, 2019 and 2018, 56%58%, 56% and 57%56%, respectively, of our admissions and 49%50%, 48%49% and 49%, respectively, of our revenues were generated by our Florida and Texas facilities. Uninsured admissions in Florida and Texas represented 72%74%, 72% and 70%72%, respectively, of our uninsured admissions each year during 2020, 20192022, 2021 and 2018, respectively.
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. In December 2017, the Centers for Medicare &Some state Medicaid Services (“CMS”) announced that it will phase out federal matching funds for Designated State Health Programs underprograms use, or have applied to use, waivers granted under Section 1115 of the Social Security Act. Texas currently operates its Healthcare Transformation and Quality Improvement Program pursuantby CMS to aimplement Medicaid waiver. In December 2017, CMS approved an extension of this waiver through September 30, 2022, but indicatedexpansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that it will phase out some of thevary from federal funding. Our Texas Medicaid revenues included Medicaid supplemental waiver payments of $599 million, $416 million and $450 million during 2020, 2019 and 2018, respectively.
63
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
2020 | 2019 | 2018 | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
Revenues | $ | 51,533 | 100.0 | $ | 51,336 | 100.0 | $ | 46,677 | 100.0 | |||||||||||||||
Salaries and benefits | 23,874 | 46.3 | 23,560 | 45.9 | 21,425 | 45.9 | ||||||||||||||||||
Supplies | 8,369 | 16.2 | 8,481 | 16.5 | 7,724 | 16.5 | ||||||||||||||||||
Other operating expenses | 9,307 | 18.1 | 9,481 | 18.5 | 8,608 | 18.5 | ||||||||||||||||||
Equity in earnings of affiliates | (54 | ) | (0.1 | ) | (43 | ) | (0.1 | ) | (29 | ) | (0.1 | ) | ||||||||||||
Depreciation and amortization | 2,721 | 5.3 | 2,596 | 5.0 | 2,278 | 4.9 | ||||||||||||||||||
Interest expense | 1,584 | 3.1 | 1,824 | 3.6 | 1,755 | 3.8 | ||||||||||||||||||
Losses (gains) on sales of facilities | 7 | — | (18 | ) | — | (428 | ) | (0.9 | ) | |||||||||||||||
Losses on retirement of debt | 295 | 0.6 | 211 | 0.4 | 9 | — | ||||||||||||||||||
46,103 | 89.5 | 46,092 | 89.8 | 41,342 | 88.6 | |||||||||||||||||||
Income before income taxes | 5,430 | 10.5 | 5,244 | 10.2 | 5,335 | 11.4 | ||||||||||||||||||
Provision for income taxes | 1,043 | 2.0 | 1,099 | 2.1 | 946 | 2.0 | ||||||||||||||||||
Net income | 4,387 | 8.5 | 4,145 | 8.1 | 4,389 | 9.4 | ||||||||||||||||||
Net income attributable to noncontrolling interests | 633 | 1.2 | 640 | 1.3 | 602 | 1.3 | ||||||||||||||||||
Net income attributable to HCA Healthcare, Inc. | $ | 3,754 | 7.3 | $ | 3,505 | 6.8 | $ | 3,787 | 8.1 | |||||||||||||||
% changes from prior year: | ||||||||||||||||||||||||
Revenues | 0.4 | % | 10.0 | % | 7.0 | % | ||||||||||||||||||
Income before income taxes | 3.6 | (1.7 | ) | 21.8 | ||||||||||||||||||||
Net income attributable to HCA Healthcare, Inc. | 7.1 | (7.4 | ) | 70.9 | ||||||||||||||||||||
Admissions(a) | (4.7 | ) | 5.2 | 3.5 | ||||||||||||||||||||
Equivalent admissions(b) | (9.2 | ) | 6.6 | 4.1 | ||||||||||||||||||||
Revenue per equivalent admission | 10.5 | 3.2 | 2.8 | |||||||||||||||||||||
Same facility % changes from prior year(c): | ||||||||||||||||||||||||
Revenues | (0.1 | ) | 5.9 | 6.5 | ||||||||||||||||||||
Admissions(a) | (4.8 | ) | 2.8 | 2.5 | ||||||||||||||||||||
Equivalent admissions(b) | (9.3 | ) | 3.5 | 2.5 | ||||||||||||||||||||
Revenue per equivalent admission | 10.1 | 2.3 | 3.9 | |||||||||||||||||||||
Operating Data: | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Number of hospitals at end of period | 185 | 184 | 179 | |||||||||
Number of freestanding outpatient surgical centers at end of period(a) | 121 | 123 | 123 | |||||||||
Number of licensed beds at end of period(b) | 49,265 | 49,035 | 47,199 | |||||||||
Weighted average beds in service(c) | 42,246 | 41,510 | 39,966 | |||||||||
Admissions(d) | 2,009,909 | 2,108,927 | 2,003,753 | |||||||||
Equivalent admissions(e) | 3,312,330 | 3,646,335 | 3,420,406 | |||||||||
Average length of stay (days)(f) | 5.1 | 4.9 | 4.9 | |||||||||
Average daily census(g) | 27,734 | 28,134 | 26,663 | |||||||||
Occupancy(h) | 66 | % | 68 | % | 67 | % | ||||||
Emergency room visits(i) | 7,450,307 | 9,161,129 | 8,764,431 | |||||||||
Outpatient surgeries(j) | 882,483 | 1,009,947 | 971,537 | |||||||||
Inpatient surgeries(k) | 522,385 | 566,635 | 548,220 | |||||||||
Days revenues in accounts receivable(l) | 45 | 50 | 51 | |||||||||
Outpatient revenues as a % of patient revenues(m) | 35 | % | 39 | % | 38 | % | ||||||
Key Performance Indicators
We present certain metrics and statistical information that management uses when assessing our results of operations. We believe this information is useful to investors as it provides insight to how management evaluates operational performance and trends between reporting periods. Information on how these metrics and statistical information are defined is provided in the previousfollowing tables summarizing operating results and operating data.
Operating Results Summary
The following are comparative summaries of operating results and certain operating data for the years ended December 31, 2022, 2021 and 2020 (dollars in millions):
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||
Revenues |
| $ | 60,233 |
|
|
| 100.0 |
|
| $ | 58,752 |
|
|
| 100.0 |
|
| $ | 51,533 |
|
|
| 100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Salaries and benefits |
|
| 27,685 |
|
|
| 46.0 |
|
|
| 26,779 |
|
|
| 45.6 |
|
|
| 23,874 |
|
|
| 46.3 |
|
Supplies |
|
| 9,371 |
|
|
| 15.6 |
|
|
| 9,481 |
|
|
| 16.1 |
|
|
| 8,369 |
|
|
| 16.2 |
|
Other operating expenses |
|
| 11,155 |
|
|
| 18.5 |
|
|
| 9,961 |
|
|
| 17.0 |
|
|
| 9,307 |
|
|
| 18.1 |
|
Equity in earnings of affiliates |
|
| (45 | ) |
|
| (0.1 | ) |
|
| (113 | ) |
|
| (0.2 | ) |
|
| (54 | ) |
|
| (0.1 | ) |
Depreciation and amortization |
|
| 2,969 |
|
|
| 5.0 |
|
|
| 2,853 |
|
|
| 4.9 |
|
|
| 2,721 |
|
|
| 5.3 |
|
Interest expense |
|
| 1,741 |
|
|
| 2.9 |
|
|
| 1,566 |
|
|
| 2.7 |
|
|
| 1,584 |
|
|
| 3.1 |
|
Losses (gains) on sales of facilities |
|
| (1,301 | ) |
|
| (2.2 | ) |
|
| (1,620 | ) |
|
| (2.8 | ) |
|
| 7 |
|
|
| — |
|
Losses on retirement of debt |
|
| 78 |
|
|
| 0.1 |
|
|
| 12 |
|
|
| — |
|
|
| 295 |
|
|
| 0.6 |
|
|
|
| 51,653 |
|
|
| 85.8 |
|
|
| 48,919 |
|
|
| 83.3 |
|
|
| 46,103 |
|
|
| 89.5 |
|
Income before income taxes |
|
| 8,580 |
|
|
| 14.2 |
|
|
| 9,833 |
|
|
| 16.7 |
|
|
| 5,430 |
|
|
| 10.5 |
|
Provision for income taxes |
|
| 1,746 |
|
|
| 2.9 |
|
|
| 2,112 |
|
|
| 3.6 |
|
|
| 1,043 |
|
|
| 2.0 |
|
Net income |
|
| 6,834 |
|
|
| 11.3 |
|
|
| 7,721 |
|
|
| 13.1 |
|
|
| 4,387 |
|
|
| 8.5 |
|
Net income attributable to noncontrolling interests |
|
| 1,191 |
|
|
| 1.9 |
|
|
| 765 |
|
|
| 1.3 |
|
|
| 633 |
|
|
| 1.2 |
|
Net income attributable to HCA Healthcare, Inc. |
| $ | 5,643 |
|
|
| 9.4 |
|
| $ | 6,956 |
|
|
| 11.8 |
|
| $ | 3,754 |
|
|
| 7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
% changes from prior year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenues |
|
| 2.5 | % |
|
|
|
|
| 14.0 | % |
|
|
|
|
| 0.4 | % |
|
|
| |||
Income before income taxes |
|
| (12.7 | ) |
|
|
|
|
| 81.1 |
|
|
|
|
|
| 3.6 |
|
|
|
| |||
Net income attributable to HCA Healthcare, Inc. |
|
| (18.9 | ) |
|
|
|
|
| 85.3 |
|
|
|
|
|
| 7.1 |
|
|
|
| |||
Admissions(a) |
|
| (0.7 | ) |
|
|
|
|
| 4.0 |
|
|
|
|
|
| (4.7 | ) |
|
|
| |||
Equivalent admissions(b) |
|
| 2.1 |
|
|
|
|
|
| 6.8 |
|
|
|
|
|
| (9.2 | ) |
|
|
| |||
Revenue per equivalent admission |
|
| 0.4 |
|
|
|
|
|
| 6.8 |
|
|
|
|
|
| 10.5 |
|
|
|
| |||
Same facility % changes from prior year(c): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenues |
|
| 3.2 |
|
|
|
|
|
| 14.4 |
|
|
|
|
|
| (0.1 | ) |
|
|
| |||
Admissions(a) |
|
| 0.5 |
|
|
|
|
|
| 4.8 |
|
|
|
|
|
| (4.8 | ) |
|
|
| |||
Equivalent admissions(b) |
|
| 3.3 |
|
|
|
|
|
| 7.6 |
|
|
|
|
|
| (9.3 | ) |
|
|
| |||
Revenue per equivalent admission |
|
| (0.1 | ) |
|
|
|
|
| 6.3 |
|
|
|
|
|
| 10.1 |
|
|
|
| |||
64
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Operating Results Summary (continued)
Operating Data:
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Number of hospitals at end of period |
|
| 182 |
|
|
| 182 |
|
|
| 185 |
|
Number of freestanding outpatient surgical centers at end of period(a) |
|
| 126 |
|
|
| 125 |
|
|
| 121 |
|
Number of licensed beds at end of period(b) |
|
| 49,281 |
|
|
| 48,803 |
|
|
| 49,265 |
|
Weighted average beds in service(c) |
|
| 41,982 |
|
|
| 42,148 |
|
|
| 42,246 |
|
Admissions(d) |
|
| 2,075,459 |
|
|
| 2,089,975 |
|
|
| 2,009,909 |
|
Equivalent admissions(e) |
|
| 3,611,299 |
|
|
| 3,536,238 |
|
|
| 3,312,330 |
|
Average length of stay (days)(f) |
|
| 5.1 |
|
|
| 5.2 |
|
|
| 5.1 |
|
Average daily census(g) |
|
| 28,778 |
|
|
| 29,752 |
|
|
| 27,734 |
|
Occupancy(h) |
|
| 72 | % |
|
| 74 | % |
|
| 69 | % |
Emergency room visits(i) |
|
| 8,971,951 |
|
|
| 8,475,345 |
|
|
| 7,450,307 |
|
Outpatient surgeries(j) |
|
| 1,023,239 |
|
|
| 1,008,236 |
|
|
| 882,483 |
|
Inpatient surgeries(k) |
|
| 522,151 |
|
|
| 522,069 |
|
|
| 522,385 |
|
Days revenues in accounts receivable(l) |
|
| 53 |
|
|
| 49 |
|
|
| 45 |
|
Outpatient revenues as a % of patient revenues(m) |
|
| 38 | % |
|
| 37 | % |
|
| 35 | % |
65
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Years Ended December 31, 20202022 and 2019
Net income attributable to HCA Healthcare, Inc. totaled $3.754$5.643 billion, or $10.93$19.15 per diluted share, for 2020,2022, compared to $3.505$6.956 billion, or $10.07$21.16 per diluted share, for 2019.2021. The 20202022 results included $60 million, or $0.13 per diluted share, of employee retention payroll tax credits, as provided for by the CARES Act. The 2020 results also include lossesgains on sales of facilities of $7 million,$1.301 billion, or $0.02$2.46 per diluted share, and losses on retirement of debt of $295$78 million, or $0.66$0.20 per diluted share. The 20192022 results include additional expenses and lost revenues estimated at approximately $85 million associated with the impact of Hurricane Ian primarily on our Florida facilities. This amount is prior to any insurance recoveries. Revenues for 2022 include $244 million and other operating expenses include $90 million from provider tax assessments related to the period September through December 2021 for the Texas directed payment program that was approved by CMS in March 2022 for the program year that began September 1, 2021. The 2021 results include gains on sales of facilities of $18 million,$1.620 billion, or $0.04$3.69 per diluted share, and losses on retirement of debt of $211$12 million, or $0.47$0.03 per diluted share. Revenues for 2020 include $55 million, or $0.12 per diluted share, related to the settlement of Medicare outlier calculations for prior periods and $69 million, or $0.15 per diluted share, related to the resolution of transaction price differences regarding certain services performed in prior periods. Revenues for 2019 include $86 million, or $0.19 per diluted share, related to the resolution of transaction price differences regarding certain services performed in prior periods. During 2020 and 2019, we recorded reductions to the provision for professional liability risks of $112 million, or $0.25 per diluted share, and $50 million, or $0.11 per diluted share, respectively. Our provisions for income taxes for 20202022 and 2019 included2021 include tax benefits of $92$77 million, or $0.27$0.26 per diluted share, and $65$119 million, or $0.19$0.36 per diluted share, respectively, related to employee equity award settlements. All “per diluted share” disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 343.605294.666 million shares and 348.226328.752 million shares for the years ended December 31, 20202022 and 2019,2021, respectively.
During 2022, consolidated admissions declined 4.7%0.7% and same facility admissions declined 4.8%increased 0.5% compared to 2019.2021. Consolidated inpatient surgeries were flat and same facility inpatient surgeries both declined 7.8%increased 0.9% during 20202022 compared to 2019.2021. Emergency room visits declined 18.7%increased 5.9% on a consolidated basis and declined 18.8%increased 7.6% on a same facility basis during 20202022 compared to 2019. We believe the declines in emergency room visits were primarily related to the COVID-19 pandemic and concerns regarding possible exposure to the virus.
Revenues increased 0.4%2.5% to $51.533$60.233 billion for 20202022 from $51.336$58.752 billion for 2019.2021. The increase in revenues was primarily due to the netcombined impact of a 10.5%0.4% increase in revenue per equivalent admission offset byand a 9.2% decline2.1% increase in equivalent admissions compared to 2019.2021. Same facility revenues declined 0.1%increased 3.2% due primarily to the net impact of a 9.3%3.3% increase in equivalent admissions and a 0.1% decline in same facility equivalent admissions offset by a 10.1% increase in same facility revenue per equivalent admission compared to 2019. We believe the declines in equivalent admissions were primarily due to declines in the relative percentage of outpatient service volume due to restrictions on services for certain periods and the general concerns regarding exposure to the virus.
Salaries and benefits, as a percentage of revenues, were 46.3%46.0% in 20202022 and 45.9%45.6% in 2019.2021. Salaries and benefits per equivalent admission increased 11.6%1.2% in 20202022 compared to 2019, with the increase being partially related to the 9.2% decline in equivalent admissions.2021. Same facility labor rate increases averaged 2.9%salaries and benefits per full time equivalent increased 3.3% for 20202022 compared to 2019.2021 as inflation has impacted our labor costs and as we continue to utilize certain contract, overtime and other premium rate labor costs to support our clinical staff and patients. We expect inflationary pressures will continue to impact our labor costs in the future. We intend to continue reducing our utilization of and rates paid for premium rate labor, but our ability to mitigate labor cost challenges may be affected by labor market conditions and other factors. Share-based compensation expense was $362$341 million in 20202022 and $347$440 million in 2019.
Supplies, as a percentage of revenues, were 16.2%15.6% in 20202022 and 16.5%16.1% in 2019.2021. Supply costs per equivalent admission declined 3.2% in 2022 compared to 2021. Supply costs per equivalent admission increased 8.6% in 2020 compared to 2019. Supply costs per equivalent admission increased 5.5%2.4% for medical devices, 9.6%but declined 18.8% for pharmacy supplies and 10.6%1.6% for general medical and surgical items in 20202022 compared to 2019.
Other operating expenses, as a percentage of revenues, were 18.1% in 2020 and 18.5% in 2019.2022 and 17.0% in 2021. Other operating expenses are primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. The 1.5% increase in other operating expenses, as a percentage of revenues for 2022 compared to 2021, was primarily related to increased costs for supplemental payment programs in certain states, as well as increased professional fees, utilities and insurance premiums. We have seen inflation have a negative impact on certain of these expenses and expect inflationary pressures will continue to impact operating expenses in 2023. Provisions for losses related to professional liability risks were $435$517 million and $497$453 million for 20202022 and 2019,2021, respectively. During 20202022 and 2019,2021, we recorded reductions of $112$55 million, or $0.25$0.14 per diluted share, and $50$87 million, or $0.11$0.20 per diluted share, respectively, to our provision for professional liability risks related to the receipt of updated actuarial information.
Equity in earnings of affiliates was $54$45 million for 20202022 and $43$113 million for 2019.
66
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Years Ended December 31, 2022 and 2021 (continued)
Depreciation and amortization, as a percentage of revenues, were 5.3% in 2020 and 5.0% in 2019.2022 and 4.9% in 2021. Depreciation expense was $2.693$2.941 billion for 20202022 and $2.579$2.826 billion for 2019, and the $1142021. The increase of $115 million increase was duein depreciation expense relates primarily to capital expenditures and capital projects placed in service in 2020at our existing facilities (same facility depreciation and amortizationexpense increased $147$134 million).
Interest expense declinedincreased to $1.584$1.741 billion for 20202022 from $1.824$1.566 billion for 2019.2021. The $240$175 million declineincrease in interest expense was due to declinesan increase in both the average debt balance, andwhich was partially offset by a decline in the average effective interest rate. Our average debt balance was $31.940$37.363 billion for 20202022 compared to $34.288$32.109 billion for 2019.2021. The average effective interest rate for our long-term debt was 5.0%4.7% for 20202022 and 5.3%4.9% for 2019.
Gains on sales of facilities were $7 million$1.301 billion and $1.620 billion for 2020,2022 and 2021, respectively. The gains on sales of facilities were $18 million for 2019.
During February 2020,2022, we issued $2.700$6.000 billion aggregate principal amount of 3.50% senior unsecured notes due 2030. During March 2020, wenotes. We used a portion of the net proceeds for the redemption ofto pay down our revolving credit facilities, and we redeemed all $1.000$1.250 billion outstanding aggregate principal amount of HCA Healthcare, Inc.’s 6.25%our 4.75% senior notes due 20212023 and together with available funds, for the redemption of all $2.000$1.250 billion outstanding aggregate principal amount of HCA Inc.’s 7.50%our 5.875% senior notes due 2022. The pretax loss on retirement of debt was $295 million. During June 2019, we issued $5.000 billion aggregate principal amount of senior secured notes comprised of $2.000 billion aggregate principal amount of 4 1/8% notes due 2029, $1.000 billion aggregate principal amount of 5 1/8% notes due 2039 and $2.000 billion aggregate principal amount of 5 1/4% notes due 2049. During July 2019, we redeemed all $600 million outstanding aggregate principal amount of 4.250% senior secured notes due 2019, all $3.000 billion outstanding aggregate principal amount of 6.500% senior secured notes due 2020 and all $1.350 billion outstanding aggregate principal amount of 5.875% senior secured notes due 2022.2023. The pretax loss on retirement of debt for these two redemptions was $211$78 million.
The effective income tax rates were 21.7%23.6% and 23.9%23.3% for 20202022 and 2019,2021, 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 2020 and 2019 also included tax benefits of $92 million and $65 million, respectively, related to employee equity award settlements. Excluding the effect of these adjustments, the effective tax rates for 2020 and 2019 would have been 23.7% and 25.3%, respectively.
Net income attributable to noncontrolling interests declinedincreased from $640$765 million for 20192021 to $633 million$1.191 billion for 2020.2022. The declineincrease in net income attributable to noncontrolling interests related primarily to the gain on the sale of a controlling interest in a subsidiary of our group purchasing organization and the partnership operations of two of our surgery center partnerships.
For results of operations comparisons relating to years ending December 31, 20192021 and 2018,2020, refer to our annual report on Form2019,2021, filed with the Securities and Exchange Commission (“SEC”) on February 20, 2020.
Liquidity and Capital Resources
Our primary cash requirements are paying our operating expenses, servicing our debt, capital expenditures on our existing properties, acquisitions of hospitals and health care entities, repurchases of our common stock, dividends to stockholders and distributions to noncontrolling interests. Our primary cash sources are cash flows from operating activities, issuances of debt and equity securities and sales of hospitals and health care entities.
Cash provided by operating activities totaled $8.522 billion in 2022 compared to $8.959 billion in 2021 and $9.232 billion in 2020 compared to $7.602 billion in 2019 and $6.761 billion in 2018.2020. The $1.630 billion increase$437 million decline in cash provided by operating activities for 2020,2022, compared to 2019,2021, was related primarily related to the increasea negative change in working capital items of $649 million, mainly from a decline in accounts payable and accrued expenses, and a decline in net income of $687 million, excluding losses and gains on sales of facilities and losses on retirement of debt, offset by a decline in cash payments for interest and income taxes of $330$847 million and positive changesfor 2022 compared to 2021. The $273 million decline in cash provided by operating activities for 2021, compared to 2020, was related to a negative change in working capital items of $1.366$1.781 billion, primarily from an increase in accounts receivable, offset by the increase in accounts payablenet income, excluding the non-cash impact of losses and accrued expensesgains on sales of facilities, losses on retirement of debt and the collection of accounts receivable.depreciation and amortization. Cash payments for interest and income taxes increased $1.075 billion for 2021 compared to 2020. During 2020, we deferred $688 million of Social Security taxes as allowed for under the CARES Act. Half of these taxes will bewere paid by December 31, 2021in January 2022 and the remainder by December 31, 2022. The $841 million increasewas paid in cash provided by operating activities for 2019, compared to 2018, was primarily related to the increase in net income, excluding gains on sales of facilities and losses on retirement of debt, of $222 million and increases related to income taxes of $322 million and depreciation and amortization of $318 million.January 2023. Working capital totaled $3.629$3.741 billion at December 31, 20202022 and $3.439$3.960 billion at December 31, 2019. Cash payments for interest2021.
67
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and income taxes declined $154 million for 2020 compared to 2019 and increased $147 million for 2019 compared to 2018.
Cash used in investing activities was $3.389 billion, $2.643 billion and $3.393 billion $5.720 billionin 2022, 2021 and $3.901 billion in 2020, 2019 and 2018, respectively. Excluding acquisitions, capital expenditures were $4.395 billion in 2022, $3.577 billion in 2021 and $2.835 billion in 2020, $4.158 billion in 2019 and $3.573 billion in 2018. We expended $568 million, $1.682 billion and $1.253 billion for acquisitions of hospitals and health care entities during 2020, 2019 and 2018, respectively.2020. In response to the risks thepandemic presents presented to our business, we reduced certain planned projects and capital expenditures during 2020. Planned capital expenditures are expected to approximate $3.7$4.3 billion in 2021.2023. At December 31, 2020,2022, there were projects under construction which had an estimated additional cost to complete and equip over the next five years of approximately $3.170$4.707 billion. We expect to finance capital expenditures with internally generated and borrowed funds.
Cash used in financing activities totaled $5.656 billion in 2022, $6.655 billion in 2021 and $4.677 billion in 2020, $1.7712020. During 2022, we had a net increase of $3.287 billion in 2019our indebtedness, paid dividends of $653 million and $3.075paid $7.000 billion for repurchases of common stock. During 2021, we had a net increase of $3.255 billion in 2018.our indebtedness, paid dividends of $624 million and paid $8.215 billion for repurchases of common stock. During 2020, we hadmade net cash paidpayments of $3.217 billion related to our indebtedness, paid dividends of $153 million and paid $441 million for repurchases of our common stock. During 2019, we had a net increase of $567 million in our indebtedness, paid dividends of $550 million2022, 2021 and paid $1.031 billion for repurchases of common stock. During 2018, we had net cash paid of $344 million related to our indebtedness, paid dividends of $487 million and paid $1.530 billion for repurchases of common stock. During 2020, 2019 and 2018, we made distributions to noncontrolling interests of $1.025 billion, $749 million and $626 million, $542 million and $441 million, respectively.
We, or our affiliates, may in the future repurchase portions of our debt or equity securities, subject to certain limitations, from time to time in either the open market or through privately negotiated transactions, in accordance with applicable SEC and other legal requirements. The timing, prices, and sizes of purchases depend upon prevailing trading prices, general economic and market conditions, and other factors, including applicable securities laws.
During February 2021, January 20202022 and 2019,January 2023, our Board of Directors authorized $6 billion, $8 billion and $3 billion, respectively, for share repurchase programs for up to $4 billion ($2 billion for each authorization)repurchases of ourthe Company’s outstanding common stock,stock. The February 2021 authorization was completed during 2022, and at December 31, 2020,2022, there was $2.800$1.586 billion of share repurchase authorization that remained available under the January 2020 and 2019 authorizations. During March 2020 in response to the risks theCOVID-19pandemic presents to our business, we announced the suspension of our share repurchase program. During February 2021, the Board of Directors authorized the resumption of the share repurchase program, and an additional $6 billion was authorized for repurchases of the Company’s outstanding common stock ($8.8 billion of total repurchase authorization including the February 2021 authorization).2022 authorization. Funds for the repurchase of debt or equity securities have, and are expected to, come primarily from cash generated from operations and borrowed funds.
During 2019,2022, our Board of Directors declared four quarterly dividends of $0.40$0.56 per share, or $1.60$2.24 per share in the aggregate, on our common stock. DuringOn January 2020,26, 2023, our Board of Directors declared a quarterly dividend of $0.43$0.60 per share on our common stock. During April 2020 in responsestock payable on March 31, 2023 to stockholders of record at the risks theCOVID-19pandemic presents to ourclose of business we also suspended our quarterly dividend program. During February 2021, the Board of Directors reinstated the quarterly program and declared a quarterly dividend of $0.48 per share on our common stock.March 17, 2023. The timing and amount of future cash dividends will vary based on a number of factors, including future capital requirements for strategic transactions, share repurchases and investing in our existing markets, the availability of financing on acceptable terms, debt service requirements, changes to applicable tax laws or corporate laws, changes to our business model and periodic determinations by our Board of Directors that cash dividends are in the best interest of stockholders and are in compliance with all applicable laws and agreements of the Company.
In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($7.7123.535 billion as of December 31, 20202022 and $5.712$4.445 billion as of January 31, 2021)2023) and anticipated access to public and private debt and equity markets. We terminatedEffective in January 2023, availability under our $2.000 billion 364-day senior secured term loanrevolving credit facility during January 2021.
Investments of our insurance subsidiaries, held to maintain statutory equity levels and to provide liquidity to pay claims, totaled $504$473 million and $462$541 million at December 31, 20202022 and 2019,2021, respectively. The insurance subsidiary maintained net reserves for professional liability risks of $188$147 million and $175$154 million at December 31, 20202022 and 2019,2021, respectively. Our facilities are insured by our 100% owned insurance subsidiary for losses up to $50$75 million per occurrence; however, this coverage is subject, in most cases, to a $15 million per occurrence self-insured retention. Net reserves for the self-insured professional liability risks retained were $1.736$1.836 billion and $1.606$1.813 billion at December 31, 20202022 and 2019,2021, respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate $469$503 million. We estimate that approximately $413$459 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention.
68
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Financing Activities
We are a highly leveraged company with significant debt service requirements. Our debt totaled $31.004$38.084 billion and $33.722$34.579 billion at December 31, 20202022 and 2019,2021, respectively. Our interest expense was $1.584$1.741 billion for 20202022 and $1.824$1.566 billion for 2019.
During January 2019,2022, we issued $1.500$6.000 billion aggregate principal amount of senior unsecured notes comprised of (i) $1.000 billion aggregate principal amount of 5.875%3 1/8% senior notes due 2029 and2027, (ii) $500 million aggregate principal amount of 5.625%3 3/8% senior notes due 2028. We used the net proceeds to fund the purchase of a seven-hospital health system located in western North Carolina.
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 duringfor the next twelve months.
HCA Inc., a direct wholly-owned subsidiary of HCA Healthcare, Inc., is the primary obligor under a substantial portion of our indebtedness, including our senior secured credit facilities senior secured notes and senior unsecured notes. The senior secured notes and senior unsecured notes issued by HCA Inc. are fully and unconditionally guaranteed on an unsecured basis by HCA Healthcare, Inc. The senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed on a senior secured basis 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). ForOn May 25, 2022, Standard & Poor’s Rating Services (“S&P”) announced it had issued an investment grade rating with respect to the issuer credit rating of HCA Healthcare, Inc. and its subsidiaries. S&P’s announcement, in conjunction with previously disclosed events, constituted an “Investment Grade Rating Event” or a list“Ratings Event,” as applicable, under the terms of the indentures governing HCA Inc.’s outstanding senior secured notes and, as a result, the conditions in the senior secured indentures to permit the permanent release of the subsidiary guarantors, see Exhibit 22 to this annual report on Form10-K.
Year Ended December 31, 2020 | ||||
Revenues | $ | 31,040 | ||
Income before income taxes | 4,016 | |||
Net income | 3,172 | |||
Net income attributable to Parent, Subsidiary Issuer and Subsidiary Guarantors | 3,091 | |||
At December 31, 2020: | ||||
December 31, 2020 | ||||
Current assets | $ | 7,442 | ||
Property and equipment, net | 14,939 | |||
Goodwill and other intangible assets | 5,763 | |||
Total noncurrent assets | 21,771 | |||
Total assets | 29,213 | |||
Current liabilities | 5,316 | |||
Long-term debt, net | 30,444 | |||
Intercompany balances | 2,090 | |||
Income taxes and other liabilities | 1,004 | |||
Total noncurrent liabilities | 34,035 | |||
Stockholders’ deficit attributable to Parent, Subsidiary Issuer and Subsidiary Guarantors | (10,247 | ) | ||
Noncontrolling interests | 109 | |||
All of the capital stock of substantially all wholly owned first-tier subsidiaries ofsenior notes issued by HCA Inc. in 2014 or of subsidiary guarantors (but limitedlater continue to 65% of the stock of any such wholly owned first-tier subsidiary that is a foreign subsidiary), subject to certain limited exceptions,be fully and (ii) substantially all indebtedness owing to HCA Inc. or to the subsidiary guarantors, including any and all intercompany indebtedness owedunconditionally guaranteed on an unsecured basis by HCA Healthcare, Inc. or any subsidiary thereof to HCA Inc., or any subsidiary guarantor. For a list of affiliates whose securities are pledged as collateral for the senior secured notes, see Exhibit 22 to this annual report on Form10-K.
Market Risk
We are exposed to market risk related to changes in market values of securities. The investments in our 100% ownedOur insurance subsidiaries were $504held $473 million of investment securities at December 31, 2020.2022. These investments are carried at fair value, with changes in unrealized gains and losses being recorded as adjustments to other comprehensive income. At December 31, 2020,2022, we had a net unrealized gainlosses of $32$38 million on the insurance subsidiaries’ investment securities.
We are exposed to market risk related to market illiquidity. Investments in debt and equity securities of our insurance subsidiaries could be impaired by the inability to access the capital markets. Should the insurance subsidiaries require significant amounts of cash in excess of normal cash requirements to pay claims and other expenses on short notice, we may have difficulty selling these investments in a timely manner or be forced to sell them at a price less than what we might otherwise have been able to in a normal market environment. We may be required to recognize credit-related impairments on our investment securities in future periods should issuers default on interest payments or should the fair market valuations of the securities deteriorate due to ratings downgrades or other issue-specific factors.
69
HCA HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Market Risk (continued)
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 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. Our credit risk related to these agreements is considered low because the swap agreements are with creditworthy financial institutions. The interest payments under these agreements are settled on a net basis. These derivatives have been recognized in the financial statements at their respective fair values. Changes in the fair value of these derivatives, which are designated as cash flow hedges, are included in other comprehensive income.
The estimated fair value of our total long-term debt was $35.814$35.555 billion at December 31, 2020.2022. 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 $12$48 million. To mitigate the impact of fluctuations in interest rates, we generally target a majority of our debt portfolio to be maintained at fixed rates.
We are exposed to currency translation risk related to our foreign operations. We currently do not consider the market risk related to foreign currency translation to be material to our consolidated financial statements or our liquidity.
Tax Examinations
The Internal Revenue Service (“IRS”) was conducting an examination of the Company’s 2016, 2017 and 2018 federal income tax returns and the 2019 return for one affiliated partnership at December 31, 2020.2022. We are also subject to examination by state and foreign taxing authorities. Management believes HCA Healthcare, Inc., its predecessors, subsidiaries and affiliates properly reported taxable income and paid taxes in accordance with applicable laws and agreements established with the IRS, state and foreign taxing authorities, and final resolution of any disputes will not have a material, adverse effect on our results of operations or financial position. However, if payments due upon final resolution of any issues exceed our recorded estimates, such resolutions could have a material, adverse effect on our results of operations or financial position.
Item 7A.Quantitative and Qualitative Disclosures about Market Risk
Information with respect to this Item is provided under the caption “Market Risk” under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
70
Item 8.Financial Statements and Supplementary Data
Information with respect to this Item is contained in our consolidated financial statements indicated in the Index to Consolidated Financial Statements on Page
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
1. Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule
2. Internal Control Over Financial Reporting
(a) Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our assessment under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.
Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Form
71
(b) Attestation Report of the Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
HCA Healthcare, Inc.
Opinion on Internal Control over Financial Reporting
We have audited HCA Healthcare, Inc.’s internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, HCA Healthcare, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of HCA Healthcare, Inc. as of December 31, 20202022 and 2019,2021, and the related consolidated statements of income, comprehensive income, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes and our report dated February 19, 202117, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Nashville, Tennessee
February 19, 2021
(c) Changes in Internal Control Over Financial Reporting
During the fourth quarter of 2020,2022, there were no changes in our internal control over financial reporting that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
72
Item 9B.Other Information
None.
Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
73
PART III
Item 10.Directors, Executive Officers and Corporate Governance
The information required by this Item regarding the identity and business experience of our directors and executive officers is set forth under the heading “Nominees for Election” and “Election of Directors” in the definitive proxy materials of HCA to be filed in connection with our 20212023 Annual Meeting of Stockholders with respect to our directors and is set forth in Item 1 of Part I of this annual report on Form
Information on the beneficial ownership reporting for our directors and executive officers required by this Item is contained under the caption “Delinquent Section 16(a) Reports” in the definitive proxy materials to be filed in connection with our 20212023 Annual Meeting of Stockholders and is incorporated herein by reference.
Information on our Audit and Compliance Committee and Audit Committee Financial Experts required by this Item is contained under the caption “Corporate Governance” in the definitive proxy materials to be filed in connection with our 20212023 Annual Meeting of Stockholders and is incorporated herein by reference.
We have a Code of Conduct which is applicable to all our directors, officers and employees (the “Code of Conduct”). The Code of Conduct is available on the Ethics and Compliance and Corporate Governance pages of our website at www.hcahealthcare.com. To the extent required pursuant to applicable SEC regulations, we intend to post amendments to or waivers from our Code of Conduct (to the extent applicable to our chief executive officer, principal financial officer or principal accounting officer) at this location on our website or report the same on a Current Report on FormCorporate Secretary,Investor Relations Department, HCA Healthcare, Inc., One Park Plaza, Nashville, TN 37203.
Item 11.Executive Compensation
The information required by this Item is set forth under the headings “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” in the definitive proxy materials to be filed in connection with our 20212023 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information about security ownership of certain beneficial owners required by this Item is set forth under the heading “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in the definitive proxy materials to be filed in connection with our 20212023 Annual Meeting of Stockholders, which information is incorporated herein by reference.
74
This table provides certain information as of December 31, 20202022 with respect to our equity compensation plans:
EQUITY COMPENSATION PLAN INFORMATION
(Share and share unit amounts in millions)
|
| (a) |
| (b) |
| (c) |
|
|
| Number of securities |
| Weighted-average |
| Number of securities remaining |
|
Equity compensation plans approved by |
| 9.586 | (1) | $126.38 | (1) | 18.262 | (2) |
Equity compensation plans not approved by |
| — |
| — |
| — |
|
Total |
| 9.586 |
| $126.38 |
| 18.262 |
|
(a) | (b) | (c) | ||||||||||
Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) | ||||||||||
Equity compensation plans approved by security holders | 13.723 | (1) | $ | 91.53 | (1) | 26.139 | (2) | |||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 13.723 | $ | 91.53 | 26.139 | ||||||||
* For additional information concerning our equity compensation plans, see the discussion in Note 2 — Share-Based Compensation in the notes to the consolidated financial statements.
Item 13.Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is set forth under the headings “Certain Relationships and Related Party Transactions” and “Corporate Governance” in the definitive proxy materials to be filed in connection with our 20212023 Annual Meeting of Stockholders, which information is incorporated herein by reference.
Item 14.Principal Accountant Fees and Services
The information required by this Item is set forth under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” in the definitive proxy materials to be filed in connection with our 20212023 Annual Meeting of Stockholders, which information is incorporated herein by reference.
75
(a) Documents filed as part of the report:
1.
2.
3. List of Exhibits
2.1 | — | |
2.2 | — | |
3.1 | — | |
3.2 | — | |
4.1 | — | |
4.2 | — | |
4.3 | — | |
4.4 | — | |
4.5(a) | — |
4.5(b) | — | |
4.5(c) | — |
76
4.5(d) | — | |
4.5(e) | — | |
4.5(f) | — | |
4.5(g) | — | |
4.5(h) | — |
4.5(i) | — | |
4.5(j) | — | |
4.5(k) | — | |
4.5(l) | — | |
4.5(m) | — | |
4.5(n) | — |
77
4.5(o) | — | |
4.5(p) | — | |
4.5(q) | — | |
4.6(a) | — | |
4.6(b) | — | |
4.6(c) | — | |
4.7(a) | — |
4.7(b) | — | |
4.7(c) | — | |
4.8(a) | — | |
4.8(b) | — | |
4.8(c) | — | |
4.8(d) | — | |
4.8(e) | — |
78
4.8(f) | — | |
4.8(g) | — | |
4.9(a) | — | |
4.9(b) | — | |
4.9(c) | — | |
4.10(a) | — |
4.10(b) | — | |
4.10(c) | — | |
4.10(d) | — | |
4.10(e) | — | |
4.10(f) | — | |
4.10(g) | — | |
4.10(h) | — |
79
4.10(i) | — | |
4.11 | — | |
4.12 | — |
4.13 | — | |
4.14(a) | — | |
4.14(b) | — | |
4.14(c) | — | |
4.14(d) | — | |
4.14(e) | — | |
4.15 | — | |
4.16 | — | |
4.17 | — | |
4.18 | — | |
4.19 | — | |
4.20 | — | |
4.21 | — | |
4.22 | — | |
4.23 | — | |
4.24 | — |
80
4.25 | ||
— | ||
4.26 | — | |
4.27 | — | |
4.28 | — | |
4.29 | — | |
4.30 | — | |
4.31 | — | |
4.32 | — | |
4.33 | — | |
4.34 | — | |
4.35 | — | |
4.36 | — | |
4.37 | — | |
4.38 | — | |
4.39 | — | |
4.40 | — |
81
4.41 | — | |
4.42 | — | |
4.43 | — | |
4.44 | — | |
4.45 | — | |
4.46 | — | |
4.47 | — |
4.48 | — | |
4.49 | — | |
4.50 | — | |
4.51 | — | |
4.52 | — | |
4.53 | — | |
4.54 | — | |
4.55 | — | |
4.56 | — | |
82
4.57 | — | |
4.58 | — | |
4.59 | — | |
4.60 | — | |
4.61 | — | |
4.62 | — |
83
4.79 | — | |
4.80 | — | |
10.1 | — | |
10.2(a) | — | |
10.2(b) | — | |
10.2(c) | — | |
10.3(a) | — | |
10.3(b) | — | |
10.4 | — |
10.5 | — | |
10.6 | — | |
10.7(a) | — | |
10.7(b) | — | |
10.8(a) | — | |
10.8(b) | — | |
10.9(a) | — | |
84
10.9(b) | — | |
10.9(c) | — | |
10.9(d) | — | |
10.9(e) | — | |
10.9(f) | — | |
10.9(g) | — | |
10.9(h) | — | |
10.9(i) | — | |
10.10 | — |
10.11 | — | |
10.12 | — | |
10.13 | — | |
10.14 | — | |
10.15 | — | |
10.16 | — | |
10.17 | — | |
10.18 | — | |
10.19 | — |
85
10.20 | — | |
10.21 | — | |
10.22 | — | |
10.23 | — |
10.24 | ||
— | ||
10.25 | — | |
10.26 | — | |
10.27 | — | |
10.28 | — | |
10.29 | — | |
10.30 | — | |
10.31 | — | |
10.32 | — | |
10.33 | — | |
10.34 | — | |
86
10.35 | — | |
10.36 | — | |
10.37 | — | |
10.38 | — | |
10.39 | — | |
10.40 | — | |
10.41 | — | |
21 | — | |
22 | — | |
23 | — | |
31.1 | — | |
31.2 | — | |
32 | — | |
101 | — | The following financial information from our annual report on |
104 | — | The cover page from the Company’s Annual Report on Form |
__________
* Management compensatory plan or arrangement.
Item 16.Form 10-K Summary
None.
87
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HCA HEALTHCARE, INC. | ||
By: | /S/ S | |
Samuel N. Hazen Chief Executive Officer | ||
Dated: February 19, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/S/ S | Chief Executive Officer and Director (Principal Executive Officer) | February | ||
Samuel N. Hazen | ||||
/ | Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | February | ||
William B. Rutherford | ||||
/ | Chairman and Director | February 17, 2023 | ||
Thomas F. Frist III | ||||
/ | Director | February 17, 2023 | ||
Meg G. Crofton | ||||
/ | Director | February 17, 2023 | ||
Robert J. Dennis | ||||
/ | Director | February | ||
Nancy-Ann DeParle | ||||
/ | Director | February 17, 2023 | ||
William R. Frist | ||||
/ | Director | February 17, 2023 | ||
Charles O. Holliday, Jr. | ||||
/ | Director | February 17, 2023 | ||
Hugh F. Johnston | ||||
/S/ MICHAEL W. MICHELSON | Director | February 17, 2023 | ||
Michael W. Michelson | ||||
/ | Director | February 17, 2023 | ||
Wayne J. Riley | ||||
/S/ ANDREA B. SMITH | Director | February | ||
Andrea B. Smith | ||||
88
HCA HEALTHCARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
F-2 | ||||
Consolidated Financial Statements: | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
F-9 | ||||
F-10 | ||||
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
HCA Healthcare, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of HCA Healthcare, Inc. (the Company) as of December 31, 20202022 and 2019,2021, the related consolidated statements of income, comprehensive income, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2020,2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 19, 202117, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Revenue Recognition | ||
Description of the Matter | For the year ended December 31, Auditing management’s estimates of contractual allowances and implicit price concessions was complex and judgmental due to the significant data inputs and subjective assumptions utilized in determining related amounts. | |
How We Addressed the | We tested internal controls that address the risks of material misstatement related to the measurement and valuation of revenues, including estimation of contractual allowances and implicit price concessions. For example, we tested management’s internal controls over the key data inputs to the contractual To test the estimated contractual allowances and implicit price concessions, we performed audit procedures that included, among others, assessing methodologies and evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company in its estimates. We compared the significant assumptions used by management to current industry and economic trends and considered changes, if any, to the Company’s business and other relevant factors. We also assessed the historical accuracy of management’s estimates as a source of potential corroborative or contrary evidence. | |
Professional Liability Claims | ||
Description of the Matter | At December 31, |
Auditing management’s professional liability claims reserves was complex and judgmental due to the significant estimations required in determining the reserves, particularly the actuarial methodology and assumptions related to the severity and frequency of claims. | ||
F-3
How We Addressed the | We tested management’s internal controls that address the risks of material misstatement over the Company’s professional liability claims To test the Company’s determination of the estimated professional liability expense and reserves, we performed audit procedures that included, among others, testing the completeness and accuracy of underlying claims data used by the Company and its actuaries in its determination of reserves and reviewing the Company’s insurance contracts by policy year to |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1994.
Nashville, Tennessee
February 19, 2021
F-4
HCA HEALTHCARE, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192022, 2021 AND 2018
(Dollars in millions, except per share amounts)
2020 | 2019 | 2018 | ||||||||||
Revenues | $ | 51,533 | $ | 51,336 | $ | 46,677 | ||||||
Salaries and benefits | 23,874 | 23,560 | 21,425 | |||||||||
Supplies | 8,369 | 8,481 | 7,724 | |||||||||
Other operating expenses | 9,307 | 9,481 | 8,608 | |||||||||
Equity in earnings of affiliates | (54 | ) | (43 | ) | (29 | ) | ||||||
Depreciation and amortization | 2,721 | 2,596 | 2,278 | |||||||||
Interest expense | 1,584 | 1,824 | 1,755 | |||||||||
Losses (gains) on sales of facilities | 7 | (18 | ) | (428 | ) | |||||||
Losses on retirement of debt | 295 | 211 | 9 | |||||||||
46,103 | 46,092 | 41,342 | ||||||||||
Income before income taxes | 5,430 | 5,244 | 5,335 | |||||||||
Provision for income taxes | 1,043 | 1,099 | 946 | |||||||||
Net income | 4,387 | 4,145 | 4,389 | |||||||||
Net income attributable to noncontrolling interests | 633 | 640 | 602 | |||||||||
Net income attributable to HCA Healthcare, Inc. | $ | 3,754 | $ | 3,505 | $ | 3,787 | ||||||
Per share data: | ||||||||||||
Basic earnings per share | $ | 11.10 | $ | 10.27 | $ | 10.90 | ||||||
Diluted earnings per share | $ | 10.93 | $ | 10.07 | $ | 10.66 | ||||||
Shares used in earnings per share calculations (in millions): | ||||||||||||
Basic | 338.274 | 341.210 | 347.297 | |||||||||
Diluted | 343.605 | 348.226 | 355.303 | |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Revenues |
| $ | 60,233 |
|
| $ | 58,752 |
|
| $ | 51,533 |
|
|
|
|
|
|
|
|
|
|
| |||
Salaries and benefits |
|
| 27,685 |
|
|
| 26,779 |
|
|
| 23,874 |
|
Supplies |
|
| 9,371 |
|
|
| 9,481 |
|
|
| 8,369 |
|
Other operating expenses |
|
| 11,155 |
|
|
| 9,961 |
|
|
| 9,307 |
|
Equity in earnings of affiliates |
|
| (45 | ) |
|
| (113 | ) |
|
| (54 | ) |
Depreciation and amortization |
|
| 2,969 |
|
|
| 2,853 |
|
|
| 2,721 |
|
Interest expense |
|
| 1,741 |
|
|
| 1,566 |
|
|
| 1,584 |
|
Losses (gains) on sales of facilities |
|
| (1,301 | ) |
|
| (1,620 | ) |
|
| 7 |
|
Losses on retirement of debt |
|
| 78 |
|
|
| 12 |
|
|
| 295 |
|
|
|
| 51,653 |
|
|
| 48,919 |
|
|
| 46,103 |
|
Income before income taxes |
|
| 8,580 |
|
|
| 9,833 |
|
|
| 5,430 |
|
Provision for income taxes |
|
| 1,746 |
|
|
| 2,112 |
|
|
| 1,043 |
|
Net income |
|
| 6,834 |
|
|
| 7,721 |
|
|
| 4,387 |
|
Net income attributable to noncontrolling interests |
|
| 1,191 |
|
|
| 765 |
|
|
| 633 |
|
Net income attributable to HCA Healthcare, Inc. |
| $ | 5,643 |
|
| $ | 6,956 |
|
| $ | 3,754 |
|
Per share data: |
|
|
|
|
|
|
|
|
| |||
Basic earnings per share |
| $ | 19.43 |
|
| $ | 21.52 |
|
| $ | 11.10 |
|
Diluted earnings per share |
| $ | 19.15 |
|
| $ | 21.16 |
|
| $ | 10.93 |
|
Shares used in earnings per share calculations (in millions): |
|
|
|
|
|
|
|
|
| |||
Basic |
|
| 290.348 |
|
|
| 323.315 |
|
|
| 338.274 |
|
Diluted |
|
| 294.666 |
|
|
| 328.752 |
|
|
| 343.605 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F-5
HCA HEALTHCARE, INC.
CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192022, 2021 AND 2018
(Dollars in millions)
2020 | 2019 | 2018 | ||||||||||
Net income | $ | 4,387 | $ | 4,145 | $ | 4,389 | ||||||
Other comprehensive income (loss) before taxes: | ||||||||||||
Foreign currency translation | 18 | 5 | (71 | ) | ||||||||
Unrealized gains (losses) on available-for-sale | 14 | 15 | (7 | ) | ||||||||
Defined benefit plans | (71 | ) | (63 | ) | 44 | |||||||
Pension costs included in salaries and benefits | 28 | 13 | 21 | |||||||||
(43 | ) | (50 | ) | 65 | ||||||||
Change in fair value of derivative financial instruments | (66 | ) | (50 | ) | 23 | |||||||
Interest costs (benefits) included in interest expense | 24 | (17 | ) | (10 | ) | |||||||
(42 | ) | (67 | ) | 13 | ||||||||
Other comprehensive loss before taxes | (53 | ) | (97 | ) | 0 | |||||||
Income taxes (benefits) related to other comprehensive income items | (11 | ) | (18 | ) | 8 | |||||||
Other comprehensive loss | (42 | ) | (79 | ) | (8 | ) | ||||||
Comprehensive income | 4,345 | 4,066 | 4,381 | |||||||||
Comprehensive income attributable to noncontrolling interests | 633 | 640 | 602 | |||||||||
Comprehensive income attributable to HCA Healthcare, Inc. | $ | 3,712 | $ | 3,426 | $ | 3,779 | ||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Net income |
| $ | 6,834 |
|
| $ | 7,721 |
|
| $ | 4,387 |
|
Other comprehensive income (loss) before taxes: |
|
|
|
|
|
|
|
|
| |||
Foreign currency translation |
|
| (111 | ) |
|
| (9 | ) |
|
| 18 |
|
|
|
|
|
|
|
|
|
|
| |||
Unrealized gains (losses) on available-for-sale securities |
|
| (55 | ) |
|
| (16 | ) |
|
| 14 |
|
Losses included in other operating expenses |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
|
| (54 | ) |
|
| (16 | ) |
|
| 14 |
|
|
|
|
|
|
|
|
|
|
| |||
Defined benefit plans |
|
| 49 |
|
|
| 87 |
|
|
| (71 | ) |
Pension costs included in salaries and benefits |
|
| 9 |
|
|
| 28 |
|
|
| 28 |
|
|
|
| 58 |
|
|
| 115 |
|
|
| (43 | ) |
|
|
|
|
|
|
|
|
|
| |||
Change in fair value of derivative financial instruments |
|
| 6 |
|
|
| 1 |
|
|
| (66 | ) |
Interest costs included in interest expense |
|
| 2 |
|
|
| 37 |
|
|
| 24 |
|
|
|
| 8 |
|
|
| 38 |
|
|
| (42 | ) |
Other comprehensive income (loss) before taxes |
|
| (99 | ) |
|
| 128 |
|
|
| (53 | ) |
Income taxes (benefits) related to other comprehensive income items |
|
| (13 | ) |
|
| 30 |
|
|
| (11 | ) |
Other comprehensive income (loss) |
|
| (86 | ) |
|
| 98 |
|
|
| (42 | ) |
Comprehensive income |
|
| 6,748 |
|
|
| 7,819 |
|
|
| 4,345 |
|
Comprehensive income attributable to noncontrolling interests |
|
| 1,191 |
|
|
| 765 |
|
|
| 633 |
|
Comprehensive income attributable to HCA Healthcare, Inc. |
| $ | 5,557 |
|
| $ | 7,054 |
|
| $ | 3,712 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F-6
HCA HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 20202022 AND 2019
(Dollars in millions)
2020 | 2019 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,793 | $ | 621 | ||||
Accounts receivable | 7,051 | 7,380 | ||||||
Inventories | 2,025 | 1,849 | ||||||
Other | 1,464 | 1,346 | ||||||
12,333 | 11,196 | |||||||
Property and equipment, at cost: | ||||||||
Land | 2,269 | 2,178 | ||||||
Buildings | 18,471 | 17,669 | ||||||
Equipment | 27,082 | 25,756 | ||||||
Construction in progress | 1,495 | 1,632 | ||||||
49,317 | 47,235 | |||||||
Accumulated depreciation | (26,118 | ) | (24,520 | ) | ||||
23,199 | 22,715 | |||||||
Investments of insurance subsidiaries | 388 | 315 | ||||||
Investments in and advances to affiliates | 422 | 249 | ||||||
Goodwill and other intangible assets | 8,578 | 8,269 | ||||||
Right-of-use | 2,024 | 1,834 | ||||||
Other | 546 | 480 | ||||||
$ | 47,490 | $ | 45,058 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 3,535 | $ | 2,905 | ||||
Accrued salaries | 1,720 | 1,775 | ||||||
Other accrued expenses | 3,240 | 2,932 | ||||||
Long-term debt due within one year | 209 | 145 | ||||||
8,704 | 7,757 | |||||||
Long-term debt, less debt issuance costs and discounts of $236 and $239 | 30,795 | 33,577 | ||||||
Professional liability risks | 1,486 | 1,370 | ||||||
Right-of-use | 1,673 | 1,499 | ||||||
Income taxes and other liabilities | 1,940 | 1,420 | ||||||
Stockholders’ equity (deficit): | ||||||||
Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding 339,425,600 shares — 2020 and 338,445,600 shares — 2019 | 3 | 3 | ||||||
Capital in excess of par value | 294 | 0 | ||||||
Accumulated other comprehensive loss | (502 | ) | (460 | ) | ||||
Retained earnings (deficit) | 777 | (2,351 | ) | |||||
Stockholders’ equity (deficit) attributable to HCA Healthcare, Inc. | 572 | (2,808 | ) | |||||
Noncontrolling interests | 2,320 | 2,243 | ||||||
2,892 | (565 | ) | ||||||
$ | 47,490 | $ | 45,058 | |||||
|
| 2022 |
|
| 2021 |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 908 |
|
| $ | 1,451 |
|
Accounts receivable |
|
| 8,891 |
|
|
| 8,095 |
|
Inventories |
|
| 2,068 |
|
|
| 1,986 |
|
Other |
|
| 1,776 |
|
|
| 2,010 |
|
|
|
| 13,643 |
|
|
| 13,542 |
|
|
|
|
|
|
|
| ||
Property and equipment, at cost: |
|
|
|
|
|
| ||
Land |
|
| 2,799 |
|
|
| 2,496 |
|
Buildings |
|
| 20,221 |
|
|
| 19,211 |
|
Equipment |
|
| 29,981 |
|
|
| 28,256 |
|
Construction in progress |
|
| 1,756 |
|
|
| 1,387 |
|
|
|
| 54,757 |
|
|
| 51,350 |
|
Accumulated depreciation |
|
| (29,182 | ) |
|
| (27,287 | ) |
|
|
| 25,575 |
|
|
| 24,063 |
|
|
|
|
|
|
|
| ||
Investments of insurance subsidiaries |
|
| 381 |
|
|
| 438 |
|
Investments in and advances to affiliates |
|
| 823 |
|
|
| 448 |
|
Goodwill and other intangible assets |
|
| 9,653 |
|
|
| 9,540 |
|
Right-of-use operating lease assets |
|
| 2,065 |
|
|
| 2,113 |
|
Other |
|
| 298 |
|
|
| 598 |
|
|
| $ | 52,438 |
|
| $ | 50,742 |
|
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 4,239 |
|
| $ | 4,111 |
|
Accrued salaries |
|
| 1,712 |
|
|
| 1,912 |
|
Other accrued expenses |
|
| 3,581 |
|
|
| 3,322 |
|
Long-term debt due within one year |
|
| 370 |
|
|
| 237 |
|
|
|
| 9,902 |
|
|
| 9,582 |
|
|
|
|
|
|
|
| ||
Long-term debt, less debt issuance costs and discounts of $301 and $248 |
|
| 37,714 |
|
|
| 34,342 |
|
Professional liability risks |
|
| 1,528 |
|
|
| 1,514 |
|
Right-of-use operating lease obligations |
|
| 1,752 |
|
|
| 1,755 |
|
Income taxes and other liabilities |
|
| 1,615 |
|
|
| 2,060 |
|
|
|
|
|
|
|
| ||
Stockholders’ equity (deficit): |
|
|
|
|
|
| ||
Common stock $0.01 par; authorized 1,800,000,000 shares; outstanding |
|
| 3 |
|
|
| 3 |
|
Accumulated other comprehensive loss |
|
| (490 | ) |
|
| (404 | ) |
Retained deficit |
|
| (2,280 | ) |
|
| (532 | ) |
Stockholders’ deficit attributable to HCA Healthcare, Inc. |
|
| (2,767 | ) |
|
| (933 | ) |
Noncontrolling interests |
|
| 2,694 |
|
|
| 2,422 |
|
|
|
| (73 | ) |
|
| 1,489 |
|
|
| $ | 52,438 |
|
| $ | 50,742 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F-7
HCA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192022, 2021 AND 2018
(Dollars in millions)
Equity (Deficit) Attributable to HCA Healthcare, Inc. | Equity Attributable to Noncontrolling Interests | Total | ||||||||||||||||||||||||||
Common Stock | Capital in Excess of Par Value | Accumulated Other Comprehensive Loss | Retained Earnings (Deficit) | |||||||||||||||||||||||||
Shares (in millions ) | Par Value | |||||||||||||||||||||||||||
Balances, December 31, 2017 | 350.092 | $ | 4 | $ | — | $ | (278 | ) | $ | (6,532 | ) | $ | 1,811 | $ | (4,995 | ) | ||||||||||||
Comprehensive income (loss) | (8 | ) | 3,787 | 602 | 4,381 | |||||||||||||||||||||||
Repurchase of common stock | (14.070 | ) | (1 | ) | (103 | ) | (1,426 | ) | (1,530 | ) | ||||||||||||||||||
Share-based benefit plans | 6.873 | 115 | 115 | |||||||||||||||||||||||||
Cash dividends declared ($1.40 share) | (496 | ) | (496 | ) | ||||||||||||||||||||||||
Distributions | (441 | ) | (441 | ) | ||||||||||||||||||||||||
Reclassification of stranded tax effects | (95 | ) | 95 | — | ||||||||||||||||||||||||
Other | (12 | ) | 60 | 48 | ||||||||||||||||||||||||
Balances, December 31, 2018 | 342.895 | 3 | — | (381 | ) | (4,572 | ) | 2,032 | (2,918 | ) | ||||||||||||||||||
Comprehensive income (loss) | (79 | ) | 3,505 | 640 | 4,066 | |||||||||||||||||||||||
Repurchase of common stock | (7.949 | ) | (302 | ) | (729 | ) | (1,031 | ) | ||||||||||||||||||||
Share-based benefit plans | 3.500 | 313 | 313 | |||||||||||||||||||||||||
Cash dividends declared ($1.60 share) | (555 | ) | (555 | ) | ||||||||||||||||||||||||
Distributions | (542 | ) | (542 | ) | ||||||||||||||||||||||||
Other | (11 | ) | 113 | 102 | ||||||||||||||||||||||||
Balances, December 31, 2019 | 338.446 | 3 | — | (460 | ) | (2,351 | ) | 2,243 | (565 | ) | ||||||||||||||||||
Comprehensive income (loss) | (42 | ) | 3,754 | 633 | 4,345 | |||||||||||||||||||||||
Repurchase of common stock | (3.287 | ) | (441 | ) | (441 | ) | ||||||||||||||||||||||
Share-based benefit plans | 4.267 | 300 | (35 | ) | 265 | |||||||||||||||||||||||
Cash dividends declared ($0.43 share) | (150 | ) | (150 | ) | ||||||||||||||||||||||||
Distributions | (626 | ) | (626 | ) | ||||||||||||||||||||||||
Other | (6 | ) | 70 | 64 | ||||||||||||||||||||||||
Balances, December 31, 2020 | 339.426 | $ | 3 | $ | 294 | $ | (502 | ) | $ | 777 | $ | 2,320 | $ | 2,892 | ||||||||||||||
|
| Equity (Deficit) Attributable to HCA Healthcare, Inc. |
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
| Capital |
|
| Accumulated |
|
|
|
|
| Equity |
|
|
|
| |||||||
|
| Common Stock |
|
| in Excess |
|
| Other |
|
| Retained |
|
| Attributable to |
|
|
|
| ||||||||||
|
| Shares |
|
| Par |
|
| of Par |
|
| Comprehensive |
|
| Earnings |
|
| Noncontrolling |
|
|
|
| |||||||
|
| (in millions) |
|
| Value |
|
| Value |
|
| Loss |
|
| (Deficit) |
|
| Interests |
|
| Total |
| |||||||
Balances, December 31, 2019 |
|
| 338.446 |
|
| $ | 3 |
|
| $ | — |
|
| $ | (460 | ) |
| $ | (2,351 | ) |
| $ | 2,243 |
|
| $ | (565 | ) |
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| (42 | ) |
|
| 3,754 |
|
|
| 633 |
|
|
| 4,345 |
| |||
Repurchase of common stock |
|
| (3.287 | ) |
|
|
|
|
|
|
|
|
|
|
| (441 | ) |
|
|
|
|
| (441 | ) | ||||
Share-based benefit plans |
|
| 4.267 |
|
|
|
|
|
| 300 |
|
|
|
|
|
| (35 | ) |
|
|
|
|
| 265 |
| |||
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (150 | ) |
|
|
|
|
| (150 | ) | |||||
Distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (626 | ) |
|
| (626 | ) | |||||
Other |
|
|
|
|
|
|
|
| (6 | ) |
|
|
|
|
|
|
|
| 70 |
|
|
| 64 |
| ||||
Balances, December 31, 2020 |
|
| 339.426 |
|
|
| 3 |
|
|
| 294 |
|
|
| (502 | ) |
|
| 777 |
|
|
| 2,320 |
|
|
| 2,892 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
| 98 |
|
|
| 6,956 |
|
|
| 765 |
|
|
| 7,819 |
| |||
Repurchase of common stock |
|
| (37.812 | ) |
|
|
|
|
| (578 | ) |
|
|
|
|
| (7,637 | ) |
|
|
|
|
| (8,215 | ) | |||
Share-based benefit plans |
|
| 3.863 |
|
|
|
|
|
| 280 |
|
|
|
|
|
|
|
|
|
|
|
| 280 |
| ||||
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (628 | ) |
|
|
|
|
| (628 | ) | |||||
Distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (749 | ) |
|
| (749 | ) | |||||
Other |
|
|
|
|
|
|
|
| 4 |
|
|
|
|
|
|
|
|
| 86 |
|
|
| 90 |
| ||||
Balances, December 31, 2021 |
|
| 305.477 |
|
|
| 3 |
|
|
| - |
|
|
| (404 | ) |
|
| (532 | ) |
|
| 2,422 |
|
|
| 1,489 |
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
| (86 | ) |
|
| 5,643 |
|
|
| 1,191 |
|
|
| 6,748 |
| |||
Repurchase of common stock |
|
| (30.747 | ) |
|
|
|
|
| (264 | ) |
|
|
|
|
| (6,736 | ) |
|
|
|
|
| (7,000 | ) | |||
Share-based benefit plans |
|
| 2.648 |
|
|
|
|
|
| 282 |
|
|
|
|
|
|
|
|
|
|
|
| 282 |
| ||||
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (655 | ) |
|
|
|
|
| (655 | ) | |||||
Distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,025 | ) |
|
| (1,025 | ) | |||||
Other |
|
|
|
|
|
|
|
| (18 | ) |
|
|
|
|
|
|
|
| 106 |
|
|
| 88 |
| ||||
Balances, December 31, 2022 |
|
| 277.378 |
|
| $ | 3 |
|
| $ | — |
|
| $ | (490 | ) |
| $ | (2,280 | ) |
| $ | 2,694 |
|
| $ | (73 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
F-8
HCA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020, 20192022, 2021 AND 2018
(Dollars in millions)
2020 | 2019 | 2018 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 4,387 | $ | 4,145 | $ | 4,389 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Increase (decrease) in cash from operating assets and liabilities: | ||||||||||||
Accounts receivable | 327 | (326 | ) | (423 | ) | |||||||
Inventories and other assets | (304 | ) | (158 | ) | (242 | ) | ||||||
Accounts payable and accrued expenses | 1,255 | 396 | 698 | |||||||||
Depreciation and amortization | 2,721 | 2,596 | 2,278 | |||||||||
Income taxes | 41 | 250 | 74 | |||||||||
Losses (gains) on sales of facilities | 7 | (18 | ) | (428 | ) | |||||||
Losses on retirement of debt | 295 | 211 | 9 | |||||||||
Amortization of debt issuance costs | 30 | 30 | 31 | |||||||||
Share-based compensation | 362 | 347 | 268 | |||||||||
Other | 111 | 129 | 107 | |||||||||
Net cash provided by operating activities | 9,232 | 7,602 | 6,761 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchase of property and equipment | (2,835 | ) | (4,158 | ) | (3,573 | ) | ||||||
Acquisition of hospitals and health care entities | (568 | ) | (1,682 | ) | (1,253 | ) | ||||||
Sales of hospitals and health care entities | 68 | 61 | 808 | |||||||||
Change in investments | (20 | ) | 25 | 57 | ||||||||
Other | (38 | ) | 34 | 60 | ||||||||
Net cash used in investing activities | (3,393 | ) | (5,720 | ) | (3,901 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Issuances of long-term debt | 2,700 | 6,451 | 2,000 | |||||||||
Net change in revolving credit facilities | (2,480 | ) | (560 | ) | (640 | ) | ||||||
Repayment of long-term debt | (3,437 | ) | (5,324 | ) | (1,704 | ) | ||||||
Distributions to noncontrolling interests | (626 | ) | (542 | ) | (441 | ) | ||||||
Payment of debt issuance costs | (35 | ) | (73 | ) | (25 | ) | ||||||
Payment of dividends | (153 | ) | (550 | ) | (487 | ) | ||||||
Repurchase of common stock | (441 | ) | (1,031 | ) | (1,530 | ) | ||||||
Other | (205 | ) | (142 | ) | (248 | ) | ||||||
Net cash used in financing activities | (4,677 | ) | (1,771 | ) | (3,075 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | 10 | 8 | (15 | ) | ||||||||
Change in cash and cash equivalents | 1,172 | 119 | (230 | ) | ||||||||
Cash and cash equivalents at beginning of period | 621 | 502 | 732 | |||||||||
Cash and cash equivalents at end of period | $ | 1,793 | $ | 621 | $ | 502 | ||||||
Interest payments | $ | 1,607 | $ | 1,914 | $ | 1,744 | ||||||
Income tax payments, net | $ | 1,002 | $ | 849 | $ | 872 | ||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 6,834 |
|
| $ | 7,721 |
|
| $ | 4,387 |
|
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
|
|
|
|
| |||
Increase (decrease) in cash from operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| (797 | ) |
|
| (962 | ) |
|
| 327 |
|
Inventories and other assets |
|
| (59 | ) |
|
| (540 | ) |
|
| (304 | ) |
Accounts payable and accrued expenses |
|
| (296 | ) |
|
| 999 |
|
|
| 1,255 |
|
Depreciation and amortization |
|
| 2,969 |
|
|
| 2,853 |
|
|
| 2,721 |
|
Income taxes |
|
| 571 |
|
|
| (70 | ) |
|
| 41 |
|
Losses (gains) on sales of facilities |
|
| (1,301 | ) |
|
| (1,620 | ) |
|
| 7 |
|
Losses on retirement of debt |
|
| 78 |
|
|
| 12 |
|
|
| 295 |
|
Amortization of debt issuance costs |
|
| 29 |
|
|
| 27 |
|
|
| 30 |
|
Share-based compensation |
|
| 341 |
|
|
| 440 |
|
|
| 362 |
|
Other |
|
| 153 |
|
|
| 99 |
|
|
| 111 |
|
Net cash provided by operating activities |
|
| 8,522 |
|
|
| 8,959 |
|
|
| 9,232 |
|
|
|
|
|
|
|
|
|
|
| |||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| |||
Purchase of property and equipment |
|
| (4,395 | ) |
|
| (3,577 | ) |
|
| (2,835 | ) |
Acquisition of hospitals and health care entities |
|
| (224 | ) |
|
| (1,105 | ) |
|
| (568 | ) |
Sales of hospitals and health care entities |
|
| 1,237 |
|
|
| 2,160 |
|
|
| 68 |
|
Change in investments |
|
| 14 |
|
|
| (117 | ) |
|
| (20 | ) |
Other |
|
| (21 | ) |
|
| (4 | ) |
|
| (38 | ) |
Net cash used in investing activities |
|
| (3,389 | ) |
|
| (2,643 | ) |
|
| (3,393 | ) |
|
|
|
|
|
|
|
|
|
| |||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| |||
Issuances of long-term debt |
|
| 5,997 |
|
|
| 4,344 |
|
|
| 2,700 |
|
Net change in revolving credit facilities |
|
| 120 |
|
|
| 2,780 |
|
|
| (2,480 | ) |
Repayment of long-term debt |
|
| (2,830 | ) |
|
| (3,869 | ) |
|
| (3,437 | ) |
Distributions to noncontrolling interests |
|
| (1,025 | ) |
|
| (749 | ) |
|
| (626 | ) |
Payment of debt issuance costs |
|
| (53 | ) |
|
| (38 | ) |
|
| (35 | ) |
Payment of dividends |
|
| (653 | ) |
|
| (624 | ) |
|
| (153 | ) |
Repurchase of common stock |
|
| (7,000 | ) |
|
| (8,215 | ) |
|
| (441 | ) |
Other |
|
| (212 | ) |
|
| (284 | ) |
|
| (205 | ) |
Net cash used in financing activities |
|
| (5,656 | ) |
|
| (6,655 | ) |
|
| (4,677 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| (20 | ) |
|
| (3 | ) |
|
| 10 |
|
Change in cash and cash equivalents |
|
| (543 | ) |
|
| (342 | ) |
|
| 1,172 |
|
Cash and cash equivalents at beginning of period |
|
| 1,451 |
|
|
| 1,793 |
|
|
| 621 |
|
Cash and cash equivalents at end of period |
| $ | 908 |
|
| $ | 1,451 |
|
| $ | 1,793 |
|
Interest payments |
| $ | 1,662 |
|
| $ | 1,502 |
|
| $ | 1,607 |
|
Income tax payments, net |
| $ | 1,175 |
|
| $ | 2,182 |
|
| $ | 1,002 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F-9
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ACCOUNTING POLICIES
Reporting Entity
HCA Healthcare, Inc. is a holding company whose affiliates own and operate hospitals and related health care entities. The term “affiliates” includes direct and indirect subsidiaries of HCA Healthcare, Inc. and partnerships and joint ventures in which such subsidiaries are partners. At December 31, 20202022 these affiliates owned and operated 185182 hospitals, 121
Basis of Presentation
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
The consolidated financial statements include all subsidiaries and entities controlled by HCA. We generally define “control” as ownership of a majority of the voting interest of an entity. The consolidated financial statements include entities in which we absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. The accounts of acquired entities are included in our consolidated financial statements for periods subsequent to our acquisition of controlling interests. Significant intercompany transactions have been eliminated. Investments in entities we do not control, but in which we have a substantial ownership interest and can exercise significant influence, are accounted for using the equity method.
The majority of our expenses are “cost of revenue” items. Costs that could be classified as general and administrative include our corporate office costs, which were $416$378 million, $370$400 million and $344$416 million for the years ended December 31, 2020, 2019 and 2018, respectively.
COVID-19
We believe the extent of the COVID-19 pandemic’sCOVID-19’s impact on our operating results and financial condition has been and willcould 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 severity or duration of the pandemic, including whether there will be additional periods of increases in the number of COVID-19 cases in the areas in which we operate, the rollout and availability of effective medical treatments and vaccines, the efficacy of public health controls, including vaccines, and the impact of any mutations of the virus; the scope and duration of stay-at-home practices and business closures and restrictions; recommended or required 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 how long or how severely the pandemicto what extent COVID-19 will impact our business. If we experience declines in cash flows and results of operations, such declines could 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.
Revenues
Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day.day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services we provide to the related patients typically specify payments at amounts less than our standard charges. Medicare generally pays for inpatient and outpatient services at prospectively determined rates based on clinical, diagnostic and other factors. Services provided to patients having Medicaid coverage are generally paid at prospectively
F-10
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Revenues (continued)
Our revenues are based upon the estimated amounts we expect to be entitled to receive from patients and third-party payers. Estimates of contractual adjustments under managed care and commercial insurance plans are based upon the payment terms specified in the related contractual agreements. Revenues related to uninsured patients and uninsured copayment and deductible amounts for patients who have health care coverage may have discounts applied (uninsured discounts and contractual discounts). We also record estimated implicit price concessions (based primarily on historical collection experience) related to uninsured accounts to record these revenues at the estimated amounts we expect to collect. Our revenues by primary third-party payer classification and other (including uninsured patients) for the years ended December 31, are summarized in the following table (dollars in millions):
|
| Years Ended December 31, |
| |||||||||||||||||||||
|
| 2022 |
|
| Ratio |
|
| 2021 |
|
| Ratio |
|
| 2020 |
|
| Ratio |
| ||||||
Medicare |
| $ | 10,447 |
|
|
| 17.3 | % |
| $ | 10,447 |
|
|
| 17.8 | % |
| $ | 10,420 |
|
|
| 20.2 | % |
Managed Medicare |
|
| 9,201 |
|
|
| 15.3 |
|
|
| 8,424 |
|
|
| 14.3 |
|
|
| 6,997 |
|
|
| 13.6 |
|
Medicaid |
|
| 2,636 |
|
|
| 4.4 |
|
|
| 2,290 |
|
|
| 3.9 |
|
|
| 1,965 |
|
|
| 3.8 |
|
Managed Medicaid |
|
| 3,998 |
|
|
| 6.6 |
|
|
| 3,124 |
|
|
| 5.3 |
|
|
| 2,621 |
|
|
| 5.1 |
|
Managed care and other insurers |
|
| 29,120 |
|
|
| 48.3 |
|
|
| 30,295 |
|
|
| 51.6 |
|
|
| 26,535 |
|
|
| 51.5 |
|
International (managed care and other insurers) |
|
| 1,317 |
|
|
| 2.2 |
|
|
| 1,336 |
|
|
| 2.3 |
|
|
| 1,120 |
|
|
| 2.2 |
|
Other |
|
| 3,514 |
|
|
| 5.9 |
|
|
| 2,836 |
|
|
| 4.8 |
|
|
| 1,875 |
|
|
| 3.6 |
|
Revenues |
| $ | 60,233 |
|
|
| 100.0 | % |
| $ | 58,752 |
|
|
| 100.0 | % |
| $ | 51,533 |
|
|
| 100.0 | % |
Years Ended December 31, | ||||||||||||||||||||||||
2020 | Ratio | 2019 | Ratio | 2018 | Ratio | |||||||||||||||||||
Medicare | $ | 10,420 | 20.2 | % | $ | 10,798 | 21.0 | % | $ | 9,831 | 21.1 | % | ||||||||||||
Managed Medicare | 6,997 | 13.6 | 6,452 | 12.6 | 5,497 | 11.8 | ||||||||||||||||||
Medicaid | 1,965 | 3.8 | 1,572 | 3.1 | 1,358 | 2.9 | ||||||||||||||||||
Managed Medicaid | 2,621 | 5.1 | 2,450 | 4.8 | 2,403 | 5.1 | ||||||||||||||||||
Managed care and other insurers | 26,535 | 51.5 | 26,544 | 51.6 | 24,467 | 52.4 | ||||||||||||||||||
International (managed care and other insurers) | 1,120 | 2.2 | 1,162 | 2.3 | 1,156 | 2.5 | ||||||||||||||||||
Other | 1,875 | 3.6 | 2,358 | 4.6 | 1,965 | 4.2 | ||||||||||||||||||
Revenues | $ | 51,533 | 100.0 | % | $ | 51,336 | 100.0 | % | $ | 46,677 | 100.0 | % | ||||||||||||
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Estimated reimbursement amounts are adjusted in subsequent periods as cost reports are prepared and filed and as final settlements are determined (in relation to certain government programs, primarily Medicare, this is generally referred to as the “cost report” filing and settlement process). The adjustments to estimated Medicare and Medicaid reimbursement amounts and disproportionate-share fundsamounts, related primarily to cost reports filed during the respective year, resulted in net increases to revenues of $70$56 million, $51$53 million and $29$70 million in 2020, 20192022, 2021 and 2018,2020, respectively. The adjustments to estimated reimbursement amounts related primarily to cost reports filed during previous years resulted in a netreduction$5$42 million in 2020 and2022, a net increasesincrease to revenues of $13 million and $51$19 million in 20192021 and 2018, respectively.
The Emergency Medical Treatment and Labor Act (“EMTALA”) requires any hospital participating in the Medicare program to conduct an appropriate medical screening examination of every person who presents to the hospital’s emergency room for treatment and, if the individual is suffering from an emergency medical condition, to either stabilize the condition or make an appropriate transfer of the individual to a facility able to handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of an
Patients treated at hospitals for400%wereare eligible for charity care, and we limit the patient responsibility amounts for these patients to a percentage of their annual household income, computed on a sliding scale based upon their annual income and the applicable percentage of the federal poverty level. Patients treated at hospitals for non-elective care, who have income above 400%400% of the federal poverty level, wereare eligible for certain other discounts which limit the patient responsibility amounts for these patients to a percentage of their annual household income, computed on a sliding scale based upon their annual income and the applicable percentage of the federal poverty level. We apply additional discounts to limit patient responsibility for certain emergency services. The federal poverty level is established by the federal government and is based on income and family size. Because we do not pursue collection of amounts determined to qualify as charity care, they are not reported in revenues. We provide discounts to uninsured patients who do not qualify for Medicaid or charity care. We may attempt to provide assistance to uninsured patients to help determine whether they may qualify for Medicaid, other federal or state assistance, or charity care. If an uninsured patient does not qualify for these programs, the uninsured discount is applied.
F-11
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Revenues (continued)
The collection of outstanding receivables forfrom Medicare, Medicaid, managed care payers, other third-party payers and patients is our primary source of cash and is critical to our operating performance. The primary collection risks relate to uninsured patient accounts, including patient accounts for which the primary insurance carrier has paid the amounts covered by the applicable agreement, but patient responsibility amounts (deductibles and copayments) remain outstanding. Implicit price concessions relate primarily to amounts due directly from patients. Estimated implicit price concessions are recorded for all uninsured accounts, regardless of the age of those accounts. Accounts are written off when all reasonable collection efforts have been performed.
The estimates for implicit price concessions are based upon management’s assessment of historical writeoffs and expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. Management relies on the results of detailed reviews of historical writeoffs and collections at facilities that represent a majority of our revenues and accounts receivable (the “hindsight analysis”) as a primary source of information in estimating the collectability of our accounts receivable. We perform the hindsight analysis quarterly, utilizing rolling twelve-months accounts receivable collection and writeoff data. We believe our quarterly updates to the estimated implicit price concession amounts at each of our hospital facilities provide reasonable estimates of our revenues and valuations of our accounts receivable. These routine, quarterly changes in estimates have not resulted in material adjustments to the valuations of our accounts receivable or revenues. revenues. At December 31, 20202022 and 2019,2021, estimated implicit price concessions of $6.108$6.780 billion and $6.953$6.784 billion, respectively, had been recorded to adjust our revenues and accounts receivable to the estimated amounts we expect to collect.
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 years ended December 31, follows (dollars in millions):
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Patient care costs (salaries and benefits, supplies, other operating |
| $ | 51,180 |
|
| $ | 49,074 |
|
| $ | 44,271 |
|
Cost-to-charges ratio (patient care costs as percentage of gross |
|
| 11.0 | % |
|
| 11.3 | % |
|
| 12.0 | % |
Total uncompensated care |
| $ | 31,734 |
|
| $ | 29,642 |
|
| $ | 29,029 |
|
Multiply by the cost-to-charges ratio |
|
| 11.0 | % |
|
| 11.3 | % |
|
| 12.0 | % |
Estimated cost of total uncompensated care |
| $ | 3,491 |
|
| $ | 3,350 |
|
| $ | 3,483 |
|
2020 | 2019 | 2018 | ||||||||||
Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization) | $ | 44,271 | $ | 44,118 | $ | 40,035 | ||||||
Cost-to-charges | 12.0 | % | 12.0 | % | 12.4 | % | ||||||
Total uncompensated care | $ | 29,029 | $ | 31,105 | $ | 26,757 | ||||||
Multiply by the cost-to-charges | 12.0 | % | 12.0 | % | 12.4 | % | ||||||
Estimated cost of total uncompensated care | $ | 3,483 | $ | 3,733 | $ | 3,318 | ||||||
The total uncompensated care amounts include charity care of $13.763$13.615 billion, $13.260$13.644 billion and $8.611$13.763 billion for the years ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively. The estimated costscost of charity care were $1.652was $1.498 billion, $1.591$1.542 billion and $1.068$1.652 billion for the years ended December 31, 2022, 2021 and 2020, 2019 and 2018, respectively.
Cash and Cash
Cash and cash equivalents include
Our cash management system provides for daily investment of available balances and the funding of outstanding checks when presented for payment. Outstanding, but unpresented, checks totaling $495$656 million and $486$536 million at December 31, 20202022 and 2019,2021, respectively, have been included in “accounts payable” in the consolidated balance sheets. Upon presentation for payment, these checks are funded through available cash balances or our credit facility.
F-12
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Accounts Receivable
We receive payments for services rendered from federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies, employers and patients. We recognize that revenues and receivables from government agencies are significant to our operations, but do not believe there are significant credit risks associated with these government agencies. We do not believe there are any other significant concentrations of revenues from any particular payer that would subject us to any significant credit risks in the collection of our accounts receivable. Days revenues in accounts receivable were 4553 days, 5049 days and 5145 days at December 31, 2022, 2021 and 2020, 2019 and 2018,
Inventories
Inventories are stated at the lower of cost(first-in,
Property and Equipment
Depreciation expense, computed using the straight-line method, was $2.693$2.941 billion in 2020, $2.5792022, $2.826 billion in 20192021 and $2.262$2.693 billion in 2018.2020. Buildings and improvements are depreciated over estimated useful lives ranging generally from 10 to 40 years. Estimated useful lives of equipment vary generally from four to 10 years.
When events, circumstances or operating results indicate the carrying values of certain long-lived assetsproperty and equipment expected to be held and used might be impaired, we prepare projections of the undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the projections indicate the recorded amounts are not expected to be recoverable, such amounts are reduced to estimated fair value. Fair value may be estimated based upon internal evaluations that include quantitative analyses of revenues and cash flows, reviews of recent sales of similar assets and independent appraisals.
Property and equipment to be disposed of are reported at the lower of their carrying amounts or fair value less costs to sell or close. The estimates of fair value are usually based upon recent sales of similar assets and market responses based upon discussions with and offers received from potential buyers.
Investments of Insurance Subsidiaries
At December 31, 20202022 and 2019,2021, the investments ofinvestment securities held by our 100% owned insurance subsidiaries were classified as“available-for-sale”
F-13
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Goodwill and Intangible Assets
Goodwill is not amortized but is subject to annual impairment tests. In addition to the annual impairment review, impairment reviews are performed whenever circumstances indicate a possible impairment may exist.
During 2020,2022, goodwill increased by $279
During 2020,2022, identifiable intangible assets increaseddeclined by $65 million related to acquisitions, including the finalization of the accounting for certain prior year acquisitions, and declined by
Debt Issuance Costs and Discounts
Debt issuance costs and discounts are amortized based upon the terms of the respective debt obligations. The gross carrying amountamounts of debt issuance costs and discounts at December 31, 20202022 and 2019 was $4112021 were $496 million and $413$446 million, respectively, and accumulated amortization was $175$195 million and $174$198 million, respectively. Amortization of debt issuance costs and discounts is included in interest expense and was $30$29 million, $30$27 million and $31$30 million for 2022, 2021 and 2020, 2019 and 2018, respectively.
Professional Liability Claims
Reserves for professional liability risks were $1.963$2.043 billion and $1.827$2.022 billion at December 31, 20202022 and 2019,2021, respectively. The current portion of the reserves, $477$515 million and $457
F-14
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 — ACCOUNTING POLICIES (continued)
Professional Liability Claims (continued)
A portion of our professional liability risks is insured through a 100% ownedour insurance subsidiary. Subject, in most cases, to a $15$15 million per occurrence self-insured retention, our facilities are insured by our 100% owned insurance subsidiary for losses up to $50
The obligations covered by reinsurance and excess insurance contracts are included in the reserves for professional liability risks, as we remain liable to the extent the reinsurers and excess insurance carriers do not meet their obligations under the reinsurance and excess insurance contracts. The amounts receivable under the reinsurance contracts include $31were $48 million and $37$44 million at December 31, 20202022 and 2019,2021, respectively, recorded in “other assets,” and $8$12 million and $9$11 million at December 31, 20202022 and 2019,2021, respectively, recorded in “other current assets.”
Financial Instruments
Derivative financial instruments arehave been employed to manage risks, including interest rate risks,exposures, and arehave not been used for trading or speculative purposes. We recognize our interest rate swap derivative instruments in the consolidated balance sheets at fair value. Changes in the fair value of derivatives are recognized periodically either in earnings or in stockholders’ equity, as a component of other comprehensive income, (loss), provideddepending on whether the derivative financial instrument qualifies for hedge accounting.accounting, and if so, whether it qualifies as a fair value hedge or a cash flow hedge. Gains and losses on derivatives designated as cash flow hedges, to the extent they are effective, are recorded in other comprehensive income, (loss), and subsequently reclassified to earnings to offset the impact of the forecasted transactionshedged items when they occur. In the event the forecasted transaction to which a cash flow hedge relates is no longer likely, the amount in other comprehensive income is recognized in earnings and generally the derivative is terminated.
Noncontrolling Interests in Consolidated Entities
The consolidated financial statements include all assets, liabilities, revenues and expenses of less than 100% owned entities that we control. Accordingly, we have recorded noncontrolling interests in the earnings and equity of such entities.
NOTE 2 — SHARE-BASED COMPENSATION
Stock Incentive Plans
Our stock incentive plans are designed to promote the long termlong-term financial interests and growth of the Company by attracting and retaining management and other personnel, motivating them to achieve long range goals and aligning their interests with those of our stockholders through opportunities for stock-based compensation and stock ownership in the Company.stockholders. Stock option, stock appreciation right (“SARs”) and restricted share unit (“RSUs”) grants vest solely based upon continued employment over a specific period of time, and performance share unit (“PSUs”) grants vest based upon both continued employment over a specific period of time and the achievement of predetermined financial targets over a specific period of time. No further grants will be made under the 2006 Plan, and no shares under the 2006 Plan are available for grant under the 2020 Plan.20202022 there were 20.27413.826 million shares available for future grants under the 2020 Plan.
Employee Stock Purchase Plan
Our employee stock purchase plan (“ESPP”) provides our participating employees an opportunity to obtain shares of our common stock at a discount (through payroll deductions over three-month periods). At December 31, 2020, 5.8652022, 4.436 million shares of common stock were reserved for issuance under the ESPP provisions.issuances. During 2020, 20192022, 2021 and 2018,2020, the Company recognized $13$16 million, $12$15 million and $10$13 million, respectively, of compensation expense related to the ESPP.
F-15
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 — SHARE-BASED COMPENSATION (continued)
SAR, RSU and PSU Activity – All Plans
The fair value of each stock option and SAR award is estimated on the grant date, using valuation models and the weighted average assumptions indicated in the following table. Awards under our stock incentive plans generally vest based on continued employment (“Time Stock Options and SARs” and “Time RSUs”“RSUs”) andor based upon continued employment and the achievement of certain financial targets (“Performance Stock Options and SARs”, “Performance RSUs” and “PSUs”). PSUs have a three-year cumulative earnings per share target, and the number of PSUs earned can vary from zero (for actual performance of less than 90% of target for 2020 and 2019 grants and less than 80% of target for 2018 and prior grants)target) to two times the original PSU grant (for actual performance of 110% or more of target for 2020 and 2019 grants and 120% or more of target for 2018 and prior grants)target). Each grant is valued as a single award with an expected term equal to the average expected term of the component vesting tranches. The expected term of the share-based award is limited by the contractual term. We use historical exercise behavior data and other factors to estimate the expected term of the options and SARs.
Compensation cost is recognized on the straight-line attribution method. The straight-line attribution method requires that total compensation expense recognized must at least equal the vested portion of the grant-date fair value. The expected volatility is derived using historical stock price information for our common stock and the volatility implied by the trading of options to purchase our stock on open-market exchanges. The risk-free interest rate is the approximate yield on United States Treasury Strips having a life equal to the expected share-based award life on the date of grant. The expected life is an estimate of the number of years a share-based award will be held before it is exercised. The expected dividend yield is estimated based on the assumption that the dividend yield at date of grant will be maintained over the expected life of the grant.
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Risk-free interest rate |
|
| 1.64 | % |
|
| 0.68 | % |
|
| 1.44 | % |
Expected volatility |
|
| 34 | % |
|
| 36 | % |
|
| 27 | % |
Expected life, in years |
|
| 5.11 |
|
|
| 6.17 |
|
|
| 6.15 |
|
Expected dividend yield |
|
| 0.95 | % |
|
| 1.10 | % |
|
| 1.19 | % |
2020 | 2019 | 2018 | ||||||||||
Risk-free interest rate | 1.44 | % | 2.50 | % | 2.62 | % | ||||||
Expected volatility | 27 | % | 27 | % | 29 | % | ||||||
Expected life, in years | 6.15 | 6.18 | 6.15 | |||||||||
Expected dividend yield | 1.19 | % | 1.16 | % | 1.37 | % | ||||||
Information regarding Time Stock Options and SARs and Performance Stock Options and SARs activity during 2020, 20192022, 2021 and 20182020 is summarized below (share amounts in thousands):
|
| Time |
|
| Performance |
|
| Total |
|
| Weighted |
|
| Weighted |
| Aggregate |
| |||||
SARs outstanding, December 31, 2019 |
|
| 9,050 |
|
|
| 2,144 |
|
|
| 11,194 |
|
| $ | 71.79 |
|
|
|
|
|
| |
Granted |
|
| 1,120 |
|
|
| — |
|
|
| 1,120 |
|
|
| 144.47 |
|
|
|
|
|
| |
Exercised |
|
| (2,159 | ) |
|
| (1,325 | ) |
|
| (3,484 | ) |
|
| 44.07 |
|
|
|
|
|
| |
Cancelled |
|
| (175 | ) |
|
| — |
|
|
| (175 | ) |
|
| 111.69 |
|
|
|
|
|
| |
SARs outstanding, December 31, 2020 |
|
| 7,836 |
|
|
| 819 |
|
|
| 8,655 |
|
|
| 91.53 |
|
|
|
|
|
| |
Granted |
|
| 877 |
|
|
| — |
|
|
| 877 |
|
|
| 174.98 |
|
|
|
|
|
| |
Exercised |
|
| (2,443 | ) |
|
| (533 | ) |
|
| (2,976 | ) |
|
| 67.57 |
|
|
|
|
|
| |
Cancelled |
|
| (108 | ) |
|
| — |
|
|
| (108 | ) |
|
| 138.32 |
|
|
|
|
|
| |
SARs outstanding, December 31, 2021 |
|
| 6,162 |
|
|
| 286 |
|
|
| 6,448 |
|
|
| 113.15 |
|
|
|
|
|
| |
Granted |
|
| 570 |
|
|
| — |
|
|
| 570 |
|
|
| 236.00 |
|
|
|
|
|
| |
Exercised |
|
| (660 | ) |
|
| (159 | ) |
|
| (819 | ) |
|
| 90.84 |
|
|
|
|
|
| |
Cancelled |
|
| (112 | ) |
|
| — |
|
|
| (112 | ) |
|
| 182.87 |
|
|
|
|
|
| |
SARs outstanding, December 31, 2022 |
|
| 5,960 |
|
|
| 127 |
|
|
| 6,087 |
|
| $ | 126.38 |
|
| 5.7 years |
| $ | 691 |
|
SARs exercisable, December 31, 2022 |
|
| 4,022 |
|
|
| 127 |
|
|
| 4,149 |
|
| $ | 102.20 |
|
| 4.7 years |
| $ | 572 |
|
Time Stock Options and SARs | Performance Stock Options and SARs | Total Stock Options and SARs | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value (dollars in millions) | |||||||||||||||||||
Options and SARs outstanding, December 31, 2017 | 11,156 | 4,586 | 15,742 | $ | 43.47 | |||||||||||||||||||
Granted | 2,342 | — | 2,342 | 101.96 | ||||||||||||||||||||
Exercised | (3,917 | ) | (1,774 | ) | (5,691 | ) | 27.86 | |||||||||||||||||
Cancelled | (221 | ) | (145 | ) | (366 | ) | 68.43 | |||||||||||||||||
Options and SARs outstanding, December 31, 2018 | 9,360 | 2,667 | 12,027 | 61.49 | ||||||||||||||||||||
Granted | 1,349 | — | 1,349 | 138.31 | ||||||||||||||||||||
Exercised | (1,137 | ) | (523 | ) | (1,660 | ) | 44.45 | |||||||||||||||||
Cancelled | (522 | ) | — | (522 | ) | 93.26 | ||||||||||||||||||
Options and SARs outstanding, December 31, 2019 | 9,050 | 2,144 | 11,194 | 71.79 | ||||||||||||||||||||
Granted | 1,120 | — | 1,120 | 144.47 | ||||||||||||||||||||
Exercised | (2,159 | ) | (1,325 | ) | (3,484 | ) | 44.07 | |||||||||||||||||
Cancelled | (175 | ) | — | (175 | ) | 111.69 | ||||||||||||||||||
Options and SARs outstanding, December 31, 2020 | 7,836 | 819 | 8,655 | $ | 91.53 | 6.0 years | $ | 631 | ||||||||||||||||
Options and SARs exercisable, December 31, 2020 | 4,562 | 819 | 5,381 | $ | 71.25 | 4.8 years | $ | 502 | ||||||||||||||||
F-16
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 — SHARE-BASED COMPENSATION (continued)
The weighted average fair values of stock options and SARs granted during 2022, 2021 and 2020 2019were $69.55, $54.57 and 2018 were $35.98, $38.21 and $28.90$35.98 per share, respectively. The total intrinsic valuevalues of stock options and SARs exercised during 2022, 2021 and 2020 2019 and 2018 was $328were $115 million, $153$404 million and $456$328 million, respectively. As of December 31, 2020,2022, the unrecognized compensation cost related to nonvested stock options and SARs was $53$40 million.
SAR, RSU and PSU Activity – All Plans (continued)
Information regarding Time RSUs, Performance RSUs and PSUs activity during 2020, 20192022, 2021 and 20182020 is summarized below (share amounts in thousands):
|
| RSUs |
|
| PSUs |
|
| Total RSUs |
|
| Weighted |
| ||||
RSUs and PSUs outstanding, December 31, 2019 |
|
| 2,620 |
|
|
| 3,035 |
|
|
| 5,655 |
|
| $ | 105.23 |
|
Granted |
|
| 1,048 |
|
|
| 808 |
|
|
| 1,856 |
|
|
| 144.17 |
|
Performance adjustment |
|
| — |
|
|
| 206 |
|
|
| 206 |
|
|
| 81.89 |
|
Vested |
|
| (1,030 | ) |
|
| (1,364 | ) |
|
| (2,394 | ) |
|
| 88.63 |
|
Cancelled |
|
| (162 | ) |
|
| (93 | ) |
|
| (255 | ) |
|
| 124.50 |
|
RSUs and PSUs outstanding, December 31, 2020 |
|
| 2,476 |
|
|
| 2,592 |
|
|
| 5,068 |
|
|
| 125.40 |
|
Granted |
|
| 899 |
|
|
| 689 |
|
|
| 1,588 |
|
|
| 174.34 |
|
Performance adjustment |
|
| — |
|
|
| 684 |
|
|
| 684 |
|
|
| 102.02 |
|
Vested |
|
| (992 | ) |
|
| (1,772 | ) |
|
| (2,764 | ) |
|
| 106.62 |
|
Cancelled |
|
| (192 | ) |
|
| (110 | ) |
|
| (302 | ) |
|
| 149.07 |
|
RSUs and PSUs outstanding, December 31, 2021 |
|
| 2,191 |
|
|
| 2,083 |
|
|
| 4,274 |
|
|
| 150.32 |
|
Granted |
|
| 611 |
|
|
| 455 |
|
|
| 1,066 |
|
|
| 235.71 |
|
Performance adjustment |
|
| — |
|
|
| 699 |
|
|
| 699 |
|
|
| 138.45 |
|
Vested |
|
| (878 | ) |
|
| (1,399 | ) |
|
| (2,277 | ) |
|
| 138.41 |
|
Cancelled |
|
| (140 | ) |
|
| (123 | ) |
|
| (263 | ) |
|
| 183.86 |
|
RSUs and PSUs outstanding, December 31, 2022 |
|
| 1,784 |
|
|
| 1,715 |
|
|
| 3,499 |
|
| $ | 179.18 |
|
Time RSUs | Performance RSUs | PSUs | Total RSUs and PSUs | Weighted Average Grant Date Fair Value | ||||||||||||||||
RSUs and PSUs outstanding, December 31, 2017 | 3,465 | 227 | 3,562 | 7,254 | $ | 72.05 | ||||||||||||||
Granted | 1,464 | — | 1,261 | 2,725 | 101.85 | |||||||||||||||
Performance adjustment | — | — | 1,250 | 1,250 | 69.27 | |||||||||||||||
Vested | (1,487 | ) | (136 | ) | (2,500 | ) | (4,123 | ) | 67.33 | |||||||||||
Cancelled | (319 | ) | (91 | ) | (151 | ) | (561 | ) | 78.82 | |||||||||||
RSUs and PSUs outstanding, December 31, 2018 | 3,123 | — | 3,422 | 6,545 | 86.32 | |||||||||||||||
Granted | 973 | — | 796 | 1,769 | 138.45 | |||||||||||||||
Performance adjustment | — | — | 227 | 227 | 69.94 | |||||||||||||||
Vested | (1,216 | ) | — | (1,251 | ) | (2,467 | ) | 75.97 | ||||||||||||
Cancelled | (260 | ) | — | (159 | ) | (419 | ) | 103.27 | ||||||||||||
RSUs and PSUs outstanding, December 31, 2019 | 2,620 | — | 3,035 | 5,655 | 105.23 | |||||||||||||||
Granted | 1,048 | — | 808 | 1,856 | 144.17 | |||||||||||||||
Performance adjustment | — | — | 206 | 206 | 81.89 | |||||||||||||||
Vested | (1,030 | ) | — | (1,364 | ) | (2,394 | ) | 88.63 | ||||||||||||
Cancelled | (162 | ) | — | (93 | ) | (255 | ) | 124.50 | ||||||||||||
RSUs and PSUs outstanding, December 31, 2020 | 2,476 | — | 2,592 | 5,068 | $ | 125.40 | ||||||||||||||
The total fair valuevalues of RSUs and PSUs that vested during 2022, 2021 and 2020 2019 and 2018 was $349were $550 million, $346$475 million and $413$349 million, respectively. As of December 31, 2020,2022, the unrecognized compensation cost related to RSUs and PSUs was $330$324 million.
NOTE 3 — ACQUISITIONS AND DISPOSITIONS
During 2020,2022, we paid $568 million to $acquire a hospital224 in New Hampshire and other nonhospital health care entities. During 2019, we paid $1.384 billion to acquire a 7-hospital health system in North Carolina and $298 million to acquire nonhospital health care entities.entities (noncontrolling interests of $72 million were recorded). During 2018,2021, we paid $792$67 million to acquire 2two hospital facilities, one in southern Georgia and $461one in Tennessee, $594 million to acquire a network of urgent care centers in Florida and $114 million to acquire other nonhospital health care entities (noncontrolling interests of $117 million were recorded). We also paid $330 million and assumed certain liabilities to acquire an 80% interest (noncontrolling interests of $100 million were recorded) in a venture providing post-acute care services (home health and hospice). During 2020, we paid $568 million to acquire a hospital in New Hampshire and other nonhospital health care entities. Purchase price amounts have been allocated to the related assets acquired and liabilities assumed based upon their respective fair values. The purchase price paid in excess of the fair value of identifiable net assets of these acquired entities aggregated $279$262 million, $332 million$1.002 billion and $636$279 million in 2020, 20192022, 2021 and 2018,2020, respectively. The consolidated financial statements include the accounts and operations of the acquired entities subsequent to the respective acquisition dates. The pro forma effects of these acquired entities on our results of operations for periods prior to the respective acquisition dates were not significant.
F-17
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 — ACQUISITIONS AND DISPOSITIONS (continued)
During 2022, we received proceeds of $326 million and recognized a pretax gain of $274 million ($200 million after tax) related to sales of real estate and other health care entity investments. We also received proceeds of $911 million and recognized a pretax gain of $1.027 billion ($527 million after tax and amounts attributable to noncontrolling interests) related to the sale of a controlling interest in a subsidiary of our group purchasing organization. During 2021, we received proceeds of $1.502 billion and recognized a pretax gain of $1.226 billion ($920 million after tax) related to the sales of five hospital facilities in Georgia, comprised of three facilities from our American Group (northern Georgia market) and two facilities from our National Group (southern Georgia market). We also received proceeds of $658 million and recognized a pretax gain of $394 million ($294 million after tax) related to sales of other health care entity investments and real estate. During 2020, we received proceeds of $68$68 million and recognized a pretax loss of $7$7 million ($9 million after tax) related toto the sale of a hospital facility from our American Group (Mississippi market) and sales of real estate and other investments. During 2019, we received proceeds of $61 million and recognized a pretax gain of $18 million ($13 million after tax) related to the sale of a hospital facility from our American Group (a Louisiana
NOTE 4 — INCOME TAXES
The provision for income taxes consists of the following (dollars in millions):
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Current: |
|
|
|
|
|
|
|
|
| |||
Federal |
| $ | 1,222 |
|
| $ | 1,769 |
|
| $ | 1,021 |
|
State |
|
| 206 |
|
|
| 311 |
|
|
| 126 |
|
Foreign |
|
| 18 |
|
|
| 15 |
|
|
| 5 |
|
Deferred: |
|
|
|
|
|
|
|
|
| |||
Federal |
|
| 261 |
|
|
| 24 |
|
|
| (73 | ) |
State |
|
| 27 |
|
|
| (18 | ) |
|
| (39 | ) |
Foreign |
|
| 12 |
|
|
| 11 |
|
|
| 3 |
|
|
| $ | 1,746 |
|
| $ | 2,112 |
|
| $ | 1,043 |
|
2020 | 2019 | 2018 | ||||||||||
Current: | ||||||||||||
Federal | $ | 1,021 | $ | 670 | $ | 759 | ||||||
State | 126 | 134 | 149 | |||||||||
Foreign | 5 | 17 | 23 | |||||||||
Deferred: | ||||||||||||
Federal | (73 | ) | 254 | 9 | ||||||||
State | (39 | ) | 29 | 13 | ||||||||
Foreign | 3 | (5 | ) | (7 | ) | |||||||
$ | 1,043 | $ | 1,099 | $ | 946 | |||||||
Our provision for income taxes for the years ended December 31, 2020, 20192022, 2021 and 20182020 included tax benefits of $92$77 million, $65$119 million and $124$92 million, respectively, related to the settlement of employee equity awards. During 2018, we recorded a reduction to our provision for income taxes of $28 million for tax credits related to certain 2017 hurricane-related expenses. Our foreign pretax income was $9$66 million, $50$64 million and $86$9 million for the years ended December 31, 2022, 2021 and 2020, 2019 and 2018, respectively.
A reconciliation of the federal statutory rate to the effective income tax rate follows:
2020 | 2019 | 2018 | ||||||||||
Federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||
State income taxes, net of federal tax benefit | 1.9 | 2.7 | 2.9 | |||||||||
Change in liability for uncertain tax positions | (0.2 | ) | 0.4 | (0.1 | ) | |||||||
Tax benefit from settlements of employee equity awards | (1.8 | ) | (1.3 | ) | (2.4 | ) | ||||||
Impact of Tax Act on deferred tax balances | — | — | (1.6 | ) | ||||||||
Other items, net | 0.8 | 1.1 | 0.2 | |||||||||
Effective income tax rate on income attributable to HCA Healthcare, Inc. | 21.7 | 23.9 | 20.0 | |||||||||
Income attributable to noncontrolling interests from consolidated partnerships | (2.5 | ) | (2.9 | ) | (2.3 | ) | ||||||
Effective income tax rate on income before income taxes | 19.2 | % | 21.0 | % | 17.7 | % | ||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Federal statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
State income taxes, net of federal tax benefit |
|
| 2.3 |
|
|
| 2.0 |
|
|
| 1.9 |
|
Change in liability for uncertain tax positions |
|
| 0.7 |
|
|
| 0.7 |
|
|
| (0.2 | ) |
Tax benefit from settlements of employee equity awards |
|
| (0.9 | ) |
|
| (1.2 | ) |
|
| (1.8 | ) |
Other items, net |
|
| 0.5 |
|
|
| 0.8 |
|
|
| 0.8 |
|
Effective income tax rate on income attributable to HCA Healthcare, Inc. |
|
| 23.6 |
|
|
| 23.3 |
|
|
| 21.7 |
|
Income attributable to noncontrolling interests from consolidated partnerships |
|
| (3.3 | ) |
|
| (1.8 | ) |
|
| (2.5 | ) |
Effective income tax rate on income before income taxes |
|
| 20.3 | % |
|
| 21.5 | % |
|
| 19.2 | % |
F-18
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 — INCOME TAXES (continued)
A summary of the items comprising theour deferred tax assets and liabilities at December 31 follows (dollars in millions):
|
| 2022 |
|
| 2021 |
| ||||||||||
|
| Assets |
|
| Liabilities |
|
| Assets |
|
| Liabilities |
| ||||
Depreciation and fixed asset basis differences |
| $ | — |
|
| $ | 938 |
|
| $ | — |
|
| $ | 737 |
|
Allowances for professional liability and other risks |
|
| 430 |
|
|
|
|
|
| 426 |
|
|
| — |
| |
Accounts receivable |
|
| 368 |
|
|
|
|
|
| 348 |
|
|
| — |
| |
Compensation |
|
| 402 |
|
|
|
|
|
| 502 |
|
|
| — |
| |
Right-of-use lease assets and obligations |
|
| 451 |
|
|
| 438 |
|
|
| 428 |
|
|
| 419 |
|
Other |
|
| 536 |
|
|
| 698 |
|
|
| 499 |
|
|
| 652 |
|
|
| $ | 2,187 |
|
| $ | 2,074 |
|
| $ | 2,203 |
|
| $ | 1,808 |
|
2020 | 2019 | |||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||
Depreciation and fixed asset basis differences | $ | 0 | $ | 678 | $ | 0 | $ | 601 | ||||||||
Allowances for professional liability and other risks | 407 | 0 | 376 | 0 | ||||||||||||
Accounts receivable | 283 | 0 | 307 | 0 | ||||||||||||
Compensation | 487 | 0 | 292 | 0 | ||||||||||||
Right-of-use | 416 | 409 | 369 | 366 | ||||||||||||
Other | 485 | 606 | 461 | 538 | ||||||||||||
$ | 2,078 | $ | 1,693 | $ | 1,805 | $ | 1,505 | |||||||||
At December 31, 2020,2022, federal and state net operating loss carryforwards (expiring in years 20232025 through 2039)2039) available to offset future taxable income approximated $56$28 million and $127$193 million, respectively. Utilization of net operating loss carryforwards in any one year may be limited.
The following table summarizes the activity related to our gross unrecognized tax benefits, (dollars in millions):
2020 | 2019 | |||||||
Balance at January 1 | $ | 522 | $ | 390 | ||||
Additions (reductions) based on tax positions related to the current year | (3 | ) | 29 | |||||
Additions for tax positions of prior years | 13 | 119 | ||||||
Reductions for tax positions of prior years | (30 | ) | (3 | ) | ||||
Settlements | (22 | ) | 0 | |||||
Lapse of applicable statutes of limitations | (11 | ) | (13 | ) | ||||
Balance at December 31 | $ | 469 | $ | 522 | ||||
|
| 2022 |
|
| 2021 |
| ||
Balance at January 1 |
| $ | 576 |
|
| $ | 469 |
|
Additions based on tax positions related to the current year |
|
| 25 |
|
|
| 57 |
|
Additions for tax positions of prior years |
|
| 50 |
|
|
| 66 |
|
Reductions for tax positions of prior years |
|
| (4 | ) |
|
| (6 | ) |
Settlements |
|
| (1 | ) |
|
| (3 | ) |
Lapse of applicable statutes of limitations |
|
| (7 | ) |
|
| (7 | ) |
Balance at December 31 |
| $ | 639 |
|
| $ | 576 |
|
Unrecognized tax benefits of $278 million as of December 31, 2019)2022 ($217 million as of December 31, 2021) would affect the effective rate, if recognized.
The Internal Revenue Service (“IRS”) was conducting an examination of the Company’s 2016, 2017 and 2018 federal income tax returns and the 2019 return for one affiliated partnership at December 31, 2020.2022. We are also subject to examination by state and foreign taxing authorities. Depending on the resolution of any federal, state and foreign tax disputes, the completion of examinations by federal, state or foreign taxing authorities, or the expiration of statutes of limitation for specific taxing jurisdictions, we believe it is reasonably possible that our liability for unrecognized tax benefits may significantly increase or decrease within the next 12 months. However, we are currently unable to estimate the range of any possible change.
F-19
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 — EARNINGS PER SHARE
We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock options, SARs, RSUs and PSUs, computed using the treasury stock method.During 2020, 20192022, 2021 and 2018,2020, we repurchased 3.28730.747 million shares, 7.94937.812 million shares and 14.0703.287 million shares, respectively, of our common stock.The following table sets forth the computations of basic and diluted earnings per share for the years ended December 31, 2020, 20192022, 2021 and 20182020 (dollars and shares in millions, except per share amounts):
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Net income attributable to HCA Healthcare, Inc. |
| $ | 5,643 |
|
| $ | 6,956 |
|
| $ | 3,754 |
|
|
|
|
|
|
|
|
|
|
| |||
Weighted average common shares outstanding |
|
| 290.348 |
|
|
| 323.315 |
|
|
| 338.274 |
|
Effect of dilutive incremental shares |
|
| 4.318 |
|
|
| 5.437 |
|
|
| 5.331 |
|
Shares used for diluted earnings per share |
|
| 294.666 |
|
|
| 328.752 |
|
|
| 343.605 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
| |||
Basic earnings per share |
| $ | 19.43 |
|
| $ | 21.52 |
|
| $ | 11.10 |
|
Diluted earnings per share |
| $ | 19.15 |
|
| $ | 21.16 |
|
| $ | 10.93 |
|
2020 | 2019 | 2018 | ||||||||||
Net income attributable to HCA Healthcare, Inc. | $ | 3,754 | $ | 3,505 | $ | 3,787 | ||||||
Weighted average common shares outstanding | 338.274 | 341.210 | 347.297 | |||||||||
Effect of dilutive incremental shares | 5.331 | 7.016 | 8.006 | |||||||||
Shares used for diluted earnings per share | 343.605 | 348.226 | 355.303 | |||||||||
Earnings per share: | ||||||||||||
Basic earnings per share | $ | 11.10 | $ | 10.27 | $ | 10.90 | ||||||
Diluted earnings per share | $ | 10.93 | $ | 10.07 | $ | 10.66 | ||||||
NOTE 6 — INVESTMENTS OF INSURANCE SUBSIDIARIES
A summary of the insurance subsidiaries’ investments at December 31 follows (dollars in millions):
|
| 2022 |
| |||||||||||||
|
|
|
|
| Unrealized |
|
|
|
| |||||||
|
| Amortized |
|
| Gains |
|
| Losses |
|
| Fair |
| ||||
Debt securities |
| $ | 415 |
|
| $ | — |
|
| $ | (38 | ) |
| $ | 377 |
|
Money market funds and other |
|
| 96 |
|
|
| — |
|
|
| — |
|
|
| 96 |
|
|
| $ | 511 |
|
| $ | — |
|
| $ | (38 | ) |
|
| 473 |
|
Amounts classified as current assets |
|
|
|
|
|
|
|
|
|
|
| (92 | ) | |||
Investment carrying value |
|
|
|
|
|
|
|
|
|
| $ | 381 |
| |||
|
| 2021 |
| |||||||||||||
|
|
|
|
| Unrealized |
|
|
|
| |||||||
|
| Amortized |
|
| Gains |
|
| Losses |
|
| Fair |
| ||||
Debt securities |
| $ | 400 |
|
| $ | 18 |
|
| $ | (2 | ) |
| $ | 416 |
|
Money market funds and other |
|
| 125 |
|
|
| — |
|
|
| — |
|
|
| 125 |
|
|
| $ | 525 |
|
| $ | 18 |
|
| $ | (2 | ) |
|
| 541 |
|
Amounts classified as current assets |
|
|
|
|
|
|
|
|
|
|
| (103 | ) | |||
Investment carrying value |
|
|
|
|
|
|
|
|
|
| $ | 438 |
| |||
2020 | ||||||||||||||||
Amortized Cost | Unrealized Amounts | Fair Value | ||||||||||||||
Gains | Losses | |||||||||||||||
Debt securities | $ | 384 | $ | 32 | $ | — | $ | 416 | ||||||||
Money market funds and other | 88 | — | — | 88 | ||||||||||||
$ | 472 | $ | 32 | $ | — | 504 | ||||||||||
Amounts classified as current assets | (116 | ) | ||||||||||||||
Investment carrying value | $ | 388 | ||||||||||||||
2019 | ||||||||||||||||
Amortized Cost | Unrealized Amounts | Fair Value | ||||||||||||||
Gains | Losses | |||||||||||||||
Debt securities | $ | 359 | $ | 18 | $ | — | $ | 377 | ||||||||
Money market funds and other | 85 | — | — | 85 | ||||||||||||
| $ | 444 | $ | 18 | $ | — | 462 | ||||||||||
Amounts classified as current assets | (147 | ) | ||||||||||||||
Investment carrying value | $ | 315 | ||||||||||||||
At December 31, 20202022 and 2019,2021, the investments in debt securities of our insurance subsidiaries were classified as“available-for-sale. “available-for-sale.”
F-20
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 — INVESTMENTS OF INSURANCE SUBSIDIARIES (continued)
Scheduled maturities of investments in debt securities at December 31, 20202022 were as follows (dollars in millions):
|
| Amortized |
|
| Fair |
| ||
Due in one year or less |
| $ | 31 |
|
| $ | 31 |
|
Due after one year through five years |
|
| 121 |
|
|
| 116 |
|
Due after five years through ten years |
|
| 185 |
|
|
| 161 |
|
Due after ten years |
|
| 78 |
|
|
| 69 |
|
|
| $ | 415 |
|
| $ | 377 |
|
Amortized Cost | Fair Value | |||||||
Due in one year or less | $ | 4 | $ | 4 | ||||
Due after one year through five years | 147 | 156 | ||||||
Due after five years through ten years | 157 | 174 | ||||||
Due after ten years | 76 | 82 | ||||||
| $ | 384 | $ | 416 | |||||
The average expected maturity of the investments in debt securities at December 31, 20202022 was 5.25.3 years, compared to the average scheduled maturity of 9.48.6 years. Expected and scheduled maturities may differ because the issuers of certain securities have the right to call, prepay or otherwise redeem such obligations prior to their scheduled maturity date.
NOTE 7 — FINANCIAL INSTRUMENTS
Notional Amount | Maturity Date | Fair Value | ||||||||||
Pay-fixed interest rate swaps | $ | 2,000 | December 2021 | $ | (27 | ) | ||||||
Pay-fixed interest rate swaps | 500 | December 2022 | (19 | ) | ||||||||
Derivatives in Cash Flow Hedging Relationships | Amount of Loss Recognized in OCI on Derivatives, Net of Tax | Location of Loss Reclassified from Accumulated OCI into Operations | Amount of Loss Reclassified from Accumulated OCI into Operations | |||||||||
Interest rate swaps | $ | 51 | Interest expense | $ | 24 | |||||||
Accounting Standards Codification 820,
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment.
The investments of our insurance subsidiaries are generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
The following tables summarize our assets and liabilities measured at fair value on a recurring basis as of December 31, 20202022 and 2019,2021, aggregated by the level in the fair value hierarchy within which those measurements fall (dollars in millions):
December 31, 2020 | ||||||||||||||||
Fair Value | Fair Value Measurements Using | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||
Assets: | ||||||||||||||||
Investments of insurance subsidiaries: | ||||||||||||||||
Debt securities | $ | 416 | $ | — | $ | 416 | $ | — | ||||||||
Money market funds and other | 88 | 88 | — | — | ||||||||||||
Investments of insurance subsidiaries | 504 | 88 | 416 | — | ||||||||||||
Less amounts classified as current assets | (116 | ) | (87 | ) | (29 | ) | — | |||||||||
$ | 388 | 1 | $ | 387 | $ | — | ||||||||||
Liabilities: | ||||||||||||||||
Interest rate swaps (Income taxes and other liabilities) | $ | 46 | $ | — | $ | 46 | $ | — | ||||||||
December 31, 2019 | ||||||||||||||||
Fair Value | Fair Value Measurements Using | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||
Assets: | ||||||||||||||||
Investments of insurance subsidiaries: | ||||||||||||||||
Debt securities | $ | 377 | $ | — | $ | 377 | $ | — | ||||||||
Money market funds and other | 85 | 85 | — | — | ||||||||||||
Investments of insurance subsidiaries | 462 | 85 | 377 | — | ||||||||||||
Less amounts classified as current assets | (147 | ) | (83 | ) | (64 | ) | — | |||||||||
| $ | 315 | 2 | $ | 313 | $ | — | ||||||||||
Interest rate swaps (Other) | $ | 3 | $ | — | $ | 3 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Interest rate swaps (Income taxes and other liabilities) | $ | 7 | $ | — | $ | 7 | $ | — | ||||||||
|
| 2022 |
| |||||||||||||
|
|
|
|
| Fair Value Measurements Using |
| ||||||||||
|
| Fair Value |
|
| Quoted Prices in |
|
| Significant Other |
|
| Significant |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investments of insurance subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Debt securities |
| $ | 377 |
|
| $ | — |
|
| $ | 377 |
|
| $ | — |
|
Money market funds and other |
|
| 96 |
|
|
| 96 |
|
|
| — |
|
|
| — |
|
Investments of insurance subsidiaries |
|
| 473 |
|
|
| 96 |
|
|
| 377 |
|
|
| — |
|
Less amounts classified as current assets |
|
| (92 | ) |
|
| (92 | ) |
|
| — |
|
|
| — |
|
|
| $ | 381 |
|
| $ | 4 |
|
| $ | 377 |
|
| $ | — |
|
F-21
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 87 — ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (continued)
|
| 2021 |
| |||||||||||||
|
|
|
|
| Fair Value Measurements Using |
| ||||||||||
|
| Fair Value |
|
| Quoted Prices in |
|
| Significant Other |
|
| Significant |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Investments of insurance subsidiaries: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Debt securities |
| $ | 416 |
|
| $ | — |
|
| $ | 416 |
|
| $ | — |
|
Money market funds and other |
|
| 125 |
|
|
| 125 |
|
|
| — |
|
|
| — |
|
Investments of insurance subsidiaries |
|
| 541 |
|
|
| 125 |
|
|
| 416 |
|
|
| — |
|
Less amounts classified as current assets |
|
| (103 | ) |
|
| (103 | ) |
|
| — |
|
|
| — |
|
|
| $ | 438 |
|
| $ | 22 |
|
| $ | 416 |
|
| $ | — |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate swap (Other accrued expenses) |
| $ | 8 |
|
| $ | — |
|
| $ | 8 |
|
| $ | — |
|
The estimated fair value of our long-term debt was $35.814$35.555 billion and $37.026$38.541 billion at December 31, 20202022 and 2019,2021, respectively, compared to carrying amounts, excluding debt issuance costs and discounts, aggregating $31.240$38.385 billion and $33.961$34.827 billion, respectively. The estimates of fair value are generally based upon the quoted market prices or quoted market prices for similar issues of long-term debt with the same maturities.
NOTE 98 — LONG-TERM DEBT
A summary of long-term debt at December 31, including related interest rates at December 31, 2020,2022, follows (dollars in millions):
|
| 2022 |
|
| 2021 |
| ||
Senior secured asset-based revolving credit facility (effective interest rate of 5.6%) |
| $ | 2,900 |
|
| $ | 2,780 |
|
Senior secured revolving credit facility |
|
| — |
|
|
| — |
|
Senior secured term loan facilities (effective interest rate of 5.9%) |
|
| 1,880 |
|
|
| 1,960 |
|
Senior secured notes |
|
| — |
|
|
| 16,200 |
|
Other senior secured debt (effective interest rate of 3.9%) |
|
| 953 |
|
|
| 935 |
|
Senior secured debt |
|
| 5,733 |
|
|
| 21,875 |
|
Senior unsecured notes (effective interest rate of 4.9%) |
|
| 32,652 |
|
|
| 12,952 |
|
Debt issuance costs and discounts |
|
| (301 | ) |
|
| (248 | ) |
Total debt (average life of 9.6 years, rates averaging 5.0%) |
|
| 38,084 |
|
|
| 34,579 |
|
Less amounts due within one year |
|
| 370 |
|
|
| 237 |
|
|
| $ | 37,714 |
|
| $ | 34,342 |
|
2020 | 2019 | |||||||
Senior secured asset-based revolving credit facility | $ | — | $ | 2,480 | ||||
Senior secured revolving credit facility | — | — | ||||||
Senior secured 364-day term loan facility | — | — | ||||||
Senior secured term loan facilities (effective interest rate of 2.8%) | 3,671 | 3,725 | ||||||
Senior secured notes (effective interest rate of 5.1%) | 13,850 | 13,850 | ||||||
Other senior secured debt (effective interest rate of 4.7%) | 767 | 654 | ||||||
Senior secured debt | 18,288 | 20,709 | ||||||
Senior unsecured notes (effective interest rate of 5.5%) | 12,952 | 13,252 | ||||||
Net debt issuance costs | (236 | ) | (239 | ) | ||||
Total debt (average life of 8.9 years, rates averaging 5.0%) | 31,004 | 33,722 | ||||||
Less amounts due within one year | 209 | 145 | ||||||
$ | 30,795 | $ | 33,577 | |||||
During February 2020,2022, we issued $2.700$6.000 billion aggregate principal amount of 3.50%senior notes comprised of (i) $1.000 billion aggregate principal amount of 3 1/8% senior notes due 2030. During March 2020, we2027, (ii) $500 million aggregate principal amount of 3 3/8% senior notes due 2029, (iii) $2.000 billion aggregate principal amount of 3 5/8% senior notes due 2032, (iv) $500 million aggregate principal amount of 4 3/8% senior notes due 2042 and (v) $2.000 billion aggregate principal amount of 4 5/8% senior notes due 2052. We used a portion of the net proceeds for the redemption ofto pay down our revolving credit facilities, and we redeemed all $1.000$1.250 billion outstanding aggregate principal amount of HCA Healthcare, Inc.’s 6.25%our 4.75% senior notes due 20212023 and together with available funds, for the redemption of all $2.000$1.250 billion outstanding aggregate principal amount of HCA Inc.’s 7.50%our 5.875% senior notes due 2022.2023. The pretax loss on retirement of debt for these two redemptions was $295$78 million.
Also during 2022, Standard & Poor's Rating Services (“S&P”) announced it had issued an investment grade rating with respect to the risksissuer credit rating of HCA Healthcare, Inc. and its subsidiaries. S&P's announcement, in conjunction with the COVID-19 pandemic presents toMoody's Investors Service, Inc. upgrade in 2021, permitted the permanent release of the subsidiary guarantees and all collateral securing our business, we entered intosenior secured notes. As a result of these releases, our senior secured notes are now classified as senior unsecured notes. The subsidiary guarantees and collateral securing our senior secured credit agreement that provides for a 364-day secured term loan facility for an aggregate principal amount of up to $2.000 billion. As of December 31, 2020 there was no amount outstanding or draw notices pending under the facility. We terminated this credit agreement during January 2021.
F-22
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 — LONG-TERM DEBT (continued)
Senior Secured Credit Facilities And Other Senior Secured Debt
We have entered into the following senior secured credit facilities:
Borrowings under the senior secured credit facilities bear interest at a rate equal to, at our option, either (a) a base rate determined by reference to the higher of (1) the federal funds rate plus 0.50%0.50% or (2) the prime rate of Bank of America or (b) a LIBORreference rate for(LIBOR historically and the currency of such borrowingSecured Overnight Financing Rate (SOFR) beginning January 4, 2023) for the relevant interest period, plus, in each case, an applicable margin. The applicable margin for borrowings under the senior secured credit facilities may be reduced subject to attaining certain leverage ratios.
The senior secured credit facilities contain a number of covenants that restrict, subject to certain exceptions, our (and some or all of our subsidiaries’) ability to incur additional indebtedness, repay subordinated indebtedness, create liens on assets, sell assets, make investments, loans or advances, engage in certain transactions with affiliates, pay dividends and distributions, and enter into sale and leaseback transactions. In addition, we are required to satisfy and maintain a maximum total leverage ratio covenant under the cash flow credit facility and, in certain situations under the ABL credit facility, a minimum interest coverage ratio covenant.
5 1/4% first lien notes due 2049. Finance leases and other secured debt totaled $767 million at December 31, 2020.
Senior unsecured notes consist of (i) $12.091$31.791 billion aggregate principal amount of senior notes with maturities ranging from 20232024 to 2033;2052; (ii) an aggregate principal amount of $125$125 million medium-term notes maturing 2025; and (iii) an aggregate principal amount of $736$736 million debentures with maturities ranging from 2023 to 2095.
General Debt Information
The senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are “Unrestricted Subsidiaries” under our Indenture (the “1993 Indenture”) dated December 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our ABL credit facility).
All obligations under the ABL credit facility, and the guarantees of those obligations, are secured, subject to permitted liens and other exceptions, by a first-priority lien on substantially all of the receivables of the borrowers and each guarantor under such ABL credit facility (the “Receivables Collateral”).
All obligations under the cash flow credit facility and the guarantees of such obligations are secured, subject to permitted liens and other exceptions, by:
Maturities of long-term debt in years 20222024 through 20252027 are $233 million, $2.799$2.382 billion, $3.163$4.656 billion, $5.316 billion and $5.872$2.396 billion, respectively.
F-23
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 109 — LEASES
We lease property and equipment under finance and operating leases. For leases with terms greater than 12 months, we record the related assets and obligations at the present value of lease payments over the term. Many of our leases include rental escalation clauses and renewal options that are factored into our determination of lease payments, when appropriate. We do not separate lease and nonlease components of contracts. Generally, we use our estimated incremental borrowing rate to discount the lease payments, as most of our leases do not provide a readily determinable implicit interest rate.
The following table presents our lease-related assets and liabilities at December 31, 20202022 and 20192021 (dollars in millions):
|
| Balance Sheet Classification |
| 2022 |
|
| 2021 |
| ||
Assets: |
|
|
|
|
|
|
|
| ||
Operating leases |
| Right-of-use operating lease assets |
| $ | 2,065 |
|
| $ | 2,113 |
|
Finance leases |
| Property and equipment |
|
| 587 |
|
|
| 637 |
|
Total lease assets |
|
|
| $ | 2,652 |
|
| $ | 2,750 |
|
Liabilities: |
|
|
|
|
|
|
|
| ||
Current: |
|
|
|
|
|
|
|
| ||
Operating leases |
| Other accrued expenses |
| $ | 364 |
|
| $ | 392 |
|
Finance leases |
| Long-term debt due within one year |
|
| 131 |
|
|
| 143 |
|
Noncurrent: |
|
|
|
|
|
|
|
| ||
Operating leases |
| Right-of-use operating lease obligations |
|
| 1,752 |
|
|
| 1,755 |
|
Finance leases |
| Long-term debt |
|
| 579 |
|
|
| 577 |
|
Total lease liabilities |
|
|
| $ | 2,826 |
|
| $ | 2,867 |
|
Weighted-average remaining term: |
|
|
|
|
|
|
|
| ||
Operating leases |
|
|
| 10.1 years |
|
| 10.2 years |
| ||
Finance leases |
|
|
| 9.5 years |
|
| 10.4 years |
| ||
Weighted-average discount rate: |
|
|
|
|
|
|
|
| ||
Operating leases |
|
|
|
| 4.4 | % |
|
| 4.4 | % |
Finance leases |
|
|
|
| 4.5 | % |
|
| 4.4 | % |
Balance Sheet Classification | 2020 | 2019 | ||||||||||
Assets: | ||||||||||||
Operating leases | Right-of-use operating lease assets | $ | 2,024 | $ | 1,834 | |||||||
Finance leases | Property and equipment | 553 | 520 | |||||||||
Total lease assets | $ | 2,577 | $ | 2,354 | ||||||||
Liabilities: | ||||||||||||
Current: | ||||||||||||
Operating leases | Other accrued expenses | $ | 379 | $ | 350 | |||||||
Finance leases | Long-term debt due within one year | 128 | 87 | |||||||||
Noncurrent: | ||||||||||||
Operating leases | Right-of-use operating lease obligations | 1,673 | 1,499 | |||||||||
Finance leases | Long-term debt | 494 | 470 | |||||||||
Total lease liabilities | $ | 2,674 | $ | 2,406 | ||||||||
Weighted-average remaining term: | ||||||||||||
Operating leases | 10.4 years | 10.8 years | ||||||||||
Finance leases | 11.5 years | 12.0 years | ||||||||||
Weighted-average discount rate: | ||||||||||||
Operating leases | 4.8 | % | 5.3 | % | ||||||||
Finance leases | 5.4 | % | 6.0 | % | ||||||||
The following table presents certain information related to lease expenseexpenses for finance and operating leases for the years ended December 31, 20202022, 2021 and 20192020 (dollars in millions):
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Finance lease expense: |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
| $ | 163 |
|
| $ | 135 |
|
| $ | 106 |
|
Interest |
|
| 29 |
|
|
| 29 |
|
|
| 31 |
|
Operating leases(1) |
|
| 484 |
|
|
| 478 |
|
|
| 447 |
|
Short-term lease expense(1) |
|
| 329 |
|
|
| 354 |
|
|
| 322 |
|
Variable lease expense(1) |
|
| 163 |
|
|
| 157 |
|
|
| 154 |
|
|
| $ | 1,168 |
|
| $ | 1,153 |
|
| $ | 1,060 |
|
2020 | 2019 | |||||||
Finance lease expense: | ||||||||
Depreciation and amortization | $ | 106 | $ | 93 | ||||
Interest | 31 | 32 | ||||||
Operating leases( 1 ) | 447 | 389 | ||||||
Short-term lease expense( 1 ) | 322 | 316 | ||||||
Variable lease expense( 1 ) | 154 | 150 | ||||||
$ | 1,060 | $ | 980 | |||||
The following table presents supplemental cash flow information for the years ended December 31, 20202022, 2021 and 20192020 (dollars in millions):
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Cash paid for amounts included in the measurement of lease |
|
|
|
|
|
|
|
|
| |||
Operating cash flows for operating leases |
| $ | 473 |
|
| $ | 474 |
|
| $ | 445 |
|
Operating cash flows for finance leases |
|
| 29 |
|
|
| 29 |
|
|
| 31 |
|
Financing cash flows for finance leases |
|
| 124 |
|
|
| 123 |
|
|
| 86 |
|
F-24
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2020 | 2019 | |||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows for operating leases | $ | 445 | $ | 404 | ||||
Operating cash flows for finance leases | 31 | 32 | ||||||
Financing cash flows for finance leases | 86 | 79 | ||||||
NOTE 9 — LEASES (continued)
Maturities of Lease Liabilities
The following table reconciles the undiscounted minimum lease payment amounts to the operating and finance lease liabilities recorded on the balance sheet at December 31, 20202022 and 20192021 (dollars in millions):
|
| 2022 |
|
| 2021 |
| ||||||||||
|
| Operating |
|
| Finance |
|
| Operating |
|
| Finance |
| ||||
Year 1 |
| $ | 436 |
|
| $ | 156 |
|
| $ | 438 |
|
| $ | 165 |
|
Year 2 |
|
| 380 |
|
|
| 164 |
|
|
| 378 |
|
|
| 126 |
|
Year 3 |
|
| 320 |
|
|
| 125 |
|
|
| 320 |
|
|
| 132 |
|
Year 4 |
|
| 269 |
|
|
| 89 |
|
|
| 267 |
|
|
| 98 |
|
Year 5 |
|
| 222 |
|
|
| 39 |
|
|
| 219 |
|
|
| 70 |
|
Thereafter |
|
| 1,122 |
|
|
| 359 |
|
|
| 1,148 |
|
|
| 350 |
|
Total minimum lease payments |
|
| 2,749 |
|
|
| 932 |
|
|
| 2,770 |
|
|
| 941 |
|
Less: amount of lease payments representing interest |
|
| (633 | ) |
|
| (222 | ) |
|
| (623 | ) |
|
| (221 | ) |
Present value of future minimum lease payments |
|
| 2,116 |
|
|
| 710 |
|
|
| 2,147 |
|
|
| 720 |
|
Less: current lease obligations |
|
| (364 | ) |
|
| (131 | ) |
|
| (392 | ) |
|
| (143 | ) |
Long-term lease obligations |
| $ | 1,752 |
|
| $ | 579 |
|
| $ | 1,755 |
|
| $ | 577 |
|
2020 | 2019 | |||||||||||||||
Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||
Year 1 | $ | 431 | $ | 155 | $ | 411 | $ | 110 | ||||||||
Year 2 | 366 | 125 | 350 | 105 | ||||||||||||
Year 3 | 307 | 81 | 285 | 99 | ||||||||||||
Year 4 | 255 | 82 | 228 | 58 | ||||||||||||
Year 5 | 207 | 51 | 182 | 60 | ||||||||||||
Thereafter | 1,136 | 353 | 1,074 | 368 | ||||||||||||
Total minimum lease payments | 2,702 | 847 | 2,530 | 800 | ||||||||||||
Less: amount of lease payments representing interest | (650 | ) | (225 | ) | (681 | ) | (243 | ) | ||||||||
Present value of future minimum lease payments | 2,052 | 622 | 1,849 | 557 | ||||||||||||
Less: current lease obligations | (379 | ) | (128 | ) | (350 | ) | (87 | ) | ||||||||
Long-term lease obligations | $ | 1,673 | $ | 494 | $ | 1,499 | $ | 470 | ||||||||
NOTE 1110 — CONTINGENCIES
We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are also subject to claims and suits arising in the ordinary course of business, including claims for personal injuries or wrongful restriction of, or interference with, physicians’ staff privileges. In certain of these actions the claimants may seek punitive damages against us,,
Government Investigations, Claims and Litigation
Health care companies are subject to numerous investigations by various governmental agencies. Under the federal False Claims Act (“FCA”), private parties have the right to bring
Texas operates a state Medicaid program pursuant to a waiver from the Centers for Medicare & Medicaid Services under Section 1115 of the Social Security Act (“Program”). The Program includes uncompensated-care pools; payments from these pools are intended to defray the uncompensated costs of services provided by our and other hospitals to Medicaid eligible or uninsured individuals. Separately, we and other hospitals provide charity care services in several communities in the state. In 2018, the Civil Division of the U.S. Department of Justice and the U.S. Attorney’s Office for the Southern District of Texas requested information about whether the Program, as operated in Harris County, complied with the laws and regulations applicable to provider related donations, and the Company cooperated with that request. On May 21, 2019, a
F-25
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1211 — CAPITAL STOCK
The amended and restated certificate of incorporation authorizes the Company to issue up to 1,800,000,000 shares of common stock, and our amended and restated3three members, the exact number to be determined from time to time by resolution adopted by the affirmative vote of a majority of the total number of directors then in office.
Share Repurchase Transactions
During January 2020,2023, January 20192022 and October 2017,February 2021, our Board of Directors authorized share repurchase programs for up to $6$3 billion, $8 billion and $6 billion, respectively, of the Company’s outstanding common stock. During January 2020 and January 2019, our Board of Directors authorized share repurchase programs for up to $4 billion ($2 billion for each authorization) of our outstanding common stock.
During March2020in response to the risks theCOVID-19pandemic presents to our business, we announced the suspension of our share repurchase programs. During February 2021,ourBoard of Directors authorized the resumption of the share repurchase program, pursuant to which $2.8 billion of pre-suspension authorization remained available, and an additional $6 billion was authorized for repurchases of the Company’s outstanding common stock ($8.8 billion of total repurchase authorization).
NOTE 1312 — EMPLOYEE BENEFIT PLANS
We maintain defined contribution benefit plans that are available to employees who meet certain minimum requirements. Certain of theThe plans require that we match specified percentages of participant contributions up to certain maximum levels (generally,
We maintain the noncontributory, nonqualified Restoration Plan to provide certain retirement benefits for eligible employees. Eligibility for the Restoration Plan is based upon earning eligible compensation in excess of a base amount and
We maintain a Supplemental Executive Retirement Plan (“SERP”) for certain executives (the SERP is not funded). The plan is designed to ensure that upon retirement the participant receives the value of a prescribed life annuity from the combination of the SERP and our other benefit plans. Benefits expense under the plan was
We maintain defined benefit pension plans which resulted from certain hospital acquisitions in prior years. Benefits expense under these plans was
F-26
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1413 — SEGMENT AND GEOGRAPHIC INFORMATION
We operate in one line of business, which is operating hospitals and related health care entities. We operate in 2two geographically organized groups: the National and American Groups. At December 31, 2020,2022, the National Group included 96 hospitals located in Alaska, California, Florida, southern Georgia, Idaho, Indiana, northern Kentucky, Nevada, New Hampshire, North Carolina, South Carolina, Utah and Virginia, and the American Group included 8279 hospitals located in Colorado, northern Georgia, Kansas, southern Kentucky, Louisiana, Missouri, Tennessee and Texas. We also operate 7seven hospitals in England, and these facilities are included in the Corporate and other group.
Adjusted segment EBITDA is defined as income before depreciation and amortization, interest expense, losses and gains on sales of facilities, losses on retirement of debt, income taxes and net income attributable to noncontrolling interests. We use adjusted segment EBITDA as an analytical indicator for purposes of allocating resources to geographic areas and assessing their performance. Adjusted segment EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted segment EBITDA should not be considered as a measure of financial performance under generally accepted accounting principles, and the items excluded from adjusted segment EBITDA are significant components in understanding and assessing financial performance. Because adjusted segment EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, adjusted segment EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. The geographic distributions of our revenues, equity in earnings of affiliates, adjusted segment EBITDA, depreciation and amortization, assets and goodwill and other intangible assets are summarized in the following table (dollars in millions):
For the Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Revenues: | ||||||||||||
National Group | $ | 25,694 | $ | 25,913 | $ | 22,581 | ||||||
American Group | 23,593 | 23,173 | 21,959 | |||||||||
Corporate and other | 2,246 | 2,250 | 2,137 | |||||||||
$ | 51,533 | $ | 51,336 | $ | 46,677 | |||||||
Equity in earnings of affiliates: | ||||||||||||
National Group | $ | (28 | ) | $ | (2 | ) | $ | (4 | ) | |||
American Group | (42 | ) | (44 | ) | (40 | ) | ||||||
Corporate and other | 16 | 3 | 15 | |||||||||
$ | (54 | ) | $ | (43 | ) | $ | (29 | ) | ||||
Adjusted segment EBITDA: | ||||||||||||
National Group | $ | 5,532 | $ | 5,634 | $ | 4,980 | ||||||
American Group | 5,333 | 4,904 | 4,593 | |||||||||
Corporate and other | (828 | ) | (681 | ) | (624 | ) | ||||||
$ | 10,037 | $ | 9,857 | $ | 8,949 | |||||||
Depreciation and amortization: | ||||||||||||
National Group | $ | 1,216 | $ | 1,161 | $ | 946 | ||||||
American Group | 1,164 | 1,117 | 1,027 | |||||||||
Corporate and other | 341 | 318 | 305 | |||||||||
$ | 2,721 | $ | 2,596 | $ | 2,278 | |||||||
|
| For the Year Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Revenues: |
|
|
|
|
|
|
|
|
| |||
National Group |
| $ | 30,350 |
|
| $ | 29,826 |
|
| $ | 25,694 |
|
American Group |
|
| 26,865 |
|
|
| 26,152 |
|
|
| 23,593 |
|
Corporate and other |
|
| 3,018 |
|
|
| 2,774 |
|
|
| 2,246 |
|
|
| $ | 60,233 |
|
| $ | 58,752 |
|
| $ | 51,533 |
|
Equity in earnings of affiliates: |
|
|
|
|
|
|
|
|
| |||
National Group |
| $ | (4 | ) |
| $ | (33 | ) |
| $ | (28 | ) |
American Group |
|
| (43 | ) |
|
| (53 | ) |
|
| (42 | ) |
Corporate and other |
|
| 2 |
|
|
| (27 | ) |
|
| 16 |
|
|
| $ | (45 | ) |
| $ | (113 | ) |
| $ | (54 | ) |
Adjusted segment EBITDA: |
|
|
|
|
|
|
|
|
| |||
National Group |
| $ | 6,379 |
|
| $ | 7,200 |
|
| $ | 5,532 |
|
American Group |
|
| 6,055 |
|
|
| 6,156 |
|
|
| 5,333 |
|
Corporate and other |
|
| (367 | ) |
|
| (712 | ) |
|
| (828 | ) |
|
| $ | 12,067 |
|
| $ | 12,644 |
|
| $ | 10,037 |
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
| |||
National Group |
| $ | 1,464 |
|
| $ | 1,359 |
|
| $ | 1,216 |
|
American Group |
|
| 1,219 |
|
|
| 1,183 |
|
|
| 1,164 |
|
Corporate and other |
|
| 286 |
|
|
| 311 |
|
|
| 341 |
|
|
| $ | 2,969 |
|
| $ | 2,853 |
|
| $ | 2,721 |
|
|
| For the Year Ended December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Adjusted segment EBITDA |
| $ | 12,067 |
|
| $ | 12,644 |
|
| $ | 10,037 |
|
Depreciation and amortization |
|
| 2,969 |
|
|
| 2,853 |
|
|
| 2,721 |
|
Interest expense |
|
| 1,741 |
|
|
| 1,566 |
|
|
| 1,584 |
|
Losses (gains) on sales of facilities |
|
| (1,301 | ) |
|
| (1,620 | ) |
|
| 7 |
|
Losses on retirement of debt |
|
| 78 |
|
|
| 12 |
|
|
| 295 |
|
Income before income taxes |
| $ | 8,580 |
|
| $ | 9,833 |
|
| $ | 5,430 |
|
F-27
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1413 — SEGMENT AND GEOGRAPHIC INFORMATION (continued)
|
| December 31, |
| |||||||||
|
| 2022 |
|
| 2021 |
|
| 2020 |
| |||
Assets: |
|
|
|
|
|
|
|
|
| |||
National Group |
| $ | 22,863 |
|
| $ | 21,205 |
|
| $ | 18,913 |
|
American Group |
|
| 22,216 |
|
|
| 21,428 |
|
|
| 20,760 |
|
Corporate and other |
|
| 7,359 |
|
|
| 8,109 |
|
|
| 7,817 |
|
|
| $ | 52,438 |
|
| $ | 50,742 |
|
| $ | 47,490 |
|
|
| National |
|
| American |
|
| Corporate |
|
| Total |
| ||||
Goodwill and other intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2019 |
| $ | 1,739 |
|
| $ | 5,765 |
|
| $ | 765 |
|
| $ | 8,269 |
|
Acquisitions |
|
| 38 |
|
|
| 27 |
|
|
| 279 |
|
|
| 344 |
|
Foreign currency translation, amortization and other |
|
| (2 | ) |
|
| (17 | ) |
|
| (16 | ) |
|
| (35 | ) |
Balance at December 31, 2020 |
|
| 1,775 |
|
|
| 5,775 |
|
|
| 1,028 |
|
|
| 8,578 |
|
Acquisitions |
|
| 735 |
|
|
| 67 |
|
|
| 260 |
|
|
| 1,062 |
|
Foreign currency translation, amortization and other |
|
| (18 | ) |
|
| (10 | ) |
|
| (72 | ) |
|
| (100 | ) |
Balance at December 31, 2021 |
|
| 2,492 |
|
|
| 5,832 |
|
|
| 1,216 |
|
|
| 9,540 |
|
Acquisitions |
|
| 165 |
|
|
| 91 |
|
|
| 6 |
|
|
| 262 |
|
Foreign currency translation, amortization and other |
|
| (5 | ) |
|
| (62 | ) |
|
| (82 | ) |
|
| (149 | ) |
Balance at December 31, 2022 |
| $ | 2,652 |
|
| $ | 5,861 |
|
| $ | 1,140 |
|
| $ | 9,653 |
|
For the Years Ended December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Adjusted segment EBITDA | $ | 10,037 | $ | 9,857 | $ | 8,949 | ||||||
Depreciation and amortization | 2,721 | 2,596 | 2,278 | |||||||||
Interest expense | 1,584 | 1,824 | 1,755 | |||||||||
Losses (gains) on sales of facilities | 7 | (18 | ) | (428 | ) | |||||||
Losses on retirement of debt | 295 | 211 | 9 | |||||||||
Income before income taxes | $ | 5,430 | $ | 5,244 | $ | 5,335 | ||||||
December 31, | ||||||||||||
2020 | 2019 | 2018 | ||||||||||
Assets: | ||||||||||||
National Group | $ | 18,913 | $ | 18,290 | $ | 14,839 | ||||||
American Group | 20,760 | 20,608 | 19,122 | |||||||||
Corporate and other | 7,817 | 6,160 | 5,246 | |||||||||
$ | 47,490 | $ | 45,058 | $ | 39,207 | |||||||
National Group | American Group | Corporate and Other | Total | |||||||||||||
Goodwill and other intangible assets: | ||||||||||||||||
Balance at December 31, 2017 | $ | 1,474 | $ | 5,265 | $ | 655 | $ | 7,394 | ||||||||
Acquisitions | 132 | 504 | — | 636 | ||||||||||||
Foreign currency translation, amortization and other | (9 | ) | (40 | ) | (28 | ) | (77 | ) | ||||||||
Balance at December 31, 2018 | 1,597 | 5,729 | 627 | 7,953 | ||||||||||||
Acquisitions | 155 | 39 | 138 | 332 | ||||||||||||
Foreign currency translation, amortization and other | (13 | ) | (3 | ) | — | (16 | ) | |||||||||
Balance at December 31, 2019 | 1,739 | 5,765 | 765 | 8,269 | ||||||||||||
Acquisitions | 38 | 27 | 279 | 344 | ||||||||||||
Foreign currency translation, amortization and other | (2 | ) | (17 | ) | (16 | ) | (35 | ) | ||||||||
Balance at December 31, 2020 | $ | 1,775 | $ | 5,775 | $ | 1,028 | $ | 8,578 | ||||||||
F-28
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1514 — OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss are as follows (dollars in millions):
Unrealized Gains on Available- for-Sale Securities | Foreign Currency Translation Adjustments | Defined Benefit Plans | Change in Fair Value of Derivative Instruments | Total | ||||||||||||||||
Balances at December 31, 2017 | $ | 7 | $ | (149 | ) | $ | (168 | ) | $ | 32 | $ | (278 | ) | |||||||
Unrealized losses on available-for-sale income tax benefit | (5 | ) | — | — | — | (5 | ) | |||||||||||||
Foreign currency translation adjustments, net of $8 income tax benefit | — | (63 | ) | — | — | (63 | ) | |||||||||||||
Defined benefit plans, net of $10 of income taxes | — | — | 34 | — | 34 | |||||||||||||||
Change in fair value of derivative instruments, net of $5 of income taxes | — | — | — | 18 | 18 | |||||||||||||||
Expense (income) reclassified into operations from other comprehensive income, net of $5 income tax benefit and $2 of income taxes, respectively | — | — | 16 | (8 | ) | 8 | ||||||||||||||
Reclassification of stranded tax effects | 1 | (71 | ) | (30 | ) | 5 | (95 | ) | ||||||||||||
Balances at December 31, 2018 | 3 | (283 | ) | (148 | ) | 47 | (381 | ) | ||||||||||||
Unrealized gains on available-for-sale income taxes | 11 | — | — | — | 11 | |||||||||||||||
Foreign currency translation adjustments, net of $5 of income taxes | — | — | — | — | — | |||||||||||||||
Defined benefit plans, net of $14 income tax benefit | — | — | (49 | ) | — | (49 | ) | |||||||||||||
Change in fair value of derivative instruments, net of $13 income tax benefit | — | — | — | (37 | ) | (37 | ) | |||||||||||||
Expense (income) reclassified into operations from other comprehensive income, net of $3 income tax benefit and $3 of income taxes, respectively | — | — | 10 | (14 | ) | (4 | ) | |||||||||||||
Balances at December 31, 2019 | 14 | (283 | ) | (187 | ) | (4 | ) | (460 | ) | |||||||||||
Unrealized gains on available-for-sale income taxes | 11 | — | — | — | 11 | |||||||||||||||
Foreign currency translation adjustments, net of $6 of income taxes | — | 12 | — | — | 12 | |||||||||||||||
Defined benefit plans, net of $16 income tax benefit | — | — | (55 | ) | — | (55 | ) | |||||||||||||
Change in fair value of derivative instruments, net of $15 income tax benefit | — | — | — | (51 | ) | (51 | ) | |||||||||||||
Expense reclassified into operations from other comprehensive income, net of $6 and $5 income tax benefits, respectively | — | — | 22 | 19 | 41 | |||||||||||||||
Balances at December 31, 2020 | $ | 25 | $ | (271 | ) | $ | (220 | ) | $ | (36 | ) | $ | (502 | ) | ||||||
|
| Unrealized |
|
| Foreign |
|
| Defined |
|
| Change |
|
| Total |
| |||||
Balances at December 31, 2019 |
| $ | 14 |
|
| $ | (283 | ) |
| $ | (187 | ) |
| $ | (4 | ) |
| $ | (460 | ) |
Unrealized gains on available-for-sale securities, net of |
|
| 11 |
|
|
|
|
|
|
|
|
|
|
|
| 11 |
| |||
Foreign currency translation adjustments, net of $6 of |
|
|
|
|
| 12 |
|
|
|
|
|
|
|
|
| 12 |
| |||
Defined benefit plans, net of $16 income tax benefit |
|
|
|
|
|
|
|
| (55 | ) |
|
|
|
|
| (55 | ) | |||
Change in fair value of derivative instruments, net of $15 |
|
|
|
|
|
|
|
|
|
|
| (51 | ) |
|
| (51 | ) | |||
Expense reclassified into operations from other |
|
|
|
|
|
|
|
| 22 |
|
|
| 19 |
|
|
| 41 |
| ||
Balances at December 31, 2020 |
|
| 25 |
|
|
| (271 | ) |
|
| (220 | ) |
|
| (36 | ) |
|
| (502 | ) |
Unrealized losses on available-for-sale securities, net |
|
| (13 | ) |
|
|
|
|
|
|
|
|
|
|
| (13 | ) | |||
Foreign currency translation adjustments, net of $2 |
|
|
|
|
| (7 | ) |
|
|
|
|
|
|
|
| (7 | ) | |||
Defined benefit plans, net of $20 of income taxes |
|
|
|
|
|
|
|
| 67 |
|
|
|
|
|
| 67 |
| |||
Change in fair value of derivative instruments |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
| 1 |
| |||
Expense reclassified into operations from other |
|
|
|
|
|
|
|
| 21 |
|
|
| 29 |
|
|
| 50 |
| ||
Balances at December 31, 2021 |
|
| 12 |
|
|
| (278 | ) |
|
| (132 | ) |
|
| (6 | ) |
|
| (404 | ) |
Unrealized losses on available-for-sale securities, net |
|
| (43 | ) |
|
|
|
|
|
|
|
|
|
|
| (43 | ) | |||
Foreign currency translation adjustments, net of $16 |
|
|
|
|
| (95 | ) |
|
|
|
|
|
|
|
| (95 | ) | |||
Defined benefit plans, net of $11 of income taxes |
|
|
|
|
|
|
|
| 38 |
|
|
|
|
|
| 38 |
| |||
Change in fair value of derivative instruments, net of $1 of |
|
|
|
|
|
|
|
|
|
|
| 5 |
|
|
| 5 |
| |||
Expense reclassified into operations from other |
|
| 1 |
|
|
|
|
|
| 7 |
|
|
| 1 |
|
|
| 9 |
| |
Balances at December 31, 2022 |
| $ | (30 | ) |
| $ | (373 | ) |
| $ | (87 | ) |
| $ | — |
|
| $ | (490 | ) |
F-29
HCA HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1615 — ACCRUED EXPENSES
A summary of other accrued expenses at December 31 follows (dollars in millions):
|
| 2022 |
|
| 2021 |
| ||
Professional liability risks |
| $ | 515 |
|
| $ | 508 |
|
Defined contribution benefit plans |
|
| 612 |
|
|
| 549 |
|
Right-of-use operating leases |
|
| 364 |
|
|
| 392 |
|
Taxes other than income |
|
| 371 |
|
|
| 361 |
|
Interest |
|
| 402 |
|
|
| 353 |
|
Government stimulus refund liability |
|
| 81 |
|
|
| 79 |
|
Other |
|
| 1,236 |
|
|
| 1,080 |
|
|
| $ | 3,581 |
|
| $ | 3,322 |
|
2020 | 2019 | |||||||
Professional liability risks | $ | 477 | $ | 457 | ||||
Defined contribution benefit plan | 547 | 528 | ||||||
Right-of-use operating lease | 379 | 350 | ||||||
Taxes other than income | 343 | 325 | ||||||
Interest | 315 | 368 | ||||||
Government stimulus refund liability | 83 | — | ||||||
Other | 1,096 | 904 | ||||||
$ | 3,240 | $ | 2,932 | |||||
F-30