UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended ~~June 30, 2020~~March 31, 2021


☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to

Commission File Number 1-7293

TENET HEALTHCARE CORPORATION

(Exact name of Registrant as specified in its charter)


Nevada			95-2557091
(State of Incorporation)			(IRS Employer Identification No.)

14201 Dallas Parkway

Dallas, TX 75254

(Address of principal executive offices, including zip code)

(469) 893-2200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock,

$0.05 par value

THC

New York Stock Exchange

6.875% Senior Notes due 2031

THC31

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company (each as defined in Exchange Act Rule 12b-2).

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No x

At ~~July 30, 2020,~~April 23, 2021, there were ~~105,389,222~~ 106,790,357 shares of the Registrant’s common stock outstanding.

Table of Contents

TENET HEALTHCARE CORPORATION

TABLE OF CONTENTS

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in Millions

(Unaudited)


		June 30,		December 31,			March 31,		December 31,
		2020		2019			2021		2020
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	3,514	$	262	Cash and cash equivalents	$	2,141	$	2,446
Accounts receivable	Accounts receivable	2,435		2,743		Accounts receivable	2,745		2,690
Inventories of supplies, at cost	Inventories of supplies, at cost	337		310		Inventories of supplies, at cost	368		368
Income tax receivable		18		10

Assets held for sale	Assets held for sale	378		387		Assets held for sale	139		140
Other current assets	Other current assets	1,265		1,369		Other current assets	1,306		1,503
Total current assets	Total current assets	7,947		5,081		Total current assets	6,699		7,147
Investments and other assets	Investments and other assets	2,464		2,369		Investments and other assets	2,577		2,534
Deferred income taxes	Deferred income taxes	232		183		Deferred income taxes	297		325
Property and equipment, at cost, less accumulated depreciation and amortization ($5,759 at June 30, 2020 and $5,498 at December 31, 2019)		6,703		6,878
Property and equipment, at cost, less accumulated depreciation and amortization ($6,172 at March 31, 2021 and $6,043 at December 31, 2020)						Property and equipment, at cost, less accumulated depreciation and amortization ($6,172 at March 31, 2021 and $6,043 at December 31, 2020)	6,592		6,692
Goodwill	Goodwill	7,301		7,252		Goodwill	8,799		8,808
Other intangible assets, at cost, less accumulated amortization ($1,163 at June 30, 2020 and $1,092 at December 31, 2019)		1,603		1,602
Other intangible assets, at cost, less accumulated amortization ($1,331 at March 31, 2021 and $1,284 at December 31, 2020)						Other intangible assets, at cost, less accumulated amortization ($1,331 at March 31, 2021 and $1,284 at December 31, 2020)	1,590		1,600
Total assets	Total assets	$	26,250	$	23,365	Total assets	$	26,554	$	27,106
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	160	$	171	Current portion of long-term debt	$	137	$	145
Accounts payable	Accounts payable	1,018		1,204		Accounts payable	1,103		1,207
Accrued compensation and benefits	Accrued compensation and benefits	699		877		Accrued compensation and benefits	907		942
Professional and general liability reserves	Professional and general liability reserves	292		330		Professional and general liability reserves	263		243
Accrued interest payable	Accrued interest payable	257		245		Accrued interest payable	290		248
Liabilities held for sale	Liabilities held for sale	93		44		Liabilities held for sale	68		70
Contract liabilities	Contract liabilities	1,496		61		Contract liabilities	917		659
Other current liabilities	Other current liabilities	1,570		1,273		Other current liabilities	1,245		1,333
Total current liabilities	Total current liabilities	5,585		4,205		Total current liabilities	4,930		4,847
Long-term debt, net of current portion	Long-term debt, net of current portion	15,728		14,580		Long-term debt, net of current portion	15,098		15,574
Professional and general liability reserves	Professional and general liability reserves	649		635		Professional and general liability reserves	763		735
Defined benefit plan obligations	Defined benefit plan obligations	541		560		Defined benefit plan obligations	478		497
Deferred income taxes	Deferred income taxes	27		27		Deferred income taxes	29		29
Contract liabilities – long-term						Contract liabilities – long-term	655		918
Other long-term liabilities	Other long-term liabilities	1,526		1,415		Other long-term liabilities	1,593		1,617
Total liabilities	Total liabilities	24,056		21,422		Total liabilities	23,546		24,217
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0
Redeemable noncontrolling interests in equity of consolidated subsidiaries	Redeemable noncontrolling interests in equity of consolidated subsidiaries	1,561		1,506		Redeemable noncontrolling interests in equity of consolidated subsidiaries	1,992		1,952
Equity:	Equity:					Equity:
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, $0.05 par value; authorized 262,500,000 shares; 153,242,552 shares issued at June 30, 2020 and 152,540,815 shares issued at December 31, 2019		7		7
Common stock, $0.05 par value; authorized 262,500,000 shares; 155,021,894 shares issued at March 31, 2021 and 154,407,524 shares issued at December 31, 2020						Common stock, $0.05 par value; authorized 262,500,000 shares; 155,021,894 shares issued at March 31, 2021 and 154,407,524 shares issued at December 31, 2020	8		7
Additional paid-in capital	Additional paid-in capital	4,751		4,760		Additional paid-in capital	4,841		4,844
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(255)		(257)		Accumulated other comprehensive loss	(282)		(281)
Accumulated deficit	Accumulated deficit	(2,346)		(2,513)		Accumulated deficit	(2,031)		(2,128)
Common stock in treasury, at cost, 48,341,041 shares at June 30, 2020 and 48,344,195 shares at December 31, 2019		(2,414)		(2,414)
Total shareholders’ deficit		(257)		(417)
Common stock in treasury, at cost, 48,334,419 shares at March 31, 2021 and 48,337,947 shares at December 31, 2020						Common stock in treasury, at cost, 48,334,419 shares at March 31, 2021 and 48,337,947 shares at December 31, 2020	(2,413)		(2,414)
Total shareholders’ equity						Total shareholders’ equity	123		28
Noncontrolling interests	Noncontrolling interests	890		854		Noncontrolling interests	893		909
Total equity	Total equity	633		437		Total equity	1,016		937
Total liabilities and equity	Total liabilities and equity	$	26,250	$	23,365	Total liabilities and equity	$	26,554	$	27,106

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Dollars in Millions, Except Per-Share Amounts

(Unaudited)


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net operating revenues	Net operating revenues	$	3,648	$	4,560	$	8,168	$	9,105	Net operating revenues	$	4,781	$	4,520
Grant income	Grant income	511		—		511		—		Grant income	31		0
Equity in earnings of unconsolidated affiliates	Equity in earnings of unconsolidated affiliates	31		42		59		76		Equity in earnings of unconsolidated affiliates	42		28
Operating expenses:	Operating expenses:									Operating expenses:
Salaries, wages and benefits	Salaries, wages and benefits	1,864		2,145		4,051		4,296		Salaries, wages and benefits	2,201		2,187
Supplies	Supplies	611		753		1,374		1,494		Supplies	804		763
Other operating expenses, net	Other operating expenses, net	983		1,035		1,996		2,100		Other operating expenses, net	1,072		1,013
Depreciation and amortization	Depreciation and amortization	206		214		409		422		Depreciation and amortization	224		203
Impairment and restructuring charges, and acquisition-related costs	Impairment and restructuring charges, and acquisition-related costs	54		36		109		55		Impairment and restructuring charges, and acquisition-related costs	20		55
Litigation and investigation costs	Litigation and investigation costs	2		18		4		31		Litigation and investigation costs	13		2
Net losses (gains) on sales, consolidation and deconsolidation of facilities		(1)		1		(3)		2
Net gains on sales, consolidation and deconsolidation of facilities										Net gains on sales, consolidation and deconsolidation of facilities	0		(2)
Operating income	Operating income	471		400		798		781		Operating income	520		327
Interest expense	Interest expense	(255)		(247)		(498)		(498)		Interest expense	(240)		(243)
Other non-operating income (expense), net		2		(1)		3		—
Other non-operating income, net										Other non-operating income, net	10		1
Loss from early extinguishment of debt	Loss from early extinguishment of debt	(4)		—		(4)		(47)		Loss from early extinguishment of debt	(23)		0
Income from continuing operations, before income taxes	Income from continuing operations, before income taxes	214		152		299		236		Income from continuing operations, before income taxes	267		85
Income tax benefit (expense)	Income tax benefit (expense)	(45)		(33)		30		(53)		Income tax benefit (expense)	(45)		75
Income from continuing operations, before discontinued operations	Income from continuing operations, before discontinued operations	169		119		329		183		Income from continuing operations, before discontinued operations	222		160
Discontinued operations:	Discontinued operations:									Discontinued operations:
Income (loss) from operations		—		2		(1)		12
Income tax expense		—		—		—		(2)
Income (loss) from discontinued operations		—		2		(1)		10
Loss from operations										Loss from operations	0		(1)

Loss from discontinued operations										Loss from discontinued operations	0		(1)
Net income	Net income	169		121		328		193		Net income	222		159
Less: Net income available to noncontrolling interests	Less: Net income available to noncontrolling interests	81		95		147		179		Less: Net income available to noncontrolling interests	125		66
Net income available to Tenet Healthcare Corporation common shareholders	Net income available to Tenet Healthcare Corporation common shareholders	$	88	$	26	$	181	$	14	Net income available to Tenet Healthcare Corporation common shareholders	$	97	$	93
Amounts available (attributable) to Tenet Healthcare Corporation common shareholders	Amounts available (attributable) to Tenet Healthcare Corporation common shareholders									Amounts available (attributable) to Tenet Healthcare Corporation common shareholders
Income from continuing operations, net of tax	Income from continuing operations, net of tax	$	88	$	24	$	182	$	4	Income from continuing operations, net of tax	$	97	$	94
Income (loss) from discontinued operations, net of tax		—		2		(1)		10
Loss from discontinued operations, net of tax										Loss from discontinued operations, net of tax	0		(1)
Net income available to Tenet Healthcare Corporation common shareholders	Net income available to Tenet Healthcare Corporation common shareholders	$	88	$	26	$	181	$	14	Net income available to Tenet Healthcare Corporation common shareholders	$	97	$	93
Earnings (loss) per share available (attributable) to Tenet Healthcare Corporation common shareholders:	Earnings (loss) per share available (attributable) to Tenet Healthcare Corporation common shareholders:									Earnings (loss) per share available (attributable) to Tenet Healthcare Corporation common shareholders:
Basic	Basic									Basic
Continuing operations	Continuing operations	$	0.84	$	0.23	$	1.74	$	0.04	Continuing operations	$	0.91	$	0.90
Discontinued operations	Discontinued operations	—		0.02		(0.01)		0.10		Discontinued operations	0		(0.01)
		$	0.84	$	0.25	$	1.73	$	0.14		$	0.91	$	0.89
Diluted	Diluted									Diluted
Continuing operations	Continuing operations	$	0.83	$	0.23	$	1.72	$	0.04	Continuing operations	$	0.90	$	0.89
Discontinued operations	Discontinued operations	—		0.02		(0.01)		0.10		Discontinued operations	0		(0.01)
		$	0.83	$	0.25	$	1.71	$	0.14		$	0.90	$	0.88
Weighted average shares and dilutive securities outstanding (in thousands):	Weighted average shares and dilutive securities outstanding (in thousands):									Weighted average shares and dilutive securities outstanding (in thousands):
Basic	Basic	104,794		103,198		104,574		102,993		Basic	106,309		104,353
Diluted	Diluted	105,578		104,629		105,656		104,585		Diluted	108,065		105,733

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

Dollars in Millions

(Unaudited)


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net income	Net income	$	169	$	121	$	328	$	193	Net income	$	222	$	159
Other comprehensive income:	Other comprehensive income:									Other comprehensive income:
Amortization of net actuarial loss included in other non-operating expense, net		2		3		4		6
Amortization of net actuarial loss included in other non-operating income, net										Amortization of net actuarial loss included in other non-operating income, net	3		2
Unrealized gains on debt securities held as available-for-sale	Unrealized gains on debt securities held as available-for-sale	—		—		1		—		Unrealized gains on debt securities held as available-for-sale	0		1

Other comprehensive income before income taxes	Other comprehensive income before income taxes	2		3		5		6		Other comprehensive income before income taxes	3		3
Income tax expense related to items of other comprehensive income	Income tax expense related to items of other comprehensive income	(1)		(1)		(3)		(2)		Income tax expense related to items of other comprehensive income	(4)		(2)
Total other comprehensive income, net of tax		1		2		2		4
Total other comprehensive income (loss), net of tax										Total other comprehensive income (loss), net of tax	(1)		1
Comprehensive net income	Comprehensive net income	170		123		330		197		Comprehensive net income	221		160
Less: Comprehensive income attributable to noncontrolling interests		81		95		147		179
Less: Comprehensive income available to noncontrolling interests										Less: Comprehensive income available to noncontrolling interests	125		66
Comprehensive income available to Tenet Healthcare Corporation common shareholders	Comprehensive income available to Tenet Healthcare Corporation common shareholders	$	89	$	28	$	183	$	18	Comprehensive income available to Tenet Healthcare Corporation common shareholders	$	96	$	94

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in Millions

(Unaudited)


		Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019			2021		2020
Net income	Net income	$	328	$	193	Net income	$	222	$	159
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	409		422		Depreciation and amortization	224		203
Deferred income tax (benefit) expense		(49)		48
Deferred income tax expense (benefit)						Deferred income tax expense (benefit)	24		(79)
Stock-based compensation expense	Stock-based compensation expense	27		23		Stock-based compensation expense	14		13
Impairment and restructuring charges, and acquisition-related costs	Impairment and restructuring charges, and acquisition-related costs	109		55		Impairment and restructuring charges, and acquisition-related costs	20		55
Litigation and investigation costs	Litigation and investigation costs	4		31		Litigation and investigation costs	13		2
Net losses (gains) on sales, consolidation and deconsolidation of facilities		(3)		2
Net gains on sales, consolidation and deconsolidation of facilities						Net gains on sales, consolidation and deconsolidation of facilities	0		(2)
Loss from early extinguishment of debt	Loss from early extinguishment of debt	4		47		Loss from early extinguishment of debt	23		0
Equity in earnings of unconsolidated affiliates, net of distributions received	Equity in earnings of unconsolidated affiliates, net of distributions received	(39)		(2)		Equity in earnings of unconsolidated affiliates, net of distributions received	28		(11)
Amortization of debt discount and debt issuance costs	Amortization of debt discount and debt issuance costs	20		21		Amortization of debt discount and debt issuance costs	9		10
Pre-tax loss (income) from discontinued operations		1		(12)
Pre-tax loss from discontinued operations						Pre-tax loss from discontinued operations	0		1
Other items, net	Other items, net	(3)		(10)		Other items, net	(7)		2
Changes in cash from operating assets and liabilities:	Changes in cash from operating assets and liabilities:					Changes in cash from operating assets and liabilities:
Accounts receivable	Accounts receivable	317		(138)		Accounts receivable	(53)		14
Inventories and other current assets	Inventories and other current assets	44		(64)		Inventories and other current assets	130		23
Income taxes	Income taxes	14		(2)		Income taxes	19		2
Accounts payable, accrued expenses and other current liabilities	Accounts payable, accrued expenses and other current liabilities	1,209		(239)		Accounts payable, accrued expenses and other current liabilities	(87)		(144)
Other long-term liabilities	Other long-term liabilities	90		4		Other long-term liabilities	6		(51)
Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements	Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements	(114)		(80)		Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements	(51)		(68)
Net cash used in operating activities from discontinued operations, excluding income taxes		—		(5)

Net cash provided by operating activities	Net cash provided by operating activities	2,368		294		Net cash provided by operating activities	534		129
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment — continuing operations		(288)		(336)
Purchases of property and equipment						Purchases of property and equipment	(121)		(182)
Purchases of businesses or joint venture interests, net of cash acquired	Purchases of businesses or joint venture interests, net of cash acquired	(56)		(13)		Purchases of businesses or joint venture interests, net of cash acquired	(25)		(55)
Proceeds from sales of facilities and other assets — continuing operations		12		40
Proceeds from sales of facilities and other assets — discontinued operations		—		17
Proceeds from sales of facilities and other assets						Proceeds from sales of facilities and other assets	13		11

Proceeds from sales of marketable securities, long-term investments and other assets	Proceeds from sales of marketable securities, long-term investments and other assets	35		9		Proceeds from sales of marketable securities, long-term investments and other assets	6		10
Purchases of marketable securities and equity investments	Purchases of marketable securities and equity investments	(10)		(14)		Purchases of marketable securities and equity investments	(11)		(4)
Other long-term assets	Other long-term assets	—		(4)		Other long-term assets	(8)		(2)
Other items, net	Other items, net	18		(2)		Other items, net	1		18
Net cash used in investing activities	Net cash used in investing activities	(289)		(303)		Net cash used in investing activities	(145)		(204)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Repayments of borrowings under credit facility	Repayments of borrowings under credit facility	(740)		(1,095)		Repayments of borrowings under credit facility	0		(240)
Proceeds from borrowings under credit facility	Proceeds from borrowings under credit facility	740		1,285		Proceeds from borrowings under credit facility	0		740
Repayments of other borrowings	Repayments of other borrowings	(229)		(1,668)		Repayments of other borrowings	(541)		(48)
Proceeds from other borrowings	Proceeds from other borrowings	1,312		1,516		Proceeds from other borrowings	4		7
Debt issuance costs	Debt issuance costs	(22)		(18)		Debt issuance costs	0		(1)
Distributions paid to noncontrolling interests	Distributions paid to noncontrolling interests	(100)		(144)		Distributions paid to noncontrolling interests	(119)		(76)
Proceeds from sale of noncontrolling interests	Proceeds from sale of noncontrolling interests	5		9		Proceeds from sale of noncontrolling interests	6		2
Purchases of noncontrolling interests	Purchases of noncontrolling interests	—		(6)		Purchases of noncontrolling interests	(2)		0
Proceeds from exercise of stock options and employee stock purchase plan	Proceeds from exercise of stock options and employee stock purchase plan	5		3		Proceeds from exercise of stock options and employee stock purchase plan	7		2
Medicare advances and grants received by unconsolidated affiliates						Medicare advances and grants received by unconsolidated affiliates	19		0
Other items, net	Other items, net	202		(35)		Other items, net	(68)		40
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	1,173		(153)		Net cash provided by (used in) financing activities	(694)		426
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	3,252		(162)		Net increase (decrease) in cash and cash equivalents	(305)		351
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	262		411		Cash and cash equivalents at beginning of period	2,446		262
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	3,514	$	249	Cash and cash equivalents at end of period	$	2,141	$	613
Supplemental disclosures:	Supplemental disclosures:					Supplemental disclosures:
Interest paid, net of capitalized interest	Interest paid, net of capitalized interest	$	(465)	$	(484)	Interest paid, net of capitalized interest	$	(190)	$	(172)
Income tax payments, net	Income tax payments, net	$	(5)	$	(13)	Income tax payments, net	$	(2)	$	(3)

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TENET HEALTHCARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Description of Business and Basis of Presentation

Tenet Healthcare Corporation (together with our subsidiaries, referred to herein as “Tenet,” ~~“we”~~“we,” “our” or “us”) is a diversified healthcare services company headquartered in Dallas, Texas. Through an expansive care network that includes USPI Holding Company, Inc. (“USPI”), at ~~June 30, 2020~~March 31, 2021 we operated 65 hospitals and ~~approximately 510~~over 540 other healthcare facilities, including surgical hospitals, ambulatory surgery centers, urgent care and imaging centers, and other care sites and clinics. We also operate Conifer Health Solutions, LLC through our Conifer Holdings, Inc. (“Conifer”) subsidiary, which provides revenue cycle management and value-based care services to hospitals, ~~healthcare~~health systems, physician practices, employers and other ~~customers.~~clients.

This quarterly report supplements our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (“Annual Report”). As permitted by the Securities and Exchange Commission for interim reporting, we have omitted certain notes and disclosures that substantially duplicate those in our Annual Report. For further information, refer to the audited Consolidated Financial Statements and notes included in our Annual Report. Unless otherwise indicated, all financial and statistical data included in these notes to our Condensed Consolidated Financial Statements relate to our continuing operations, with dollar amounts expressed in millions (except per-share amounts).

Effective January 1, 2020, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) using the modified retrospective transition approach as of the period of adoption. Upon adoption of ~~ASU 2016-13~~ ~~on January 1, 2020, we recorded a cumulative effect adjustment to increase accumulated deficit by $14 million.~~

Certain prior-year amounts have been reclassified to conform to the current year presentation. In the accompanying Condensed Consolidated Balance Sheets, contract liabilities, primarily related to Medicare advance payments we received, are now presented separately due to the fact that the balances have increased substantially. In the accompanying Condensed Consolidated Statements of Operations, electronic health record incentives have been reclassified to other operating expenses, net, as they are no longer significant enough to present separately. In the accompanying Condensed Consolidated Statements of Cash Flows, purchases of marketable securities have been reclassified from other items, net within cash flows from investing activities to purchases of marketable securities and equity investments. Additionally, our financial statements and corresponding footnotes for prior periods have been recast to reflect retrospective application of the change in accounting principle discussed in the Professional and General Liability Reserves section of this note.

Although the Condensed Consolidated Financial Statements and related notes within this document are unaudited, we believe all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. In preparing our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), we are required to make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and these accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable given the particular circumstances in which we operate. Actual results may vary from those estimates. Financial and statistical information we report to other regulatory agencies may be prepared on a basis other than GAAP or using different assumptions or reporting periods and, therefore, may vary from amounts presented herein. Although we make every effort to ensure that the information we report to those agencies is accurate, complete and consistent with applicable reporting guidelines, we cannot be responsible for the accuracy of the information they make available to the public.

Operating results for the ~~three and six month periods~~three-month period ended ~~June 30, 2020~~March 31, 2021 are not necessarily indicative of the results that may be expected for the full year. Reasons for this include, but are not limited to: the impact of the COVID-19 pandemic on our operations, business, financial condition and cash flows; overall revenue and cost trends, particularly the timing and magnitude of price changes; fluctuations in contractual allowances and cost report settlements and valuation allowances; managed care contract negotiations, settlements or terminations and payer consolidations; trends in patient accounts receivable collectability and associated implicit price concessions; fluctuations in interest rates; levels of malpractice insurance expense and settlement trends; impairment of long-lived assets and goodwill; restructuring charges; losses, costs and insurance recoveries related to natural disasters and other weather-related occurrences; litigation and investigation costs; acquisitions and dispositions of facilities and other assets; gains (losses) on sales, consolidation and deconsolidation of facilities; income tax

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rates and deferred tax asset valuation allowance activity; changes in estimates of accruals for annual incentive compensation; the timing and amounts of stock option and restricted stock unit grants to employees and directors; gains (losses) from early extinguishment of debt; and changes in occupancy levels and patient volumes. Factors that affect service mix, revenue mix, patient volumes and, thereby, the results of operations at our hospitals and related healthcare facilities include, but are not limited to: changes in federal, state and local healthcare and business regulations, including mandated closures and other operating restrictions; the business environment, economic conditions and demographics of local communities in which we operate; the number of uninsured and underinsured individuals in local communities treated at our hospitals; disease hotspots and seasonal cycles of illness; climate and weather conditions; physician recruitment, satisfaction, retention and attrition; advances in technology and treatments that reduce length of stay; local healthcare competitors; utilization pressure by managed care organizations, as well as managed care contract negotiations or terminations; hospital performance data on quality measures and patient satisfaction, as well as standard charges for services; any unfavorable publicity about us, or our joint venture partners, that impacts our relationships with physicians and patients; and changing consumer behavior, including with respect to the timing of elective procedures. These considerations apply to year-to-year comparisons as well.

~~Professional and General Liability Reserves~~

We accrue for estimated professional and general liability claims when they are probable and can be reasonably estimated. The accrual, which includes an estimate for incurred but not reported claims, is updated each quarter based on a model of projected payments using case-specific facts and circumstances and our historical loss reporting, development and settlement patterns. ToCertain prior-year amounts have been reclassified to conform to the extent that subsequent claims information varies from our estimates, the liability is adjusted in the period such information becomes available. Malpractice expense is presented within other operating expenses incurrent year presentation. In the accompanying Condensed Consolidated ~~Statements of Operations.~~

In the three months ended March 31, 2020, we changed our method of accounting for our estimated professional and general liability claims. Under the new method of accounting, the liabilities are reported on an undiscounted basis whereas, previously, the liabilities were reported on a discounted basis. We believe that the undiscounted presentationBalance Sheets, income tax receivable has been reclassified to other current assets, as it is preferable because it simplifies the accounting for the liabilities, thereby increasing understandability of our financial results and financial condition, is consistent with the manner in which management evaluates our business, and results in an accounting method and financial statement presentation that is consistent with our key peers.

~~Accordingly, our financial statements and corresponding footnotes for the respective prior periods have been recast~~no longer significant enough to reflect retrospective application of the change in accounting principle. We recorded the cumulative effect for the change in accounting principle as an increase of $44 million to accumulated deficit as of January 1, 2017. This change increased our accumulated deficit by $46 million, $47 million and $63 million at December 31, 2019, June 30, 2019 and December 31, 2018, respectively.

~~The following tables~~ present ~~the effects of the change in accounting principle to our financial statements:~~

~~Condensed Consolidated Balance Sheet:~~

As Reported Effect of Change in Accounting Principle As Adjusted
At December 31, 2019:
Deferred income taxes $ 169 $ 14 $ 183
Professional and general liability reserves $ 585 $ 50 $ 635
Other long-term liabilities $ 1,405 $ 10 $ 1,415
Accumulated deficit $ (2,467) $ (46) $ (2,513)

separately.

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~~Condensed Consolidated Statements of Operations (in millions, except for per-share amounts):~~

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
Prior to Change in Accounting Principle Effect of Change in Accounting Principle As Reported Prior to Change in Accounting Principle Effect of Change in Accounting Principle As Reported
Salaries, wages and benefits $ 1,864 $ — $ 1,864 $ 4,058 $ (7) $ 4,051
Other operating expenses, net $ 983 $ — $ 983 $ 2,030 $ (34) $ 1,996
Operating income $ 471 $ — $ 471 $ 757 $ 41 $ 798
Income tax benefit (expense) $ (45) $ — $ (45) $ 40 $ (10) $ 30
Net income $ 169 $ — $ 169 $ 297 $ 31 $ 328
Net income from continuing operations available to Tenet Healthcare Corporation common shareholders $ 88 $ — $ 88 $ 151 $ 31 $ 182
Earnings per share available to Tenet Healthcare Corporation common shareholders from continuing operations:
Basic $ 0.84 $ — $ 0.84 $ 1.44 $ 0.30 $ 1.74
Diluted $ 0.83 $ — $ 0.83 $ 1.43 $ 0.29 $ 1.72

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
As Reported Effect of Change in Accounting Principle As Adjusted As Reported Effect of Change in Accounting Principle As Adjusted
Salaries, wages and benefits $ 2,148 $ (3) $ 2,145 $ 4,301 $ (5) $ 4,296
Other operating expenses, net $ 1,044 $ (9) $ 1,035 $ 2,117 $ (17) $ 2,100
Operating income $ 388 $ 12 $ 400 $ 759 $ 22 $ 781
Income tax expense $ (30) $ (3) $ (33) $ (47) $ (6) $ (53)
Net income $ 112 $ 9 $ 121 $ 177 $ 16 $ 193
Net income (loss) from continuing operations available (attributable) to Tenet Healthcare Corporation common shareholders $ 15 $ 9 $ 24 $ (12) $ 16 $ 4
Earnings (loss) per share available (attributable) to Tenet Healthcare Corporation common shareholders from continuing operations:
Basic $ 0.15 $ 0.08 $ 0.23 $ (0.12) $ 0.16 $ 0.04
Diluted $ 0.14 $ 0.09 $ 0.23 $ (0.12) $ 0.16 $ 0.04
COVID-19 Pandemic

~~Condensed~~During 2020, federal, state and local authorities undertook several actions designed to assist healthcare providers in providing care to COVID-19 and other patients and to mitigate the adverse economic impact of the COVID-19 pandemic. Legislative actions taken by the federal government during 2020 included the Coronavirus Aid, Relief, and Economic Security Act, the Paycheck Protection Program and Health Care Enhancement Act, the Continuing Appropriations Act, 2021 and Other Extensions Act, and the Consolidated ~~Statements of Cash Flows:~~

Prior to Change in Accounting Principle Effect of Change in Accounting Principle As Reported
Six Months Ended June 30, 2020:
Net income $ 297 $ 31 $ 328
Deferred income tax (benefit) expense $ (59) $ 10 $ (49)
Accounts payable, accrued expenses and other current liabilities $ 1,250 $ (41) $ 1,209
Net cash provided by operating activities $ 2,368 $ — $ 2,368

As Reported Effect of Change in Accounting Principle As Adjusted
Six Months Ended June 30, 2019:
Net income $ 177 $ 16 $ 193
Deferred income tax expense $ 42 $ 6 $ 48
Accounts payable, accrued expenses and other current liabilities $ (217) $ (22) $ (239)
Net cash provided by operating activities $ 294 $ — $ 294

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~~Net Operating Revenues~~

~~We recognize net operating revenues in~~Appropriations Act, 2021 (collectively, the ~~period in which we satisfy our performance obligations under contracts by transferring services to our customers. Net operating revenues are recognized in~~“COVID Acts”). Through the ~~amounts we expect~~COVID Acts, the federal government authorized funding to be entitled to, which are the transaction prices allocated for the distinct services. Net operating revenues for our Hospital Operations and other (“Hospital Operations”) and Ambulatory Care segments primarily consist of net patient service revenues, principally for patients covered by Medicare, Medicaid, managed care and other health plans, as well as certain uninsured patients under our ~~Compact with Uninsured Patients~~ (“~~Compact~~”) and other uninsured discount and charity programs. Net operating revenues for our Conifer segment primarily consist of revenues from providing revenue cycle management services to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities.

~~Net Patient Service Revenues—~~We report net patient service revenues at the amounts that reflect the consideration we expect to be entitled to in exchange for providing patient care. These amounts are due from patients, third-party payers (including managed care payers and government programs) and others, and they include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews and investigations. Generally, we bill our patients and third-party payers several days after the services are performed or shortly after discharge. Revenues are recognized as performance obligations are satisfied.

~~Conifer Revenues—~~Our Conifer segment recognizes revenue from its contracts when Conifer’s performance obligations are satisfied, which is generally as services are rendered. Revenue is recognized in an amount that reflects the consideration to which Conifer expects to be entitled.

~~Grant Income~~

~~Additional funding for~~distributed through the Public Health and Social Services Emergency Fund (“Provider Relief Fund” or “PRF”) ~~was among~~. Additionally, the ~~provisions~~COVID Acts revised the Medicare accelerated payment program in an attempt to disburse payments to hospitals and other care providers more quickly and permitted employers to defer payment of the ~~Coronavirus Aid, Relief, and Economic~~6.2% employer Social Security ~~Act (the “CARES Act”), which was signed into law on~~tax beginning March 27, 2020 through December 31, 2020. Our participation in these programs and ~~other legislation. In~~related accounting policies are summarized below.

Grant Income. During the three months ended ~~June 30, 2020,~~March 31, 2021, we received cash payments of ~~$712~~$59 million ~~and~~ ~~our Hospital Operations and Ambulatory Care segments recognized $474 million and $49 million, respectively, of income due to grants~~ from the Provider Relief Fund and state and local grant programs, ~~which is reported as grant income in~~including $28 million received by our ~~Condensed Consolidated Statements of Operations at June 30, 2020, except for $12 million for our Ambulatory Care segment that is included in equity in earnings of~~ unconsolidated affiliates. ~~We have deferred $163 million of payments, which amount is recorded in other current liabilities on our Condensed Consolidated Balance Sheet at June 30, 2020.~~ Payments from the Relief Fund are not loans and, therefore, they are not subject to repayment. However, as a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for lost operating revenues and COVID-related costs, and that the providers will not seek collection of out-of-pocket payments from a COVID-19 patient that are greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network provider. We recognize grant payments as income when there is reasonable assurance that we have complied with the conditions associated with the grant. Our estimates could change materially in the future based on our operating performance or COVID-19 activities, ~~at individual locations,~~ as well as the ~~evolving~~government’s grant compliance ~~guidance~~guidance. Grant income recognized by our Hospital Operations and other (“Hospital Operations”) and Ambulatory Care segments is presented in grant income and grant income recognized through our unconsolidated affiliates is presented in equity in earnings of unconsolidated affiliates in our statement of operations. During the three months ended March 31, 2021, we recognized grant income of $24 million in our Hospital Operations segment and $7 million in our Ambulatory Care segment. We recognized an additional $6 million of Provider Relief Fund income during this period, which was classified as equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statement of Operations for the three months ended March 31, 2021.

Disbursements from the Provider Relief Fund and other state and local programs began in the second quarter of 2020; therefore, no grant payments were received or grant income recognized during the three months ended March 31, 2020. At both March 31, 2021 and December 31, 2020, we had deferred grant payments remaining of $18 million, which amounts were recorded in other current liabilities in the accompanying Condensed Consolidated Balance Sheets for those periods.

Medicare Accelerated Payment Program. In certain circumstances, when a hospital is experiencing financial difficulty due to delays in receiving payment for the Medicare services it provided, it may be eligible for an accelerated or advance payment pursuant to the Medicare accelerated payment program. The COVID Acts revised the Medicare accelerated payment program in an attempt to disburse payments to healthcare providers more quickly. Recipients may retain the accelerated payments for one year from the date of receipt before recoupment commences, which will be effectuated by a 25% offset of claims payments for 11 months, followed by a 50% offset for the ~~government.~~succeeding six months. At the end of the 29-month period, interest on the unpaid balance will be assessed at 4.00% per annum. The initial 11-month recoupment period began in April 2021.

Our Hospital Operations and Ambulatory Care segments both received advance payments from the Medicare accelerated payment program during 2020. No additional advances were received in the three months ended March 31, 2021. Advances totaling $857 million and $603 million were included in contract liabilities and $639 million and $902 million were included in contract liabilities – long term in the accompanying Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020, respectively.

Deferral of Employer Payroll Tax Match Payments. Social Security taxes deferred under the COVID Acts are required to be paid in equal amounts over two years, with payments due in December 2021 and December 2022. We had deferred Social Security tax payments totaling $130 million included in accrued compensation and benefits and $130 million included in other long‑term liabilities in the accompanying Condensed Consolidated Balance Sheets at both March 31, 2021 and December 31, 2020.

Cash and Cash Equivalents

We treat highly liquid investments with original maturities of three months or less as cash equivalents. Cash and cash equivalents were ~~$3.514~~$2.141 billion and ~~$262 million~~$2.446 billion at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, our book overdrafts were ~~$160~~$171 million and ~~$246~~$154 million, respectively, which were classified as accounts payable.

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At ~~both June 30, 2020~~March 31, 2021 and December 31, ~~2019, $176~~2020, $172 million and $166 million, respectively, of total cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets were intended for the operations of our captive insurance subsidiaries. ~~At June 30, 2020~~

Also at March 31, 2021 and December 31, ~~2019, $1~~2020, we had $42 million and ~~$2 million, respectively, of total cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets were intended for the operations of our health plan-related businesses.~~

~~Also at June 30, 2020 and December 31, 2019, we had $45 million and $136~~$93 million, respectively, of property and equipment purchases accrued for items received but not yet paid. Of these amounts, ~~$32~~$36 million and ~~$119~~$85 million, respectively, were included in accounts payable.

During the ~~six months~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we recorded ~~non-cancellable~~right-of-use assets related to non‑cancellable finance leases of ~~$43~~$11 million ~~and $58~~and $15 million, respectively, and related to non-cancellable operating leases of ~~$88~~$46 million and ~~$139~~$54 million, respectively.

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Other Intangible Assets

The following tables provide information regarding other intangible assets, which ~~are~~were included in the accompanying Condensed Consolidated Balance Sheets at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		Gross Carrying Amount		Accumulated Amortization		Net Book Value			Gross Carrying Amount		Accumulated Amortization		Net Book Value
At June 30, 2020:
At March 31, 2021:								At March 31, 2021:
Capitalized software costs	Capitalized software costs	$	1,681	$	(977)	$	704	Capitalized software costs	$	1,836	$	(1,125)	$	711
Trade names	Trade names	102		—		102		Trade names	102		0		102
Contracts	Contracts	875		(103)		772		Contracts	872		(116)		756
Other	Other	108		(83)		25		Other	111		(90)		21
Total	Total	$	2,766	$	(1,163)	$	1,603	Total	$	2,921	$	(1,331)	$	1,590


		Gross Carrying Amount		Accumulated Amortization		Net Book Value			Gross Carrying Amount		Accumulated Amortization		Net Book Value
At December 31, 2019:
At December 31, 2020:								At December 31, 2020:
Capitalized software costs	Capitalized software costs	$	1,616	$	(912)	$	704	Capitalized software costs	$	1,800	$	(1,084)	$	716
Trade names	Trade names	102		—		102		Trade names	102		0		102
Contracts	Contracts	869		(94)		775		Contracts	872		(111)		761
Other	Other	107		(86)		21		Other	110		(89)		21
Total	Total	$	2,694	$	(1,092)	$	1,602	Total	$	2,884	$	(1,284)	$	1,600

Estimated future amortization of intangibles with finite useful lives at ~~June 30, 2020~~March 31, 2021 is as follows:

Six Months
Ending Years Ending Later Years
December 31,
Total 2020 2021 2022 2023 2024
Amortization of intangible assets $ 922 $ 87 $ 132 $ 118 $ 106 $ 88 $ 391


			Nine Months Ending		Years Ending								Later Years
					December 31,
	Total		2021		2022		2023		2024		2025
Amortization of intangible assets	$	907	$	128	$	125	$	112	$	102	$	87	$	353

We recognized amortization expense of ~~$79~~$47 million and ~~$90~~$41 million in the accompanying Condensed Consolidated Statements of Operations for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

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Investments in Unconsolidated Affiliates

We control ~~243~~291 of the facilities within our Ambulatory Care segment and, therefore, consolidate their results. We account for many of the facilities our Ambulatory Care segment operates ~~(107~~(108 of ~~350~~399 at ~~June 30, 2020)~~March 31, 2021), as well as additional companies in which our Hospital Operations segment holds ownership interests, under the equity method as investments in unconsolidated affiliates and report only our share of net income as equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Operations. In the three months ended ~~June 30, 2020,~~March 31, 2021, equity in earnings of unconsolidated affiliates ~~benefited~~included $6 million from ~~$12 million due to Relief Fund~~PRF grants recognized by our Ambulatory Care ~~segment's~~segment’s unconsolidated affiliates. Summarized financial information for these equity method investees is included in the following table. For investments acquired during the ~~reporting~~reported periods, amounts reflect 100% of the investee’s results beginning on the date of our acquisition of the investment.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net operating revenues	Net operating revenues	$	468	$	619	$	1,034	$	1,187	Net operating revenues	$	634	$	566
Net income	Net income	$	138	$	141	$	247	$	291	Net income	$	165	$	109
Net income available to the investees	Net income available to the investees	$	83	$	87	$	152	$	193	Net income available to the investees	$	102	$	69

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NOTE 2. ACCOUNTS RECEIVABLE

The principal components of accounts receivable are shown in the table below:

June 30, 2020 December 31, 2019
Continuing operations:
Patient accounts receivable $ 2,231 $ 2,567
Estimated future recoveries 163 162
Net cost reports and settlements receivable and valuation allowances 40 12
2,434 2,741
Discontinued operations 1 2
Accounts receivable, net $ 2,435 $ 2,743

Accounts that are pursued for collection through Conifer’s business offices are maintained on our hospitals’ books and reflected in patient accounts receivable. Patient accounts receivable, including billed accounts and certain unbilled accounts, as well as estimated amounts due from third-party payers for retroactive adjustments, are recognized as receivables if our right to consideration is unconditional and only the passage of time is required before payment of that consideration is due. Estimated uncollectable amounts are generally considered implicit price concessions that are a direct reduction to patient accounts receivable rather than allowance for doubtful accounts.


	March 31, 2021		December 31, 2020
Continuing operations:
Patient accounts receivable	$	2,544	$	2,499
Estimated future recoveries	156		156
Net cost reports and settlements receivable and valuation allowances	43		34
	2,743		2,689
Discontinued operations	2		1
Accounts receivable, net	$	2,745	$	2,690

~~We had $239 million~~The following table summarizes the amount and ~~$277 million~~classification of ~~receivables recorded in other current~~ assets and ~~investments and other assets, respectively, and $95 million and $87 million of payables recorded in other current~~ liabilities ~~and other long-term liabilities, respectively,~~ in the accompanying Condensed Consolidated Balance ~~Sheet at June 30, 2020~~Sheets related to California’s provider fee ~~program. We had $316 million~~program at March 31, 2021 and $213 million of receivables recorded in other current assets and investments and other assets, respectively, and $115 million and $57 million of payables recorded in other current liabilities and other long-term liabilities, respectively, in the accompanying Condensed Consolidated Balance Sheet at December 31, ~~2019 related to California’s provider fee program.~~2020:

We also provide financial assistance through our charity and uninsured discount programs to uninsured patients who are unable to pay for the healthcare services they receive. Our policy is not to pursue collection of amounts determined to qualify for financial assistance; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital’s eligibility for Medicaid disproportionate share hospital (“DSH”) payments. These payments are intended to mitigate our cost of uncompensated care. Some states have also developed provider fee or other supplemental payment programs to mitigate the shortfall of Medicaid reimbursement compared to the cost of caring for Medicaid patients.


	March 31, 2021		December 31, 2020
Assets:
Other current assets	$	255	$	378
Investments and other assets	$	277	$	206

Liabilities:
Other current liabilities	$	122	$	110
Other long-term liabilities	$	52	$	56

The following table shows our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses) of caring for our uninsured and charity patients in the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Estimated costs for:	Estimated costs for:									Estimated costs for:
Uninsured patients	Uninsured patients	$	145	$	164	$	301	$	322	Uninsured patients	$	168	$	156
Charity care patients	Charity care patients	43		41		83		75		Charity care patients	20		40
Total	Total	$	188	$	205	$	384	$	397	Total	$	188	$	196

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NOTE 3. CONTRACT BALANCES

Hospital Operations Segment

Amounts related to services provided to patients for which we have not billed and that do not meet the conditions of unconditional right to payment at the end of the reporting period are contract assets. For our Hospital Operations segment, our contract assets ~~consist primarily of~~include services that we have provided to patients who are still receiving inpatient care in our facilities at the end of the reporting period. Our Hospital Operations segment’s contract assets ~~are~~were included in other current assets in the accompanying Condensed Consolidated Balance Sheets at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~

In certain circumstances, when a hospital is experiencing financial difficulty due to delays in receiving payment for Medicare services provided, it may be eligible for an accelerated or advance payment pursuant to the Medicare accelerated

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payment program. The CARES Act revised the Medicare accelerated payment program in an attempt to disburse payments to hospitals more quickly to mitigate shortfalls due to delays in non-essential procedures, as well as staffing and billing disruptions. In the three months ended June 30, 2020, our Hospital Operations segment received advance payments from the Medicare accelerated payment program following expansion of the program under the CARES Act. These advance payments are recorded as contract liabilities in the accompanying Condensed Consolidated Balance Sheet at June 30, 2020, except for $49 million related to our hospitals and other operations in the Memphis area, which payments are recorded as liabilities held for sale.

~~The opening and closing balances of contract assets and contract liabilities for our Hospital Operations segment are as follows:~~

Contract Liability –
Current
Contract Assets Advances from Medicare
December 31, 2019 $ 170 $ —
June 30, 2020 176 1,266
Increase/(decrease) $ 6 $ 1,266

~~December 31, 2018~~

~~169~~

—

~~June 30, 2019~~

~~160~~

—

~~Increase/(decrease)~~

~~(9)~~

—

2020. Approximately ~~85%~~91% of our Hospital Operations segment’s contract assets meet the conditions for unconditional right to payment and are reclassified to patient receivables within 90 days.

In certain circumstances, when a hospital is experiencing financial difficulty due to delays in receiving payment for the Medicare services it provided, it may be eligible for an accelerated or advance payment pursuant to the Medicare accelerated payment program. As discussed in Note 1, the COVID Acts revised the Medicare accelerated payment program in an attempt to disburse payments to hospitals more quickly. During the year ended December 31, 2020, our Hospital Operations segment received advance payments from the Medicare accelerated payment program following its expansion under the COVID Acts. These advance payments were recorded as contract liabilities in the accompanying Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020. No additional advances were received in the three months ended March 31, 2021.

The opening and closing balances of contract assets and contract liabilities for our Hospital Operations segment are as follows:


			Contract Liability –		Contract Liability –
			Current		Long-term
	Contract Assets		Advances from Medicare		Advances from Medicare
December 31, 2020	$	208	$	510	$	819
March 31, 2021	180		734		595
Increase (decrease)	$	(28)	$	224	$	(224)


December 31, 2019	$	170	$	0	$	0
March 31, 2020	151		0		0
Decrease	$	(19)	$	0	$	0

Ambulatory Care Segment

InDuring the ~~three months~~year ended ~~June 30,~~December 31, 2020, our Ambulatory Care segment also received advance payments from the expanded Medicare accelerated payment ~~program following expansion~~program. At March 31, 2021 and December 31, 2020, contract liabilities included $66 million and $51 million, respectively, and contract liabilities – long-term included $38 million and $62 million, respectively, of ~~the program under the CARES Act.~~ Medicare advance payments received by our unconsolidated affiliates for whom we provide cash management services.

The opening and closing balances of contract liabilities for our Ambulatory Care segment are as follows:


	~~Contract Liability –~~
	~~Current~~
	~~Advances from Medicare~~
~~December 31, 2019~~	$	—
~~June 30, 2020~~	~~167~~
~~Increase/(decrease)~~	$	~~167~~

~~December 31, 2018~~	$	—
~~June 30, 2019~~	—
~~Increase/(decrease)~~	$	—


	Contract Liability –		Contract Liability –
	Current		Long-term
	Advances from Medicare		Advances from Medicare
December 31, 2020	$	93	$	83
March 31, 2021	123		44
Increase (decrease)	$	30	$	(39)

Our Ambulatory Care segment did not have any outstanding payments from the Medicare accelerated payment program at March 31, 2020 and December 31, 2019.

Conifer Segment

Conifer enters into contracts with customers to provide revenue cycle management and other services, such as ~~value-based~~value‑based care, consulting and project services. The payment terms and conditions in our customer contracts vary. In some cases, customers are invoiced in advance and (for other than fixed-price fee arrangements) a true-up to the actual fee is included on a subsequent invoice. In other cases, payment is due in arrears. In addition, some contracts contain performance incentives,

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penalties and other forms of variable consideration. When the timing of Conifer’s delivery of services is different from the timing of payments made by the customers, Conifer recognizes either unbilled revenue (performance precedes contractual right to invoice the customer) or deferred revenue (customer payment precedes Conifer service performance). In the following table, customers that prepay prior to obtaining control/benefit of the service are represented by deferred contract revenue until the performance obligations are satisfied. Unbilled revenue represents arrangements in which Conifer has provided services to and the customer has obtained control/benefit of services prior to the contractual invoice date. Contracts with payment in arrears are recognized as receivables in the month the service is performed.

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The opening and closing balances of Conifer’s receivables, contract ~~asset,~~assets and ~~current and long-term~~ contract liabilities are as follows:

Contract Liability – Contract Liability –
Contract Asset – Current Long-Term
Receivables Unbilled Revenue Deferred Revenue Deferred Revenue
December 31, 2019 $ 26 $ 11 $ 61 $ 18
June 30, 2020 28 12 63 17
Increase/(decrease) $ 2 $ 1 $ 2 $ (1)
December 31, 2018 $ 42 $ 11 $ 61 $ 20
June 30, 2019 96 15 67 19
Increase/(decrease) $ 54 $ 4 $ 6 $ (1)


					Contract Liability –		Contract Liability –
			Contract Asset –		Current		Long-Term
	Receivables		Unbilled Revenue		Deferred Revenue		Deferred Revenue
December 31, 2020	$	56	$	20	$	56	$	16
March 31, 2021	56		14		60		16
Increase (decrease)	$	0	$	(6)	$	4	$	0

December 31, 2019	$	26	$	11	$	61	$	18
March 31, 2020	23		7		61		17
Decrease	$	(3)	$	(4)	$	0	$	(1)

The difference between the opening and closing balances of Conifer’s contract assets and contract liabilities are primarily related to prepayments for those customers who are billed in advance, changes in estimates related to metric-based services, and up-front integration services that are typically not distinct and are, therefore, recognized over the performance obligation period to which they relate. Our Conifer segment’s receivables and contract assets ~~are~~were reported as part of other current assets in our accompanying Condensed Consolidated Balance Sheets, and ~~our Conifer segment’s~~its current and long-term contract liabilities ~~are~~were reported as part of contract liabilities and ~~other~~contract liabilities – long-term, ~~liabilities,~~ respectively, in our accompanying Condensed Consolidated Balance Sheets.

~~The amount~~In the three months ended March 31, 2021 and 2020, Conifer recognized $49 million and $54 million, respectively, of revenue ~~Conifer recognized in both of the six month periods ended June 30, 2020 and 2019~~ that was included in the opening current deferred revenue ~~liability was $56 million.~~liability. This revenue consists primarily of prepayments for those customers who are billed in advance, changes in estimates related to metric-based services, and ~~up-front~~up‑front integration services that are recognized over the services period.

Contract Costs

We have elected to apply the practical expedient provided by FASB Accounting Standards Codification (“ASC”) 340-40-25-4 and expense as incurred the incremental customer contract acquisition costs for contracts in which the amortization periodDuring both of the ~~asset is one year or less. However, incremental costs incurred~~ three months ended March 31, 2021 and 2020, we recognized amortization expense related to ~~obtain and fulfill customer contracts for which the amortization period of the asset is longer than one year, which consist primarily of Conifer~~ deferred contract setup costs ~~are capitalized and amortized on a straight-line basis over the lesser of their estimated useful lives or the term of the related contract. In both of the three month periods ended June 30, 2020 and 2019, we recognized amortization expense~~ of $1 million. ~~In both of the six month periods ended June 30, 2020 and 2019, we recognized amortization expense of $2 million.~~ At ~~both June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the unamortized customer contract costs were ~~$25~~$23 million and $24 million, respectively, and are presented as part of investments and other assets in the accompanying Condensed Consolidated Balance Sheets.

NOTE 4. ASSETS AND LIABILITIES HELD FOR SALE

In December 2020, we entered into a definitive agreement to sell the majority of our urgent care centers operated under the MedPost and CareSpot brands by our Hospital Operations and Ambulatory Care segments. As a result, the assets and liabilities associated with these facilities were classified as held for sale at both March 31, 2021 and December 31, 2020 in the accompanying Condensed Consolidated Balance Sheets. At March 31, 2021, assets and liabilities held for sale associated with these facilities totaled $125 million and $68 million, respectively. We completed the sale of these facilities on April 30, 2021.

In the three months ended ~~December 31, 2019, 2 of our hospitals and other operations~~September 30, 2020, a building we owned in the ~~Memphis~~Philadelphia area met the criteria to be classified as held for sale. As a result, ~~we have~~the building and related assets were classified ~~these assets totaling $378 million~~ as ~~“assets~~ held for ~~sale” in current assets~~sale at both March 31, 2021 and ~~the related liabilities of $93 million as “liabilities held for sale” in current liabilities~~December 31, 2020 in the accompanying Condensed Consolidated Balance ~~Sheet at June 30, 2020.~~ Sheets. At March 31, 2021, assets held for sale related to this building totaled $14 million. We completed the sale of the building in April 2021 for $16 million.

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Assets and liabilities classified as held for sale at ~~June 30, 2020~~March 31, 2021 were comprised of the following:


Accounts receivable	$	9114
Other current assets	256
Investments and other long-term assets	841
Property and equipment	~~190~~39
~~Other intangible assets~~	22
Goodwill	4239

~~Contract~~Current liabilities	~~(49)~~(31)
~~Other current liabilities~~	~~(35)~~
Long-term liabilities	~~(9)~~(37)
Net assets held for sale	$	~~285~~71

~~Table of Contents~~

~~The following table provides information on significant components of our business that have been recently disposed of or are classified as held for sale at June 30, 2020:~~

Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Significant disposals:
Income (loss) from continuing operations, before income taxes
   Chicago area (includes a $5 million loss and a $6 million loss
      on sale in the 2020 and 2019 periods, respectively)
$ 1 $ 1 $ (2) $ (11)
Total $ 1 $ 1 $ (2) $ (11)

Significant planned divestitures classified as held for sale:
Income from continuing operations, before income taxes
Memphis area $ 23 $ 3 $ 28 $ 5
Total $ 23 $ 3 $ 28 $ 5

NOTE 5. IMPAIRMENT AND RESTRUCTURING CHARGES, AND ACQUISITION-RELATED COSTS

During the ~~six~~three months ended ~~June 30,~~March 31, 2021, we recorded impairment and restructuring charges and acquisition‑related costs of $20 million, consisting of $16 million of restructuring charges and $4 million of acquisition-related costs. Restructuring charges consisted of $4 million of employee severance costs, $6 million related to the transition of various administrative functions to our Global Business Center (“GBC”) in the Philippines and $6 million of other restructuring costs. Acquisition‑related costs consisted of $4 million of transaction costs.

During the three months ended March 31, 2020, we recorded impairment and restructuring charges and ~~acquisition-related~~acquisition‑related costs of ~~$109~~$55 million, consisting of $5$54 million ~~of impairment charges, $103 million of~~or restructuring charges and $1 million of acquisition-related costs. Restructuring charges consisted of ~~$37~~$10 million of employee severance costs, ~~$25~~$15 million related to the transition of various administrative functions to our ~~Global Business Center in the Philippines,~~GBC, $23 million of charges due to the termination of ~~the USPI~~USPI’s previous management equity plan, $1 million of contract and lease termination fees, and ~~$17~~$5 million of other restructuring costs. Acquisition-related costs consisted of $1 million of transaction costs. ~~Our impairment charges for the six months ended June 30, 2020 were comprised of $5 million from our Ambulatory Care segment.~~

During the six months ended June 30, 2019, we recorded impairment and restructuring charges and acquisition-related costs of $55 million, consisting of $5 million of impairment charges, $47 million of restructuring charges and $3 million of acquisition-related costs. Restructuring charges consisted of $18 million of employee severance costs, $2 million of contract and lease termination fees, and $27 million of other restructuring costs. Acquisition-related costs consisted of $3 million of transaction costs. Our impairment charges for the six months ended June 30, 2019 were comprised of $4 million from our Hospital Operations segment and $1 million from our Ambulatory Care segment.

Our impairment tests presume stable, improving or, in some cases, declining operating results in our facilities, which are based on programs and initiatives being implemented that are designed to achieve each facility’s most recent projections. If these projections are not met, or if in the future negative trends occur that impact our future outlook, impairments of long-lived assets and goodwill may occur, and we may incur additional restructuring charges, which could be material.

At ~~June 30, 2020,~~March 31, 2021, our continuing operations consisted of 3 reportable segments, Hospital Operations, Ambulatory Care and Conifer. Our segments are reporting units used to perform our goodwill impairment analysis.

We periodically incur costs to implement restructuring efforts for specific operations, which are recorded in our ~~consolidated statements~~statement of operations as they are incurred. Our restructuring plans focus on various aspects of operations, including aligning our operations in the most strategic and cost-effective ~~structure.~~structure, such as the establishment of offshore support operations at our GBC. Certain restructuring and acquisition-related costs are based on estimates. Changes in estimates are recognized as they occur.

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NOTE 6. LONG-TERM DEBT

The table below shows our long-term debt at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		June 30, 2020		December 31, 2019				March 31, 2021		December 31, 2020
Senior unsecured notes:	Senior unsecured notes:						Senior unsecured notes:

8.125% due 2022		$	2,665	$	2,800

6.750% due 2023	6.750% due 2023	1,872		1,872		��	6.750% due 2023	$	1,872	$	1,872
7.000% due 2025	7.000% due 2025	478		478			7.000% due 2025	0		478
6.125% due 2028							6.125% due 2028	2,500		2,500
6.875% due 2031	6.875% due 2031	362		362			6.875% due 2031	362		362
Senior secured first lien notes:	Senior secured first lien notes:						Senior secured first lien notes:

4.625% due 2024	4.625% due 2024	1,870		1,870			4.625% due 2024	1,870		1,870
4.625% due 2024	4.625% due 2024	600		600			4.625% due 2024	600		600
7.500% due 2025	7.500% due 2025	700		—			7.500% due 2025	700		700
4.875% due 2026	4.875% due 2026	2,100		2,100			4.875% due 2026	2,100		2,100
5.125% due 2027	5.125% due 2027	1,500		1,500			5.125% due 2027	1,500		1,500
4.625% due 2028	4.625% due 2028	600		—			4.625% due 2028	600		600
Senior secured second lien notes:	Senior secured second lien notes:						Senior secured second lien notes:

5.125% due 2025	5.125% due 2025	1,410		1,410			5.125% due 2025	1,410		1,410
6.250% due 2027	6.250% due 2027	1,500		1,500			6.250% due 2027	1,500		1,500

Finance leases and mortgage notes		417		445
Finance leases, mortgage and other notes							Finance leases, mortgage and other notes	383		403
Unamortized issue costs and note discounts	Unamortized issue costs and note discounts	(186)		(186)			Unamortized issue costs and note discounts	(162)		(176)
Total long-term debt	Total long-term debt	15,888		14,751			Total long-term debt	15,235		15,719
Less current portion	Less current portion	160		171			Less current portion	137		145
Long-term debt, net of current portion	Long-term debt, net of current portion	$	15,728	$	14,580		Long-term debt, net of current portion	$	15,098	$	15,574

Senior Unsecured Notes and Senior Secured Notes

In ~~June 2020,~~March 2021, we ~~purchased~~retired approximately ~~$135~~$478 million aggregate principal amount of our ~~8.125%~~7.000% senior unsecured notes due ~~2022 for~~2025 in advance of their maturity date. We paid approximately ~~$142 million.~~$495 million from cash on hand to retire the notes. In connection with the ~~purchase,~~retirement, we recorded a loss from early extinguishment of debt of ~~approximately $8~~$23 million in the three months ended ~~June 30, 2020,~~March 31, 2021, primarily related to ~~the write-off of associated unamortized issuance costs and~~ the difference between the purchase price and the par value of the ~~notes.~~

~~On June 16, 2020, we sold $600 million aggregate principal amount~~notes, as well as the write-off of 4.625% senior secured first lien notes, which will mature on June 15, 2028 (the “2028 Senior Secured First Lien Notes”). We will pay interest on the 2028 Senior Secured First Lien Notes semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2020.

On April 7, 2020, we sold $700 million aggregate principal amount of 7.500% senior secured first lien notes, which will mature on April 1, 2025 (the “2025 Senior Secured First Lien Notes”). We will pay interest on the 2025 Senior Secured First Lien Notes semi-annually in arrears on April 1 and October 1 of each year, commencing on October 1, 2020. A portion of the proceeds from the sale of the 2025 Senior Secured First Lien Notes was used, after payment of fees and expenses, to repay the $500 million aggregate principal amount of borrowings outstanding under our Credit Agreement as of March 31, 2020.associated unamortized issuance costs.

Credit Agreement

We have a senior secured revolving credit facility that provides for revolving loans in an aggregate principal amount of up to ~~$1.9~~$1.900 billion with a $200 million subfacility for standby letters of credit. We amended our credit agreement (as amended to date, the “Credit Agreement”) in April 2020 to, among other things, (i) increase the aggregate revolving credit commitments from the previous limit of ~~$1.5~~$1.500 billion to ~~$1.9~~$1.900 billion (the “Increased Commitments”), subject to borrowing availability, and (ii) increase the advance rate and raise limits on certain eligible accounts receivable in the calculation of the borrowing base, in each case, for an incremental period of 364 ~~days (the “incremental period”).~~days. In April 2021, we further amended the Credit Agreement to, among other things, extend the availability of the Increased Commitments through April 22, 2022 and reduce the interest rate margins. At ~~June 30, 2020,~~March 31, 2021, we had 0 cash borrowings outstanding under the Credit Agreement,, and we had less than $1 million of standby letters of credit outstanding. Based on our eligible receivables, ~~$1.757~~$1.900 billion was available for borrowing under the revolving credit facility at ~~June 30, 2020.~~March 31, 2021.

The Credit Agreement continues to have a scheduled maturity date of September 12, 2024, and obligations under the Credit Agreement continue to be guaranteed by substantially all of our domestic wholly owned hospital subsidiaries and secured by a first-priority lien on the eligible inventory and accounts receivable owned by us and the subsidiary guarantors, including receivables for Medicaid supplemental payments.

~~Table of Contents~~

Outstanding revolving loans ~~accrued~~accrue interest ~~during a one-month initial period~~ at ~~the rate of~~ either (i) a base rate plus a margin ofranging from 0.25% to 0.75% per annum, or (ii) the London Interbank Offered Rate (“LIBOR”) plus a margin ~~of 1.75% per annum. Thereafter, outstanding revolving loans accrue interest at either (i) a base rate plus a margin~~ ranging from ~~0.50% to 1.00% per annum during the incremental period and 0.25% to 0.75% per annum thereafter, or (ii) LIBOR plus a margin ranging from 1.50% to 2.00% per annum during the incremental period and~~ 1.25% to 1.75% per annum, ~~thereafter,~~ in each case based on available credit. An unused commitment fee payable on the undrawn portion of the revolving loans ranges from 0.25% to 0.375% per annum based on available credit. Our borrowing availability is based on a specified percentage of eligible inventory and accounts receivable, including self-pay accounts.

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Letter of Credit Facility

In March 2020, we amended our letter of credit facility (as amended, the “LC Facility”) to extend the scheduled maturity date of the LC Facility from March 7, 2021 to September 12, 2024 and to increase the aggregate principal amount of standby and documentary letters of credit that from time to time may be issued thereunder from $180 million to $200 million. On July 29, 2020, we further amended the LC Facility to incrementally increase the maximum secured debt covenant from ~~4.00~~4.25 to 1.00 on a quarterly basis up to 6.00 to 1.00 for the quarter ~~ending~~ended March 31, 2021, which maximum ratio will step down incrementally on a quarterly basis through the quarter ending December 31, 2021. Obligations under the LC Facility are guaranteed and secured by a ~~first-priority~~first‑priority pledge of the capital stock and other ownership interests of certain of our wholly owned domestic hospital subsidiaries on an equal ranking basis with our senior secured first lien notes.

Drawings under any letter of credit issued under the LC Facility that we have not reimbursed within ~~three~~3 business days after notice thereof accrue interest at a base rate plus a margin ~~equal to~~of 0.50% per annum. An unused commitment fee is payable at an initial rate of 0.25% per annum with a step up to 0.375% per annum should our secured-debt-to-EBITDA ratio equal or exceed 3.00 to 1.00 at the end of any fiscal quarter. A fee on the aggregate outstanding amount of issued but undrawn letters of credit accrues at a rate of 1.50% per annum. An issuance fee equal to 0.125% per annum of the aggregate face amount of each outstanding letter of credit is payable to the account of the issuer of the related letter of credit. At ~~June 30, 2020,~~March 31, 2021, we had ~~$88~~$92 million of standby letters of credit outstanding under the LC Facility.

NOTE 7. GUARANTEES

At ~~June 30, 2020,~~March 31, 2021, the maximum potential amount of future payments under our income guarantees to certain physicians who agree to relocate and revenue collection guarantees to hospital-based physician groups providing certain services at our hospitals was ~~$175~~$122 million. We had a total liability of ~~$141~~$98 million recorded for these guarantees included in other current liabilities in the accompanying Condensed Consolidated Balance Sheet at ~~June 30, 2020.~~March 31, 2021.

At ~~June 30, 2020,~~March 31, 2021, we also had issued guarantees of the indebtedness and other obligations of our investees to third parties, the maximum potential amount of future payments under which was approximately ~~$24~~$81 million. Of the total, $10 million relates to the obligations of consolidated subsidiaries, which obligations ~~are~~were recorded in the accompanying Condensed Consolidated Balance Sheet at ~~June 30, 2020.~~March 31, 2021.

NOTE 8. EMPLOYEE BENEFIT PLANS

Share-Based Compensation Plans

In recent years, we have granted options and restricted stock units to certain of our employees and directors pursuant to our stock incentive plans. Options have an exercise price equal to the fair market value of the shares on the date of grant and generally expire 10 years from the date of grant. A restricted stock unit is a contractual right to receive 1 share of our common stock in the future, and the fair value of the restricted stock unit is based on our share price on the grant date. Typically, options and time-based restricted stock units vest one-third on each of the first ~~three~~ anniversary dates of the grant; however, certain special retention awards may have different vesting terms. In addition, we grant performance-based options and performance-based restricted stock units that vest subject to the achievement of specified performance goals within a specified time frame. At June 30, 2020, assuming outstanding performance-based restricted stock units and options for which performance has not yet been determined will achieve target performance, approximately 6.0 million shares of common stock were available under our 2019 Stock Incentive Plan for future stock option grants and other equity incentive awards, including restricted stock units.

The accompanying Condensed Consolidated Statements of Operations for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ include ~~$27~~$14 million and ~~$23~~$13 million, respectively, of pre-tax compensation costs related to our stock-based compensation arrangements.

~~Table of Contents~~

Stock Options

The following table summarizes stock option activity during the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2021:

Options Weighted Average
Exercise Price
Per Share Aggregate
Intrinsic Value Weighted Average
Remaining Life
(In Millions)
Outstanding at December 31, 2019 1,960,992 $ 20.24
Exercised (108,488) 19.13
Outstanding at June 30, 2020 1,852,504 $ 20.31 $ 1 5.8 years
Vested and expected to vest at June 30, 2020 1,852,504 $ 20.31 $ 1 5.8 years
Exercisable at June 30, 2020 1,161,635 $ 18.30 $ 1 4.9 years


	Options	Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value		Weighted Average Remaining Life
				(In Millions)
Outstanding at December 31, 2020	912,531	$	22.51

Exercised	(293,581)	20.68

Outstanding at March 31, 2021	618,950	$	23.38	$	18	6.9 years
Vested and expected to vest at March 31, 2021	618,950	$	23.38	$	18	6.9 years
Exercisable at March 31, 2021	391,748	$	19.96	$	13	6.5 years

There were ~~108,488~~293,581 and ~~76,159~~27,167 stock options exercised during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, with aggregate intrinsic values of $10 million and less than $1 million, respectively. We did not grant any stock options during the months ended March 31, 2021 and ~~$1 million, respectively.~~2020.

At ~~June 30, 2020,~~March 31, 2021, there were $2$1 million of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of ~~1.2 years.~~less than one year.

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The following table summarizes information about our outstanding stock options at ~~June 30, 2020:~~March 31, 2021:

Options Outstanding Options Exercisable
Range of Exercise Prices Number of
Options Weighted Average
Remaining
Contractual Life Weighted Average
Exercise Price Number of
Options Weighted Average
Exercise Price
$16.43 to $19.759 1,119,968 5.0 years $ 18.06 1,119,968 $ 18.06
$19.76 to $35.430 732,536 7.0 years 23.75 41,667 24.83
1,852,504 5.8 years $ 20.31 1,161,635 $ 18.30


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number of Options	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Options	Weighted Average Exercise Price
$18.99 to $20.609	391,748	6.5 years	$	19.96	391,748	$	19.96
$20.61 to $35.430	227,202	7.6 years	29.26		0	N/A
	618,950	6.9 years	$	23.38	391,748	$	19.96

Restricted Stock Units

The following table summarizes ~~restricted stock unit~~RSU activity during the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2021:


		Restricted Stock Units	Weighted Average Grant Date Fair Value Per Unit			Restricted Stock Units	Weighted Average Grant Date Fair Value Per Unit
Unvested at December 31, 2019		1,463,499	$	25.08
Unvested at December 31, 2020					Unvested at December 31, 2020	2,095,206	$	25.87
Granted	Granted	1,574,325	28.24		Granted	708,577	54.94
Vested	Vested	(598,037)	25.20		Vested	(304,688)	26.12
Forfeited	Forfeited	(40,721)	26.72		Forfeited	(14,582)	27.74
Unvested at June 30, 2020		2,399,066	$	27.10
Unvested at March 31, 2021					Unvested at March 31, 2021	2,484,513	$	34.26

In the ~~six~~three months ended ~~June 30,~~March 31, 2021, we granted an aggregate of 708,577 restricted stock units (“RSUs”). Of these, 260,071 will vest and be settled ratably over a three-year period from the grant date, 189,215 will vest and be settled ratably over 8 quarterly periods from the grant date, and 14,192 will vest and be settled on December 31, 2021. We also granted 3,057 RSUs to a new member of our board of directors, consisting of an initial grant of 1,372 units and a pro-rata annual grant of 1,685 units. Both the initial grant and the annual grant vested immediately, however, the initial grant settles upon separation from the board, while the annual grant settles on the third anniversary of the grant date. In addition, we granted 241,150 performance-based RSUs, the vesting of which is contingent on our achievement of specified performance goals for the years 2021 to 2023. Provided the goals are achieved, the performance-based RSUs will vest and settle on the third anniversary of the grant date. The actual number of performance-based RSUs that could vest will range from 0% to 200% of the 241,150 units granted, depending on our level of achievement with respect to the performance goals.

In the three months ended March 31, 2020, we granted an aggregate of ~~1,574,325 restricted stock units.~~1,423,953 RSUs. Of these, ~~517,398~~493,929 will vest and be settled ratably over a three-year period from the grant date, 104,167 will vest and be settled ratably over a ~~four-year~~four‑year period from the grant date, and 359,713 will vest and be settled ratably over 11 quarterly periods from the grant date. In addition, we granted ~~409,485~~386,016 performance-based ~~restricted stock units;~~RSUs; the vesting of these ~~restricted stock units~~RSUs is contingent on our achievement of specified performance goals for the years 2020 to 2022. Provided the goals are achieved, the ~~performance-based restricted stock units~~performance‑based RSUs will vest and settle on the third anniversary of the grant date. The actual number of performance-based ~~restricted stock units~~RSUs that could vest will range from 0% to 200% of the ~~409,485~~386,016 units granted, depending on our level of achievement with respect to the performance goals. ~~In addition to the 104,167 time-vested restricted stock units mentioned above, we~~We also granted 80,128 performance-based ~~restricted stock units~~RSUs to a Conifer senior ~~officer; the vesting~~officer, which were subsequently forfeited.

The fair value of ~~these restricted stock units~~an RSU is ~~contingent~~based on Conifer’s achievement of specified performance goals for each of the years 2020 to 2023. Provided the goals are achieved, the performance-based restricted stock units will vest and settle ratably over the four-year period fromour share price on the grant date. ~~The actual~~For certain of the performance-based RSU grants during the three months ended March 31, 2021 and 2020, the number of ~~performance-based restricted stock~~ units that ~~could~~will ultimately vest ~~will range from 0%~~is subject to 200% of the 80,128 units granted, depending on Conifer’s level of achievement with respect to the performance goals. In addition, in May 2020, we made an annual grant of 103,434 restricted stock units to our non-employee directors for the 2020-2021 board service year, which units vested immediately and will settle in shares of our common stockadjustment based on the ~~third anniversary~~achievement of a market-based condition. As noted above, the ~~date~~fair value of these RSUs is estimated through the ~~grant.~~use of a Monte Carlo simulation. Significant inputs used in our valuation of these RSUs included the following:


	Three Months Ended March 31,
	2021		2020
Expected volatility	71.76	%	54.74	%

Risk-free interest rate	0.22	%	1.16	%

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In the six months ended June 30, 2019, we granted an aggregate of 1,235,876 restricted stock units. Of these, 243,506 will vest and be settled ratably over a three-year period from the grant date, 566,172 will vest and be settled ratably over 9 quarterly periods from the grant date, and 318,327 will vest and be settled on the third anniversary of the grant date. In addition, in May 2019, we made an annual grant of 100,444 restricted stock units to our non-employee directors for the 2019-2020 board service year, which units vested immediately and will settle in shares of our common stock on the third anniversary of the date of the grant. We also granted 7,427 additional restricted stock units that vested and settled immediately as a result of our level of achievement with respect to a performance goal on a 2013 grant.

At ~~June 30, 2020,~~March 31, 2021, there were ~~$43~~$58 million of total unrecognized compensation costs related to ~~restricted stock units.~~RSUs. These costs are expected to be recognized over a weighted average period of ~~2.1~~2.0 years.

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USPI Management Equity Plan

~~In February 2020, USPI's previous~~USPI maintains a separate management equity plan ~~and all unvested options~~under which it grants RSUs representing a contractual right to receive one share of USPI’s non-voting common stock in the future. RSUs granted under the plan were terminated in accordance with the terms of the plan as previously disclosed. USPI repurchased all vested options and all shares of USPI stock acquired upon exercise of an option for approximately $35 million. USPI then adopted a new restricted stock plan whereby USPI granted 2,444,049 shares of restricted non-voting common stock to eligible plan participants in the three months ended March 31, 2020. The restricted stock unitsgenerally vest 20% in each of the first three years on the anniversary of the grant date with the remaining 40% vesting on the fourth anniversary of the grant date.Once the requisite holding period is met, during specified times the participant can sell the underlying shares to USPI at their estimated fair market value. At our sole discretion, the purchase of any non-voting common shares can be made in cash or in shares of Tenet’s common stock.

The following table summarizes RSU activity under USPI’s management equity plan during the three months ended March 31, 2021:


	Restricted Stock Units	Weighted Average Grant Date Fair Value Per Unit
Unvested at December 31, 2020	2,025,056	$	34.13

Vested	(373,499)	34.13
Forfeited	(47,112)	34.13
Unvested at March 31, 2021	1,604,445	$	34.13

Employee Retirement Plans

In the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we recognized ~~(i)~~ service cost related to 1 of our frozen ~~nonqualified~~non‑qualified defined benefit pension plans of less than $1 million for both periods in salaries, wages and benefits expense. Additionally, in the three months ended March 31, 2021 and 2020, we recognized a benefit of $1 million and expense ~~and (ii)~~of $2 million, respectively, related to other components of net periodic pension cost and net periodic postretirement benefit cost related to our frozen qualified and ~~nonqualified~~non-qualified defined benefit plans ~~of $4 million and $11 million, respectively,~~ in other non-operating income, ~~(expense),~~ net, in the accompanying Condensed Consolidated Statements of Operations.

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NOTE 9. EQUITY

Changes in Shareholders’ Equity

The following tables show the changes in consolidated equity during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (dollars in millions, share amounts in thousands):

Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Treasury
Stock Noncontrolling
Interests Total Equity
Shares
Outstanding Issued Par
Amount
Balances at December 31, 2019 104,197 $ 7 $ 4,760 $ (257) $ (2,513) $ (2,414) $ 854 $ 437
Net income — — — — 93 — 32 125
Distributions paid to
noncontrolling interests — — — — — — (40) (40)
Other comprehensive income — — — 1 — — — 1
Accretion of redeemable
noncontrolling interests — — (1) — — — — (1)
Purchases (sales) of businesses
and noncontrolling interests — — (30) — — — 15 (15)
Cumulative effect of accounting
change — — — — (14) — — (14)
Stock-based compensation
expense, tax benefit and
issuance of common stock 331 — 10 — — — — 10
Balances at March 31, 2020 104,528 $ 7 $ 4,739 $ (256) $ (2,434) $ (2,414) $ 861 $ 503
Net income — — — — 88 — 35 123
Distributions paid to
noncontrolling interests — — — — — — (8) (8)
Other comprehensive income — — — 1 — — — 1
Accretion of redeemable
noncontrolling interests — — (2) — — — — (2)
Purchases (sales) of businesses
and noncontrolling interests — — (2) — — — 2 —
Stock-based compensation
expense, tax benefit and
issuance of common stock 374 — 16 — — — — 16
Balances at June 30, 2020 104,902 $ 7 $ 4,751 $ (255) $ (2,346) $ (2,414) $ 890 $ 633


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Treasury Stock		Noncontrolling Interests		Total Equity
	Shares Outstanding	Issued Par Amount
Balances at December 31, 2020	106,070	$	7	$	4,844	$	(281)	$	(2,128)	$	(2,414)	$	909	$	937
Net income	—	—		—		—		97		—		44		141
Distributions paid to noncontrolling interests	—	—		—		—		—		—		(61)		(61)
Other comprehensive loss	—	—		—		(1)		—		—		—		(1)
Accretion of redeemable noncontrolling interests	—	—		(3)		—		—		—		—		(3)
Purchases (sales) of businesses and noncontrolling interests, net	—	—		(10)		—		—		—		1		(9)

Stock-based compensation expense and issuance of common stock	617	1		10		—		—		1		—		12
Balances at March 31, 2021	106,687	$	8	$	4,841	$	(282)	$	(2,031)	$	(2,413)	$	893	$	1,016

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Common Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Treasury
Stock Noncontrolling
Interests Total Equity
Shares
Outstanding Issued Par
Amount
Balances at December 31, 2018 102,537 $ 7 $ 4,747 $ (223) $ (2,299) $ (2,414) $ 806 $ 624
Net income (loss) — — — — (12) — 37 25
Distributions paid to
noncontrolling interests — — — — — — (37) (37)
Other comprehensive income — — — 2 — — — 2
Accretion of redeemable
noncontrolling interests — — (5) — — — — (5)
Purchases (sales) of businesses
and noncontrolling interests — — (2) — — — 2 —
Cumulative effect of accounting
change — — — — 1 — — 1
Stock-based compensation
expense, tax benefit and
issuance of common stock 543 — 8 — — — — 8
Balances at March 31, 2019 103,080 $ 7 $ 4,748 $ (221) $ (2,310) $ (2,414) $ 808 $ 618
Net income — — — — 26 — 47 73
Distributions paid to
noncontrolling interests — — — — — — (35) (35)
Other comprehensive income — — — 2 — — — 2
Accretion of redeemable
noncontrolling interests — — (4) — — — — (4)
Purchases of businesses and
noncontrolling interests — — — — — — 5 5
Stock-based compensation
expense, tax benefit and
issuance of common stock 256 — 11 — — — — 11
Balances at June 30, 2019 103,336 $ 7 $ 4,755 $ (219) $ (2,284) $ (2,414) $ 825 $ 670


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Treasury Stock		Noncontrolling Interests		Total Equity
	Shares Outstanding	Issued Par Amount
Balances at December 31, 2019	104,197	$	7	$	4,760	$	(257)	$	(2,513)	$	(2,414)	$	854	$	437
Net income	—	—		—		—		93		—		32		125
Distributions paid to noncontrolling interests	—	—		—		—		—		—		(40)		(40)
Other comprehensive income	—	—		—		1		—		—		—		1
Accretion of redeemable noncontrolling interests	—	—		(1)		—		—		—		—		(1)
Purchases (sales) of businesses and noncontrolling interests, net	—	—		(30)		—		—		—		15		(15)
Cumulative effect of accounting change	—	—		—		—		(14)		—		—		(14)
Stock-based compensation expense and issuance of common stock	331	—		10		—		—		—		—		10
Balances at March 31, 2020	104,528	$	7	$	4,739	$	(256)	$	(2,434)	$	(2,414)	$	861	$	503

Our noncontrolling interests balances at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were comprised of ~~$116~~$113 million and ~~$114~~$116 million, respectively, from our Hospital Operations segment, and ~~$774~~$780 million and ~~$740~~$793 million, respectively, from our Ambulatory Care segment. Our net income available to noncontrolling interests for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ in the table above were comprised of $5$4 million and $7$2 million, respectively, from our Hospital Operations segment, and ~~$62~~$40 million and ~~$77~~$30 million, respectively, from our Ambulatory Care segment.

NOTE 10. NET OPERATING REVENUES

Net operating revenues for our Hospital Operations and Ambulatory Care segments primarily consist of net patient service revenues, principally for patients covered by Medicare, Medicaid, managed care and other health plans, as well as certain uninsured patients under our Compact with Uninsured Patients and other uninsured discount and charity programs. Net operating revenues for our Conifer segment primarily consist of revenues from providing revenue cycle management services to ~~healthcare~~health systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities.

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The table below shows our sources of net operating revenues less implicit price concessions from continuing operations:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Hospital Operations:	Hospital Operations:									Hospital Operations:
Net patient service revenues from hospitals and related outpatient facilities
Net patient service revenues from hospitals and related outpatient facilities:										Net patient service revenues from hospitals and related outpatient facilities:
Medicare	Medicare	$	597	$	721	$	1,302	$	1,479	Medicare	$	688	$	705
Medicaid	Medicaid	259		316		540		630		Medicaid	259		281
Managed care	Managed care	1,824		2,330		4,145		4,684		Managed care	2,480		2,321
Uninsured	Uninsured	22		11		62		12		Uninsured	47		40
Indemnity and other	Indemnity and other	127		169		320		324		Indemnity and other	176		193
Total	Total	2,829		3,547		6,369		7,129		Total	3,650		3,540
Other revenues(1)	Other revenues(1)	259		280		553		560		Other revenues(1)	297		294
Hospital Operations total prior to inter-segment eliminations	Hospital Operations total prior to inter-segment eliminations	3,088		3,827		6,922		7,689		Hospital Operations total prior to inter-segment eliminations	3,947		3,834
Ambulatory Care	Ambulatory Care	368		524		858		1,004		Ambulatory Care	646		490
Conifer	Conifer	305		355		637		704		Conifer	310		332
Inter-segment eliminations	Inter-segment eliminations	(113)		(146)		(249)		(292)		Inter-segment eliminations	(122)		(136)
Net operating revenues	Net operating revenues	$	3,648	$	4,560	$	8,168	$	9,105	Net operating revenues	$	4,781	$	4,520



(1)			Primarily physician practices revenues.

Adjustments for prior-year cost reports and related valuation allowances, principally related to Medicare and Medicaid, increased revenues in the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ by $5 million and ~~$17~~$4 million, respectively. Estimated cost report settlements and valuation allowances ~~are~~were included in accounts receivable in the accompanying

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Condensed Consolidated Balance Sheets (see Note 2). We believe that we have made adequate provision for any adjustments that may result from final determination of amounts earned under all the above arrangements with Medicare and Medicaid.

The table below shows the composition of net operating revenues for our Ambulatory Care segment:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net patient service revenues	Net patient service revenues	$	349	$	496	$	813	$	947	Net patient service revenues	$	619	$	464
Management fees	Management fees	16		23		37		46		Management fees	22		21
Revenue from other sources	Revenue from other sources	3		5		8		11		Revenue from other sources	5		5
Net operating revenues	Net operating revenues	$	368	$	524	$	858	$	1,004	Net operating revenues	$	646	$	490

The table below shows the composition of net operating revenues for our Conifer segment:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Revenue cycle services – Tenet	Revenue cycle services – Tenet	$	109	$	142	$	243	$	284	Revenue cycle services – Tenet	$	118	$	134
Revenue cycle services – other customers	Revenue cycle services – other customers	172		187		348		367		Revenue cycle services – other customers	169		176
Other services – Tenet	Other services – Tenet	4		4		6		8		Other services – Tenet	4		2
Other services – other customers	Other services – other customers	20		22		40		45		Other services – other customers	19		20
Net operating revenues	Net operating revenues	$	305	$	355	$	637	$	704	Net operating revenues	$	310	$	332

Other services represent approximately 7% of Conifer’s revenue for both of the three months ended March 31, 2021 and 2020 and include value-based care services, consulting services and other client-defined projects.

Performance Obligations

The following table includes Conifer’s revenue that is expected to be recognized in the future related to performance obligations that are unsatisfied, or partially unsatisfied, at the end of the reporting period. The amounts in the table primarily consist of revenue cycle management fixed fees, which are typically recognized ratably as the performance obligation is satisfied. The estimated revenue does not include ~~volume~~volume- or ~~contingency based~~contingency-based contracts, performance incentives, penalties or other variable consideration that is considered constrained. Conifer’s contract with Catholic Health Initiatives (“CHI”), a

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minority interest owner of Conifer Health Solutions, LLC, represents the majority of the fixed-fee revenue related to remaining performance obligations. Conifer’s contract term with CHI ends December 31, 2032.

Six Months
Ending Years Ending Later Years
December 31,
Total 2020 2021 2022 2023 2024
Performance obligations $ 6,832 $ 293 $ 585 $ 584 $ 583 $ 532 $ 4,255


			Nine Months Ending		Years Ending								Later Years
					December 31,
	Total		2021		2022		2023		2024		2025
Performance obligations	$	6,602	$	454	$	603	$	603	$	549	$	549	$	3,844

NOTE 11. PROPERTY AND PROFESSIONAL AND GENERAL LIABILITY INSURANCE

Property Insurance

We have property, business interruption and related insurance coverage to mitigate the financial impact of catastrophic events or perils that is subject to deductible provisions based on the terms of the policies. These policies are on an occurrence basis. For both of the policy ~~period~~periods April 1, 2020 through March 31, 2021 and April 1, 2021 through March 31, 2022, we have coverage totaling $850 million per occurrence, after deductibles and exclusions, with annual aggregate sub-limits of $100 million for floods, $200 million for earthquakes and a per-occurrence sub-limit of $200 million for named windstorms with no annual aggregate. With respect to fires and other perils, excluding floods, earthquakes and named windstorms, the total $850 million limit of coverage per occurrence applies. Deductibles are 5% of insured values up to a maximum of $40 million for California earthquakes, $25 million for floods and named windstorms, and 2% of insured values for New Madrid fault earthquakes, with a maximum per claim deductible of $25 million. Floods and certain other covered losses, including fires and other perils, have a minimum deductible of $1 million.

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Professional and General Liability Reserves

We are self-insured for the majority of our professional and general liability claims and purchase insurance from ~~third-parties~~third‑parties to cover catastrophic claims. At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the aggregate current and long-term professional and general liability reserves in the accompanying Condensed Consolidated Balance Sheets were ~~$941 million~~$1.026 billion and ~~$965~~$978 million, respectively. These reserves include the reserves recorded by our captive insurance subsidiaries and our ~~self-insured~~self‑insured retention reserves recorded based on modeled estimates for the portion of our professional and general liability risks, including incurred but not reported claims, for which we do not have insurance coverage. As discussed in Note 1, in the three months ended March 31, 2020, we changed our method of accounting for our estimated professional and general liability claims, as well as other claims-related liabilities. Under the new method of accounting, the liabilities are reported on an undiscounted basis whereas, previously, the liabilities were reported on a discounted basis.

If the aggregate limit of any of our professional and general liability policies is exhausted, in whole or in part, it could deplete or reduce the limits available to pay any other material claims applicable to that policy period.

~~Included~~Malpractice expense of $91 million and $73 million was included in other operating expenses, net, in the accompanying Condensed Consolidated Statements of Operations ~~is malpractice expense of $144 million and $188 million~~ for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

NOTE 12. CLAIMS AND LAWSUITS

We operate in a highly regulated and litigious industry. Healthcare companies are subject to numerous investigations by various governmental agencies. Further, private parties have the right to bring qui tam or “whistleblower” lawsuits against companies that allegedly submit false claims for payments to, or improperly retain overpayments from, the government and, in some states, private payers. We and our subsidiaries have received inquiries in recent years from government agencies, and we may receive similar inquiries in future periods. We are also subject to class action lawsuits, employment-related claims and other legal actions in the ordinary course of business. Some of these actions may involve large demands, as well as substantial defense costs. We cannot predict the outcome of current or future legal actions against us or the effect that judgments or settlements in such matters may have on us.

We are also subject to a non-prosecution agreement (“NPA”), as described in our Annual Report. If we fail to comply with this agreement, we could be subject to criminal prosecution, substantial penalties and exclusion from participation in federal healthcare programs, any of which could adversely impact our business, financial condition, results of operations or cash flows.

We record accruals for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable and we can reasonably estimate the amount of the loss or a range of loss. Significant judgment is required in both

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the determination of the probability of a loss and the determination as to whether a loss is reasonably estimable. These determinations are updated at least quarterly and are adjusted to reflect the effects of negotiations, settlements, rulings, advice of legal counsel and technical experts, and other information and events pertaining to a particular matter, but are subject to significant uncertainty regarding numerous factors that could affect the ultimate loss levels. If a loss on a material matter is reasonably possible and estimable, we disclose an estimate of the loss or a range of loss. In cases where we have not disclosed an estimate, we have concluded that the loss is either not reasonably possible or the loss, or a range of loss, is not reasonably estimable, based on available information. Given the inherent uncertainties associated with these matters, especially those involving governmental agencies, and the indeterminate damages sought in some cases, there is significant uncertainty as to the ultimate liability we may incur from these matters, and an adverse outcome in one or more of these matters could be material to our results of operations or cash flows for any particular reporting period.

~~Shareholder Derivative Litigation~~

In January 2017, the Dallas County District Court consolidated 2 previously disclosed shareholder derivative lawsuits filed on behalf of the Company by purported shareholders of the Company’s common stock against current and former officers and directors into a single matter captioned ~~In re Tenet Healthcare Corporation Shareholder Derivative Litigation~~. The plaintiffs filed a consolidated shareholder derivative petition in February 2017. The consolidated shareholder derivative petition alleged that false or misleading statements or omissions concerning the Company’s financial performance and compliance policies, specifically with respect to the previously disclosed civil qui tam litigation and parallel criminal investigation of the Company and certain of its subsidiaries (together, the “Clinica de la Mama matters”), caused the price of the Company’s common stock to be artificially inflated. In addition, the plaintiffs alleged that the defendants violated GAAP by failing to disclose an estimate of the possible loss or a range of loss related to the Clinica de la Mama matters. The plaintiffs claimed that they did not make demand on the Company’s board of directors to bring the lawsuit because such a demand would have been futile. In May 2018, the judge in the consolidated shareholder derivative litigation entered an order lifting the previous year-long stay of the matter and, in July 2018, the defendants filed pleadings seeking dismissal of the lawsuit. In October 2018, the judge granted defendants’ motion to dismiss, but also agreed to give the plaintiffs 30 days to replead their complaint. In January 2019, the court issued a final judgment and order of dismissal after the plaintiffs elected not to replead. In February 2019, the plaintiffs filed an appeal of the court’s ruling that dismissal was appropriate because the plaintiffs failed to adequately plead that a pre-suit demand on the Company’s board of directors, a precondition to their action, should be excused as futile. The parties’ appellate briefs have been filed, and oral arguments were held on February 5, 2020. The parties are awaiting the court’s ruling. The defendants intend to continue to vigorously contest the plaintiffs’ allegations in this matter.

Government Investigation of Detroit Medical Center

Detroit Medical Center (“DMC”) is subject to an ongoing investigation commenced in October 2017 by the U.S. Attorney’s Office for the Eastern District of Michigan and the Civil Division of the ~~U.S. Department of Justice (“DOJ”)~~DOJ for potential violations of the Stark law, the Medicare and Medicaid anti-kickback and anti-fraud and abuse amendments codified under Section 1128B(b) of the Social Security Act, ~~(the “Anti-kickback Statute”),~~ and the federal False Claims Act ~~(“FCA”)~~ related to DMC’s employment of nurse practitioners and physician assistants (“Mid-Level Practitioners”) from 2006 through 2017. As previously disclosed, a media report was published in August 2017 alleging that 14 Mid-Level Practitioners were terminated by DMC earlier in 2017 due to compliance concerns. We are cooperating with the investigation; however, we are unable to determine the potential exposure, if any, at this time.

~~Oklahoma Surgical Hospital Qui Tam Action~~

On July 7, 2020, certain of the parties to a previously disclosed qui tam lawsuit filed under seal in May 2016 in the Western District of Oklahoma entered into a settlement agreement with the DOJ to resolve the matter. The parties to the settlement agreement include (i) Oklahoma Center for Orthopaedic & Multispecialty Surgery (“OCOM”), a surgical hospital jointly owned by USPI, a healthcare system partner and physicians, (ii) Southwest Orthopaedic Specialists, an independent physician practice group, and (iii) USPI. Also on July 7, 2020, OCOM entered into a corporate integrity agreement with the Office of Inspector General of the U.S. Department of Health and Human Services. USPI and Tenet are not parties to OCOM’s corporate integrity agreement.

As previously reported, an agreement in principle was reached with the DOJ in October 2019 to resolve the qui tam lawsuit and related investigations against USPI and OCOM for approximately $66 million, subject at that time to further approvals by the DOJ and other government agencies. In the three months ended September 30, 2019, we established a reserve of $68 million for this matter, which included an estimate of the relator’s attorney’s fees and certain other costs to be paid by USPI. In the three months ended December 31, 2019, we increased the reserve for this matter by an additional $1 million to reflect updated information on the other costs to be paid by USPI. USPI paid the full settlement amount in July 2020 and will

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~~pay the relator’s attorney’s fees and other costs when approved by the court. We expect the lawsuit to be dismissed in the near term.~~

Other Matters

OnIn July 1, 2019, certain of the entities that purchased from us the operations of Hahnemann University Hospital and St. Christopher’s Hospital for Children in Philadelphia ~~from us~~ commenced Chapter 11 bankruptcy proceedings. As previously disclosed in our Form 8-K filed September 1, 2017, the purchasers assumed our funding obligations under the Pension Fund for Hospital and Health Care Employees of Philadelphia and Vicinity (the “Fund”), a pension plan related to the operations at Hahnemann University ~~Hospital and, pursuant~~Hospital. Pursuant to rules under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), under certain circumstances we could become liable for withdrawal liability in the event a withdrawal is triggered

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with respect to the Fund. In July 2019, the Fund notified us of a withdrawal liability assessment of approximately $63 million. In February 2020, the Fund notified us that the prior assessment against us had been withdrawn. As previously disclosed,addition, pursuant to applicable ERISA rules, we could become secondarily liable if the purchasers fail to satisfy their obligations to the Fund.

We are also subject to claims and lawsuits arising in the ordinary course of business, including potential claims related to, among other things, the care and treatment provided at our hospitals and outpatient facilities, the application of various federal and state labor laws, tax audits and other matters. Although the results of these claims and lawsuits cannot be predicted with certainty, we believe that the ultimate resolution of these ordinary course claims and lawsuits will not have a material effect on our business or financial condition.

New claims or inquiries may be initiated against us from time to time, including lawsuits from patients, employees and others exposed to COVID-19 at our facilities. These matters could (1) require us to pay substantial damages or amounts in judgments or settlements, which, individually or in the aggregate, could exceed amounts, if any, that may be recovered under our insurance policies where coverage applies and is available, (2) cause us to incur substantial expenses, (3) require significant time and attention from our management, and (4) cause us to close or sell hospitals or otherwise modify the way we conduct business.

The following table presents reconciliations of the beginning and ending liability balances in connection with legal settlements and related costs recorded in continuing operations during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019. No amounts were recorded in discontinued operations in those periods.~~2020.

Balances at
Beginning
of Period Litigation and
Investigation
Costs Cash
Payments Balances at
End of
Period
Six Months Ended June 30, 2020 $ 86 $ 4 $ (4) $ 86
Six Months Ended June 30, 2019 $ 8 $ 31 $ (24) $ 15


	Balances at Beginning of Period		Litigation and Investigation Costs		Cash Payments		Balances at End of Period
Three Months Ended March 31, 2021	$	26	$	13	$	(15)	$	24
Three Months Ended March 31, 2020	$	86	$	2	$	(2)	$	86

For the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we recorded costs of $4$13 million and ~~$31~~$2 million, respectively, in continuing operations in connection with significant legal proceedings and governmental investigations.

NOTE 13. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES

We have a put call agreement (the “Baylor Put/Call Agreement”) with Baylor University Medical Center (“Baylor”) that contains put and call options with respect to the 5% ownership interest Baylor holds in USPI. Each year starting in 2021, Baylor may put up to one-third of their total shares in USPI held as of April 1, 2017 by delivering notice by the end of January of such year. In each year that Baylor does not put the full 33.3% of USPI’s shares allowable, we may call the difference between the number of shares Baylor put and the maximum number of shares they could have put that year. In addition, the Baylor Put/Call Agreement contains a call option pursuant to which we have the ability to acquire all of Baylor’s ownership interest by 2024. We have the ability to choose whether to settle the purchase price for the Baylor put/call, which is mutually agreed-upon fair market value, in cash or shares of our common stock. Baylor did not deliver a put notice to us in January 2021. In February 2021, we notified Baylor of our intention to exercise our call option to purchase 33.3% of the USPI shares held by Baylor as of April 1, 2017. Based on the nature of the Baylor Put/Call Agreement, Baylor’s minority interest in USPI was classified as a redeemable noncontrolling interest in the accompanying Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020.

The following table shows the changes in redeemable noncontrolling interests in equity of consolidated subsidiaries during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019			2021		2020
Balances at beginning of period	Balances at beginning of period	$	1,506	$	1,420	Balances at beginning of period	$	1,952	$	1,506
Net income	Net income	80		95		Net income	81		34
Distributions paid to noncontrolling interests	Distributions paid to noncontrolling interests	(52)		(72)		Distributions paid to noncontrolling interests	(58)		(36)
Accretion of redeemable noncontrolling interests	Accretion of redeemable noncontrolling interests	3		9		Accretion of redeemable noncontrolling interests	3		1
Purchases and sales of businesses and noncontrolling interests, net	Purchases and sales of businesses and noncontrolling interests, net	24		10		Purchases and sales of businesses and noncontrolling interests, net	14		21
Balances at end of period	Balances at end of period	$	1,561	$	1,462	Balances at end of period	$	1,992	$	1,526

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The following tables show the composition by segment of our redeemable noncontrolling interests balances at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, as well as our net income available to redeemable noncontrolling interests for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Hospital Operations	Hospital Operations	$	377	$	383	Hospital Operations	$	280	$	267
Ambulatory Care	Ambulatory Care	810		777		Ambulatory Care	1,284		1,273
Conifer	Conifer	374		346		Conifer	428		412
Redeemable noncontrolling interests	Redeemable noncontrolling interests	$	1,561	$	1,506	Redeemable noncontrolling interests	$	1,992	$	1,952


		Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019			2021		2020
Hospital Operations	Hospital Operations	$	(6)	$	(15)	Hospital Operations	$	13	$	(9)
Ambulatory Care	Ambulatory Care	58		69		Ambulatory Care	52		27
Conifer	Conifer	28		41		Conifer	16		16
Net income available to redeemable noncontrolling interests	Net income available to redeemable noncontrolling interests	$	80	$	95	Net income available to redeemable noncontrolling interests	$	81	$	34

NOTE 14. INCOME TAXES

During the three months ended ~~June 30, 2020,~~March 31, 2021, we recorded income tax expense of $45 million in continuing operations on a pre-tax income of ~~$214~~$267 million compared to an income tax ~~expense~~benefit of ~~$33~~$75 million on pre-tax income of ~~$152~~$85 million during the three months ended ~~June 30, 2019. During~~March 31, 2020. For the ~~six~~three months ended ~~June 30, 2020, we recorded~~March 31, 2021, the provision for income taxes was calculated by applying an estimate of the annual effective tax rate for the full year to “ordinary” income ~~tax benefit of $30 million in continuing operations on~~or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. In calculating “ordinary” income, non‑taxable income or loss attributable to noncontrolling interests was deducted from pre-tax income or loss in the determination of ~~$299 million compared~~the annualized effective tax rate used to calculate income ~~tax expense of $53 million on pre-tax income of $236 million during~~taxes for the ~~six~~quarter. For the three months ended ~~June 30, 2019. For the six months ended June 30,~~March 31, 2020, we utilized the discrete effective tax rate method, as allowed by the ~~FASB ASC~~Financial Accounting Standards Board Accounting Standards Codification 740-270-30-18, “Income Taxes–Interim Reporting,” to calculate the interim income tax provision. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. We believe that ~~at this time,~~ the use of this discrete method isin 2020 was more appropriate than the annual effective tax rate method as the estimated annual effective tax rate method iswas not reliable due to the high degree of uncertainty in estimating annual pre-tax income due to the impact of the COVID-19 ~~pandemic. For~~pandemic and the ~~six months ended June 30, 2019,~~evolving guidance by the ~~provision for income taxes was calculated by applying an estimate~~government on utilization of the annual effective tax rate for the full year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. In calculating “ordinary” income, non-taxable income or loss attributable to noncontrolling interests was deducted from pre-tax income or loss in the determination of the annualized effective tax rate used to calculate income taxes for the quarter.grant funds. The reconciliation between the amount of recorded income tax expense (benefit) and the amount calculated at the statutory federal tax rate is shown in the following table:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Tax expense at statutory federal rate of 21%	Tax expense at statutory federal rate of 21%	$	45	$	32	$	63	$	50	Tax expense at statutory federal rate of 21%	$	56	$	18
State income taxes, net of federal income tax benefit	State income taxes, net of federal income tax benefit	10		6		15		9		State income taxes, net of federal income tax benefit	13		5
Tax benefit attributable to noncontrolling interests	Tax benefit attributable to noncontrolling interests	(16)		(19)		(30)		(36)		Tax benefit attributable to noncontrolling interests	(25)		(14)

Nontaxable gains	Nontaxable gains	—		—		3		(1)		Nontaxable gains	0		3

Stock-based compensation	Stock-based compensation	—		1		—		—		Stock-based compensation	(1)		0
Change in valuation allowance	Change in valuation allowance	2		11		(88)		35		Change in valuation allowance	0		(90)

Other items	Other items	4		2		7		(4)		Other items	2		3
Income tax expense (benefit)	Income tax expense (benefit)	$	45	$	33	$	(30)	$	53	Income tax expense (benefit)	$	45	$	(75)

The CARES Act includes a significant number of tax provisions applicable to individuals and businesses. For businesses, the CARES Act makes changes to the U.S. tax code relating to, among other things: (1) the business interest expense disallowance rules for 2019 and 2020; (2) net operating loss rules; (3) charitable contribution limitations; and (4) the realization of corporate alternative minimum tax credits. As a result of the change in the business interest expense disallowance rules under the COVID Acts, we recorded an income tax benefit of ~~$88~~$91 million ~~during~~in the ~~six~~three months ended ~~June 30,~~March 31, 2020 to decrease the valuation allowance for interest expense carryforwards due to the additional deduction of interest expense.

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, there were 0 adjustments to our estimated liabilities for uncertain tax positions. The total amount of unrecognized tax benefits at ~~June 30, 2020~~March 31, 2021 was $31 million, of which $29 million, if recognized, would impact our effective tax rate and income tax expense (benefit) from continuing operations.

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Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our ~~consolidated statements~~statement of operations. There were 0 accrued interest and penalties on unrecognized tax benefits at ~~June 30, 2020.~~March 31, 2021.

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At ~~June 30, 2020,~~March 31, 2021, 0 significant changes in unrecognized federal and state tax benefits ~~are~~were expected in the next 12 months as a result of the settlement of audits, the filing of amended tax returns or the expiration of statutes of limitations.

NOTE 15. EARNINGS PER COMMON SHARE

The following table is a reconciliation of the numerators and denominators of our basic and diluted earnings per common share calculations for our continuing operations for three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020. Net income available to our common shareholders is expressed in millions and weighted average shares are expressed in thousands.

Net Income Available
to Common
Shareholders
(Numerator)

Weighted
Average Shares
(Denominator)

Per-Share
Amount

~~Three Months Ended June 30, 2020~~

~~Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share~~

~~104,794~~

~~0.84~~

~~Effect of dilutive stock options, restricted stock units and deferred compensation units~~

—

~~784~~

~~(0.01)~~

~~Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share~~

~~105,578~~

~~0.83~~

~~Three Months Ended June 30, 2019~~

~~Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share~~

~~103,198~~

~~0.23~~

~~Effect of dilutive stock options, restricted stock units and deferred compensation units~~

—

~~1,431~~

—

~~Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share~~

~~104,629~~

~~0.23~~

~~Six Months Ended June 30, 2020~~

~~Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share~~

~~182~~

~~104,574~~

~~1.74~~

~~Effect of dilutive stock options, restricted stock units and deferred compensation units~~

—

~~1,082~~

~~(0.02)~~

~~Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share~~

~~182~~

~~105,656~~

~~1.72~~

~~Six Months Ended June 30, 2019~~

~~Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share~~

~~102,993~~

~~0.04~~

~~Effect of dilutive stock options, restricted stock units and deferred compensation units~~

—

~~1,592~~

—

~~Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share~~

~~104,585~~

~~0.04~~


	Net Income Available to Common Shareholders (Numerator)		Weighted Average Shares (Denominator)	Per-Share Amount
Three Months Ended March 31, 2021
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share	$	97	106,309	$	0.91
Effect of dilutive stock options, restricted stock units and deferred compensation units	—		1,756	(0.01)
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share	$	97	108,065	$	0.90

Three Months Ended March 31, 2020
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share	$	94	104,353	$	0.90
Effect of dilutive stock options, restricted stock units and deferred compensation units	—		1,380	(0.01)
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share	$	94	105,733	$	0.89

NOTE 16. FAIR VALUE MEASUREMENTS

We are required to provide additional disclosures about fair value measurements as part of our financial statements for each major category of assets and liabilities measured at fair ~~value on a non-recurring basis. The following tables present this information and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair values.~~value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities, which generally are not applicable to non-financial assets and liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability, such as internal estimates of future cash flows.

Our non-financial assets and liabilities not permitted or required to be measured at fair value on a recurring basis typically relate to long-lived assets held and used, long-lived assets held for sale and goodwill. The following tables present information about assets measured at fair value at March 31, 2021 and December 31, 2020 and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair values:


	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
At March 31, 2021:
Long-lived assets held for sale	$	139	$	0	$	139	$	0



At December 31, 2020:
Long-lived assets held for sale	$	140	$	0	$	140	$	0
Long-lived assets held and used	483		0		483		0
	$	623	$	0	$	623	$	0

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June 30, 2020 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Long-lived assets held for sale $ 378 $ — $ 378 $ —

December 31, 2019 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Long-lived assets held for sale $ 387 $ — $ 387 $ —
Financial Instruments

The fair value of our long-term debt (except for borrowings under the Credit Agreement) is based on quoted market prices (Level 1). The inputs used to establish the fair value of the borrowings outstanding under the Credit Agreement are considered to be Level 2 inputs, which include inputs other than quoted prices included in Level 1 that are observable, either directly or indirectly. At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the estimated fair value of our long-term debt was approximately ~~99.7% and 106.4%~~104.4% and 104.5%, respectively, of the carrying value of the debt.

NOTE 17. ACQUISITIONS

Preliminary purchase price allocations (representing the fair value of the consideration conveyed) for all acquisitions made during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ are as follows:


		Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019			2021		2020
Current assets	Current assets	$	7	$	6	Current assets	$	0	$	6
Property and equipment	Property and equipment	13		8		Property and equipment	18		8
Other intangible assets	Other intangible assets	8		3		Other intangible assets	0		8
Goodwill	Goodwill	76		18		Goodwill	25		83
Other long-term assets, including previously held equity method investments	Other long-term assets, including previously held equity method investments	5		5		Other long-term assets, including previously held equity method investments	4		5
Current liabilities	Current liabilities	(6)		(3)		Current liabilities	(7)		(8)
Long-term liabilities	Long-term liabilities	(6)		(6)		Long-term liabilities	(2)		(6)
Redeemable noncontrolling interests in equity of consolidated subsidiaries	Redeemable noncontrolling interests in equity of consolidated subsidiaries	(30)		(9)		Redeemable noncontrolling interests in equity of consolidated subsidiaries	(11)		(30)
Noncontrolling interests	Noncontrolling interests	(11)		(4)		Noncontrolling interests	(2)		(11)
Cash paid, net of cash acquired	Cash paid, net of cash acquired	(56)		(13)		Cash paid, net of cash acquired	(25)		(55)
Gains on consolidations	Gains on consolidations	$	—	$	5	Gains on consolidations	$	0	$	0

The goodwill generated from these transactions, the majority of which will be deductible for income tax purposes, can be attributed to the benefits that we expect to realize from operating efficiencies and growth strategies. The goodwill total of ~~$76~~$25 million from acquisitions completed during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was recorded in our Ambulatory Care segment. Approximately $1$4 million and $3$1 million in transaction costs related to prospective and closed acquisitions were expensed during the ~~six month~~three-month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively, and ~~are~~were included in impairment and restructuring charges, and acquisition-related costs in the accompanying Condensed Consolidated Statements of Operations.

We are required to allocate the purchase prices of acquired businesses to assets acquired or liabilities assumed and, if applicable, noncontrolling interests based on their fair values. The excess of the purchase price ~~allocation~~allocated over those fair values is recorded as goodwill. We are in process of ~~finalizing the purchase price allocations, including~~assessing working capital balances as well as obtaining and evaluating valuations of the acquired property and equipment, management contracts and other intangible assets, and noncontrolling interests for some of our 2021 and 2020 ~~and 2019 acquisitions; therefore,~~acquisitions. Therefore, those purchase price allocations, including goodwill, recorded in the accompanying Condensed Consolidated Financial Statements are subject to adjustment once the ~~valuations~~assessments and valuation work are ~~completed.~~

~~During~~completed and evaluated. Such adjustments are recorded as soon as practical within the six months ended June 30, 2019, we recognized gains totaling $5 million associated with stepping up our ownership interests in previously held equity method investments, which we began consolidating aft~~er we acquired controlling interests.~~measurement period as defined by the accounting literature.

NOTE 18. SEGMENT INFORMATION

Our business consists of our Hospital Operations segment, our Ambulatory Care segment and our Conifer segment. The factors for determining the reportable segments include the manner in which management evaluates operating performance combined with the nature of the individual business activities.

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Our Hospital Operations segment is comprised of ~~our~~ acute care and specialty hospitals, ancillary outpatient facilities, micro-hospitals, imaging centers, physician practices and urgent care centers, micro-hospitals and physician practices. As described in Note 4, certain of these facilities are classified as held for sale in the accompanying Condensed Consolidated Balance Sheet at June 30, 2020.centers. At ~~June 30, 2020,~~March 31, 2021, our subsidiaries operated 65 hospitals serving primarily urban and suburban communities in 9 states. Most of the urgent care centers in our Hospital Operations segment were classified as held for sale at March 31, 2021 and December 31, 2020.

Our Ambulatory Care segment is comprised of the operations of USPI. At ~~June 30, 2020,~~March 31, 2021, USPI had interests in ~~264~~312 ambulatory surgery ~~centers, 39 urgent care centers operated under the CareSpot brand, 23 imaging~~ centers and 24 surgical hospitals in 2730 states. At ~~June 30, 2020,~~March 31, 2021, our Ambulatory Care segment also included 24 imaging centers, which were transferred to our Hospital Operations segment effective April 1, 2021. The total assets associated with the imaging centers transferred to our Hospital Operations segment constituted less than 1% of our consolidated total assets at March 31, 2021. Additionally, our Ambulatory Care segment included 39 urgent care centers at

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March 31, 2021, which were classified as held for sale at March 31, 2021 and December 31, 2020. At March 31, 2021, we owned 95% of USPI.

Our Conifer segment provides revenue cycle management and value-based care services to hospitals, ~~healthcare~~health systems, physician practices, employers and other ~~customers.~~clients. At ~~June 30, 2020,~~March 31, 2021, Conifer provided services to approximately 640 Tenet and non-Tenet hospitals and other clients nationwide. In 2012, we entered into ~~agreements~~an agreement documenting the terms and conditions of various services Conifer provides to Tenet hospitals (“RCM Agreement”), as well as an agreement documenting certain administrative services our Hospital Operations segment provides to Conifer. ~~The~~In March 2021, we entered into a month-to-month agreement amending the RCM Agreement effective January 1, 2021 (“Amended RCM Agreement”) to update certain terms and conditions related to the revenue cycle management services Conifer provides to Tenet hospitals. We believe the pricing terms for the services provided ~~by each party to~~under the ~~other under these contracts were based on~~Amended RCM Agreement are commercially reasonable and consistent with estimated third-party ~~pricing terms in effect at the time the agreements were signed.~~terms. At ~~June 30, 2020,~~March 31, 2021, we owned ~~76.2%~~76% of Conifer Health Solutions, LLC, which is ~~the~~Conifer’s principal ~~subsidiary of Conifer Holdings, Inc.~~subsidiary.

The following tables include amounts for each of our reportable segments and the reconciling items necessary to agree to amounts reported in the accompanying Condensed Consolidated Balance Sheets and ~~in the~~ Condensed Consolidated Statements of Operations, as applicable:


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Assets:	Assets:					Assets:
Hospital Operations	Hospital Operations	$	18,807	$	16,196	Hospital Operations	$	17,555	$	18,048
Ambulatory Care	Ambulatory Care	6,470		6,195		Ambulatory Care	8,027		8,048
Conifer	Conifer	973		974		Conifer	972		1,010
Total	Total	$	26,250	$	23,365	Total	$	26,554	$	27,106


	Three Months Ended March 31,
	2021		2020
Capital expenditures:
Hospital Operations	$	110	$	167
Ambulatory Care	8		11
Conifer	3		4
Total	$	121	$	182

Net operating revenues:
Hospital Operations total prior to inter-segment eliminations	$	3,947	$	3,834
Ambulatory Care	646		490
Conifer
Tenet	122		136
Other clients	188		196
Total Conifer revenues	310		332
Inter-segment eliminations	(122)		(136)
Total	$	4,781	$	4,520

Equity in earnings of unconsolidated affiliates:
Hospital Operations	$	4	$	2
Ambulatory Care	38		26
Total	$	42	$	28

Adjusted EBITDA:
Hospital Operations	$	434	$	342
Ambulatory Care	257		156
Conifer	86		87
Total	$	777	$	585

2723

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Three Months Ended
June 30, Six Months Ended
June 30,
2020 2019 2020 2019
Capital expenditures:
Hospital Operations $ 90 $ 118 $ 257 $ 288
Ambulatory Care 10 21 21 41
Conifer 6 5 10 7
Total $ 106 $ 144 $ 288 $ 336
Net operating revenues:
Hospital Operations total prior to inter-segment eliminations $ 3,088 $ 3,827 $ 6,922 $ 7,689
Ambulatory Care 368 524 858 1,004
Conifer
Tenet 113 146 249 292
Other clients 192 209 388 412
Total Conifer revenues 305 355 637 704
Inter-segment eliminations (113) (146) (249) (292)
Total $ 3,648 $ 4,560 $ 8,168 $ 9,105
Equity in earnings of unconsolidated affiliates:
Hospital Operations $ (4) $ 8 $ (2) $ 11
Ambulatory Care 35 34 61 65
Total $ 31 $ 42 $ 59 $ 76
Adjusted EBITDA:
Hospital Operations $ 492 $ 359 $ 834 $ 706
Ambulatory Care 167 207 323 384
Conifer 73 103 160 202
Total $ 732 $ 669 $ 1,317 $ 1,292
Depreciation and amortization:
Hospital Operations $ 177 $ 185 $ 352 $ 364
Ambulatory Care 20 18 39 36
Conifer 9 11 18 22
Total $ 206 $ 214 $ 409 $ 422


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020

Depreciation and amortization:										Depreciation and amortization:
Hospital Operations										Hospital Operations	$	190	$	175
Ambulatory Care										Ambulatory Care	25		19
Conifer										Conifer	9		9
Total										Total	$	224	$	203

Adjusted EBITDA	Adjusted EBITDA	$	732	$	669	$	1,317	$	1,292	Adjusted EBITDA	$	777	$	585
Loss from divested and closed businesses (i.e., the Company’s health plan businesses)		—		—		—		(1)

Depreciation and amortization	Depreciation and amortization	(206)		(214)		(409)		(422)		Depreciation and amortization	(224)		(203)
Impairment and restructuring charges, and acquisition-related costs	Impairment and restructuring charges, and acquisition-related costs	(54)		(36)		(109)		(55)		Impairment and restructuring charges, and acquisition-related costs	(20)		(55)
Litigation and investigation costs	Litigation and investigation costs	(2)		(18)		(4)		(31)		Litigation and investigation costs	(13)		(2)
Interest expense	Interest expense	(255)		(247)		(498)		(498)		Interest expense	(240)		(243)
Loss from early extinguishment of debt	Loss from early extinguishment of debt	(4)		—		(4)		(47)		Loss from early extinguishment of debt	(23)		0
Other non-operating income (expense), net		2		(1)		3		—
Net gains (losses) on sales, consolidation and deconsolidation of facilities		1��		(1)		3		(2)
Other non-operating income, net										Other non-operating income, net	10		1
Net gains on sales, consolidation and deconsolidation of facilities										Net gains on sales, consolidation and deconsolidation of facilities	0		2
Income from continuing operations, before income taxes	Income from continuing operations, before income taxes	$	214	$	152	$	299	$	236	Income from continuing operations, before income taxes	$	267	$	85

NOTE 19. SUBSEQUENT EVENTS

Amended Credit Facility

As discussed in Note 6, on April 19, 2021, we amended our Credit Agreement to, among other things, extend the temporary increase of the aggregate revolving credit commitments from the previous limit of $1.500 billion to $1.900 billion through April 22, 2022. In addition, the amendment decreased the margins applied to the credit facility’s borrowing rates. As amended, the margin applicable to base rate loans ranges from 0.25% to 0.75% per annum and the margin applicable to LIBOR loans ranges from 1.25% to 1.75% per annum.

Sale of Urgent Care Centers

On April 30, 2021, we completed the sale of the majority of our urgent care centers operated under the MedPost and CareSpot brands to an unaffiliated independent urgent care provider. We received net cash proceeds of approximately $80 million for the sale of these facilities.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION TO MANAGEMENT’S DISCUSSION AND ANALYSIS

The purpose of this section, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the context within which our financial information may be analyzed, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows. As described in Note 1 to the accompanying Condensed Consolidated Financial Statements, our results for prior periods have been recast to reflect retrospective application of a change in accounting principle. Our Hospital Operations and other (“Hospital Operations”) segment is comprised of our acute care and specialty hospitals, ancillary outpatient facilities, urgent care centers, micro-hospitals and physician practices. As described in Note 4 to the accompanying Condensed Consolidated Financial Statements, certain of these facilities are classified as held for sale at June 30, 2020. Our Ambulatory Care segment is comprised of the operations of USPI Holding Company, Inc. (“USPI”), in which we own a 95% interest. At June 30, 2020, USPI had interests in 264 ambulatory surgery centers, 39 urgent care centers, 23 imaging centers and 24 surgical hospitals in 27 states. Our Conifer segment provides revenue cycle management and value-based care services to hospitals, healthcare systems, physician practices, employers and other customers, through our Conifer Holdings, Inc. (“Conifer”) subsidiary. Nearly all of the services comprising the operations of our Conifer segment are provided directly by Conifer Health Solutions, LLC, in which we own a 76.2% interest, or by one of its direct or indirect wholly owned subsidiaries. MD&A, which should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, includes the following sections:

•Management Overview

•Forward-Looking Statements

•Sources of Revenue for Our Hospital Operations Segment

•Results of Operations

•Liquidity and Capital Resources

•Off-Balance Sheet Arrangements

•Critical Accounting Estimates

Our business consists of our Hospital Operations and other (“Hospital Operations”) segment, our Ambulatory Care segment and our Conifer segment. Our Hospital Operations segment is comprised of acute care and specialty hospitals, ancillary outpatient facilities, micro-hospitals, imaging centers, physician practices and urgent care centers. At March 31, 2021, our subsidiaries operated 65 hospitals serving primarily urban and suburban communities in nine states. Our Ambulatory Care segment is comprised of the operations of USPI Holding Company, Inc. (“USPI”), in which we own a 95% interest. At March 31, 2021, USPI had interests in 312 ambulatory surgery centers, 39 urgent care centers, 24 imaging centers and 24 surgical hospitals in 30 states. Effective April 1, 2021, we transferred the Ambulatory Care segment’s imaging centers to our Hospital Operations segment. As described in Note 4 to the accompanying Condensed Consolidated Financial Statements, certain of the facilities in our Hospital Operations and Ambulatory Care segments were classified as held for sale at March 31, 2021 and December 31, 2020. Our Conifer segment provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients, through our Conifer Holdings, Inc. (“Conifer”) subsidiary. At March 31, 2021, Conifer provided services to approximately 640 Tenet and non-Tenet hospitals and other clients nationwide. At March 31, 2021, we owned 76% of Conifer Health Solutions, LLC, which is Conifer’s principal subsidiary.

Unless otherwise indicated, all financial and statistical information included in MD&A relates to our continuing operations, with dollar amounts expressed in millions (except per adjusted patient admission and per adjusted patient day amounts). Continuing operations information includes the results of our same 65 hospitals operated throughout the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019, and three Chicago-area hospitals, which we divested effective January 28, 2019.~~2020. Continuing operations information excludes the results of our hospitals and other businesses that have been classified as discontinued operations for accounting purposes.

MANAGEMENT OVERVIEW

RECENT DEVELOPMENTS

Multi-Year Agreement with UnitedHealthcare—In April 2021, we signed a new multi-year contract with UnitedHealthcare four months prior to the scheduled renewal date. The contract will provide many UnitedHealthcare

members with continued in-network access to our hospitals, physician clinics and outpatient centers, including USPI’s surgical facilities.

Sale of Urgent Care Centers—We completed the sale of the majority of our urgent care centers operated under the MedPost and CareSpot brands to an unaffiliated independent urgent care provider on April 30, 2021. We received net cash proceeds of approximately $80 million for the sale of these facilities and will recognize a gain on the sale in the three months ending June 30, 2021.

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IMPACT OF THE COVID-19 PANDEMIC

~~The COVID-19 pandemic is significantly affecting our patients, communities, employees and business operations.~~ The spread of COVID-19 and the ensuing response of federal, state and local authorities beginning in March 2020 resulted in a material reduction in our patient volumes and also adversely affected our net operating revenues ~~that is ongoing. We have taken measures within~~in the communities we serve, both voluntarily and in accordance with governmental mandates, to try to limit the spread of the virus and to mitigate the burden on the healthcare system. From mid-March through early May 2020, we suspended many elective procedures at our hospitals and closed or reduced operating hours at our ambulatory surgery centers and other outpatient centers that specialize in elective procedures.year ended December 31, 2020. Restrictive measures, including travel bans, social distancing, quarantines and ~~shelter-in-place~~shelter‑in‑place orders, ~~also~~ reduced ~~– and continue to impact –~~ the ~~volume~~number of procedures performed at our facilities, ~~more generally,~~ as well as the volume of emergency room and physician office visits. We began experiencing gradual and continued improvement in patient volumes in May 2020 as various states eased stay‑at‑home restrictions and our facilities were permitted to resume elective surgeries and other procedures; however, the COVID-19 pandemic continues to impact all three segments of our business, as well as our patients, communities and employees. Broad economic factors resulting from the ~~COVID-19~~ pandemic, including increased unemployment rates and reduced consumer spending, ~~are impacting~~continue to impact our patient volumes, service mix and revenue ~~mix~~mix. The pandemic has also continued to have an adverse effect on our operating expenses to varying degrees in 2021. In some of our markets, we have been required to utilize higher-cost temporary labor and ~~patient volumes. Moreover,~~pay premiums above standard compensation for essential workers. In addition, we ~~are experiencing supply chain disruptions, including shortages, delays and~~have experienced significant price increases in medical supplies, particularly for personal protective ~~equipment.~~ equipment (“PPE”), and we have encountered supply chain disruptions, including shortages and delays.

As described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in Part II of our Annual Report on Form 10-K for the year ended December 31, 2020 (“Annual Report”) and below under “Sources of Revenue for Our Hospital Operations Segment,” ~~the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, and other~~various legislative actions have mitigated some of the economic disruption caused by the COVID-19 pandemic on our business. Additional funding for the Public Health and Social Services Emergency Fund (“Provider Relief Fund” or “PRF”) was among the provisions of the ~~CARES Act.~~COVID-19 relief legislation. In the three months ended ~~June 30, 2020,~~March 31, 2021, we received cash payments of ~~$712~~$59 million, and we recognized approximately ~~$511~~$31 million and ~~$12~~$6 million as grant income and in equity in

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earnings of unconsolidated affiliates, respectively, in our accompanying Condensed Consolidated Statements of Operations due to grants from the Provider Relief Fund and other state and local grant programs. Also in the three months ended June 30, 2020, we received advance payments of approximately $1.5 billion from the Medicare accelerated payment program due to the revisions to that program under the CARES Act. We expect to repay these advances within the next year.

Throughout MD&A, we have provided additional information on the impact of the COVID-19 pandemic on our results of operations and the steps we have taken, and are continuing to take, in response. The ultimate extent and scope of the pandemic remains unknown. For information about risks and uncertainties around COVID-19 that could affect our results of operations, financial condition and cash flows, see the Risk Factors section in Part III of ~~this report.~~our Annual Report.

TRENDS AND STRATEGIES

As described above and throughout MD&A, we ~~are currently experiencing~~experienced a significant disruption into our business in 2020 due to the COVID-19 pandemic. ~~The~~Although we have seen gradual and continued improvement in our patient volumes, we continue to experience negative impacts of the pandemic on our business in varying degrees, the length and extent of ~~this disruption is~~which are currently unknown. While demand for our services is expected to further rebound in the future, we have taken, and continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and operating revenues from the pandemic. Since the COVID-19 pandemic ~~including the sale of~~began to disrupt our business in March 2020, we have sold new senior notes and senior secured first lien notes, redeemed existing senior notes, including those with the highest interest rate and ~~the amendment~~nearest maturity date of all of our long-term debt, and amended our revolving credit ~~facility, both as described below.~~facility. We also ~~cut our planned capital expenditures for 2020 by approximately 40%. Furthermore, we have~~ decreased our employee headcount throughout the organization, and we ~~have~~ deferred certain operating expenses that ~~are~~were not expected to impact our response to ~~COVID-19.~~the COVID-19 pandemic. In addition, we ~~are reducing~~reduced certain variable costs across the ~~enterprise as a result of softening patient volumes due to the COVID-19 pandemic.~~enterprise. We believe these actions, together with government relief packages, to the extent available to us, will help us to continue operating during the uncertainty caused by the COVID-19 pandemic. For further information on our liquidity, see “Liquidity and Capital Resources” below.

~~The~~In recent years, the healthcare industry, in general, and the acute care hospital business, in particular, have ~~also been experiencing~~experienced significant regulatory uncertainty based, in large part, on administrative, legislative and judicial efforts to significantly modify or repeal and potentially replace the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act” or “ACA”). It is difficult to predict the full impact of regulatory uncertainty on our future revenues and operations. In addition, we believe that several key trends have shaped the demand for healthcare services in recent years: (1) consumers, employers and insurers are actively seeking lower-cost solutions and better value as they focus more on healthcare spending; (2) patient volumes are shifting from inpatient to outpatient settings due to technological advancements and demand for care that is more convenient, affordable and accessible; (3) the growing aging population requires greater chronic disease management and higher-acuity treatment; and (4) consolidation continues across the entire healthcare sector.

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Driving Growth in Our Hospital Systems—We are committed to better positioning our hospital systems and competing more effectively in the ever-evolving healthcare environment by focusing on driving performance through operational effectiveness, increasing capital efficiency and margins, investing in our physician enterprise, particularly our specialist network, enhancing patient and physician satisfaction, growing our higher-demand and higher-acuity clinical service lines (including outpatient lines), expanding patient and physician access, and optimizing our portfolio of assets. Over the past several years, we have undertaken enterprise-wide ~~cost reduction~~cost-reduction initiatives, comprised primarily of workforce reductions (including streamlining corporate overhead and centralized support functions), the renegotiation of contracts with suppliers and vendors, and the consolidation of office locations. Moreover, we established offshore support operations in the Philippines. In conjunction with these initiatives and our cost-saving efforts in response to the COVID-19 pandemic, we incurred restructuring charges related to employee severance payments of ~~$37~~$4 million in the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, and we expect to incur additional such restructuring charges throughout ~~2020.~~2021.

We also continue to exit service lines, businesses and markets that we believe are no longer a core part of our ~~long-term~~long‑term growth strategy. In ~~December 2019,~~April 2021, we ~~entered into a definitive agreement to divest~~completed the sale of the majority of our ~~two hospitals~~urgent care centers operated under the MedPost and ~~other operations in the Memphis, Tennessee area.~~CareSpot brands by our Hospital Operations and Ambulatory Care segments. We intend to continue to further refine our portfolio of hospitals and other healthcare facilities when we believe such refinements will help us improve profitability, allocate capital more effectively in areas where we have a stronger presence, deploy proceeds on higher-return investments across our business, enhance cash flow generation, reduce our debt and lower our ratio of ~~debt-to-Adjusted~~debt‑to‑Adjusted EBITDA.

Improving the Customer Care Experience—As consumers continue to become more engaged in managing their health, we recognize that understanding what matters most to them and earning their loyalty is imperative to our success. As such, we have enhanced our focus on treating our patients as traditional customers by: (1) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (2) expanding service lines aligned with growing community demand, including a focus on aging and chronic disease patients; (3) offering greater affordability and predictability, including simplified registration and discharge procedures, particularly in our outpatient centers; (4) improving our culture of service; and (5) creating health and benefit programs, patient education and health literacy materials that are

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customized to the needs of the communities we serve. Through these efforts, we intend to improve the customer care experience in every part of our operations.

Expansion of Our Ambulatory Care Segment—We ~~expect to~~ continue to focus on opportunities to expand our Ambulatory Care segment through organic growth, building new outpatient centers, corporate development activities and strategic partnerships. In December 2020, we acquired controlling ownership interests in 45 ambulatory surgery centers from SurgCenter Development (the “SCD Centers”), which significantly increased USPI’s presence in the musculoskeletal surgery market, a high-demand clinical service line, particularly for an aging population. In the three months ended March 31, 2021, we acquired controlling ownership interests in three ambulatory surgery centers located in Maryland and one in Florida. We believe USPI’s surgery centers and surgical hospitals offer many advantages to patients and physicians, including greater affordability, predictability, flexibility and convenience. Moreover, due in part to advancements in medical technology, and due to the lower cost structure and greater efficiencies that are attainable at a specialized outpatient site, we believe the volume and complexity of surgical cases performed in an outpatient setting will continue to increase following the containment of the COVID-19 pandemic. Historically, our outpatient services have generated significantly higher margins for us than inpatient services.

Driving Conifer’s Growth While Pursuing a Tax-Free Spin-Off—We previously announced a number of actions to support our goals of improving financial performance and enhancing shareholder value, including the exploration of strategic alternatives for Conifer. In July 2019, we announced our intention to pursue a tax-free spin-off of Conifer as a separate, independent, publicly traded company. Completion of the proposed spin-off is subject to a number of conditions, including, among others, assurance that the separation will be tax-free for U.S. federal income tax purposes, ~~execution of a restructured services agreement between Conifer and Tenet,~~ finalization of Conifer’s capital structure, the effectiveness of appropriate filings with the Securities and Exchange Commission (“SEC”), and final approval from our board of directors. ~~We are targeting~~Although in March 2021 we entered into a month-to-month agreement amending and updating certain terms and conditions related to ~~complete~~ the ~~separation by~~revenue cycle management services Conifer provides to Tenet hospitals (“Amended RCM Agreement”), the ~~end~~execution of a comprehensive amendment to and restatement of the ~~second quarter~~master services agreement between Conifer and Tenet remains an additional prerequisite to the spin-off of ~~2021; however,~~Conifer. Although we are continuing to pursue the Conifer spin-off, there can be no assurance regarding the timeframe for ~~completing the spin-off,~~completion, the allocation of assets and liabilities between Tenet and Conifer, that the other conditions of the spin-off will be met, or ~~the spin-off~~that it will be completed at all.

Conifer serves approximately 640 Tenet and non-Tenet hospital and other clients nationwide. In addition to providing revenue cycle management services to ~~healthcare~~health systems and physicians, Conifer provides support to both providers and ~~self-insured~~self‑insured employers seeking assistance with clinical integration, financial risk management and population health management. Conifer remains focused on driving growth by continuing to market and expand its revenue cycle management

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and value-based care solutions businesses. We believe that our success in growing Conifer and increasing its profitability depends in part on our success in executing the following strategies: (1) attracting hospitals and other healthcare providers that currently handle their revenue cycle management processes internally as new clients; (2) generating new client relationships through opportunities from USPI and Tenet’s acute care hospital acquisition and divestiture activities; (3) expanding revenue cycle management and value-based care service offerings through organic development and small acquisitions; and (4) leveraging data from tens of millions of patient interactions for continued enhancement of the value-based care environment to drive competitive differentiation.

Improving Profitability—~~Following a~~As we return to more normal operations, ~~post COVID-19,~~ we will continue to focus on growing patient volumes and effective cost management as a means to improve profitability. We believe our inpatient admissions have been constrained in recent years (prior to the COVID-19 pandemic) by increased competition, utilization pressure by managed care organizations, new delivery models that are designed to lower the utilization of acute care hospital services, the effects of higher patient co-pays, co-insurance amounts and deductibles, changing consumer behavior, and adverse economic conditions and demographic trends in certain of our markets. However, we also believe that emphasis on higher-demand clinical service lines (including outpatient services), focus on expanding our ambulatory care business, cultivation of our culture of service, participation in Medicare Advantage health plans that have been experiencing higher growth rates than traditional Medicare, ~~plans,~~ and contracting strategies that create shared value with payers should help us grow our patient volumes over time. ~~In 2020, we~~We are also continuing to explore new opportunities to enhance efficiency, including further integration of enterprise-wide centralized support functions, outsourcing ~~certain~~additional functions unrelated to direct patient care, and reducing clinical and vendor contract variation.

Reducing Our Leverage Over Time—All of our outstanding long-term debt has a fixed rate of interest, except for outstanding borrowings under our revolving credit facility, and the maturity dates of our notes are staggered from ~~2022~~2023 through 2031. We believe that our capital structure minimizes the near-term impact of increased interest rates, and the staggered maturities of our debt allow us to refinance our debt over time. ~~Although we recently issued $1.3 billion aggregate principal amount of senior secured first lien notes to manage~~It is our ~~liquidity during the COVID-19 pandemic, it is nonetheless our long-term~~long‑term objective to reduce our debt and lower our ratio of debt-to-Adjusted EBITDA, primarily through more efficient capital allocation and Adjusted EBITDA growth, which should lower our refinancing risk. In March 2021, we retired approximately $478 million aggregate principal amount of our 7.000% senior unsecured notes due 2025 (the “2025 Senior Notes”), which reduces future annual cash interest expense payments by approximately $33 million.

Our ability to execute on our strategies and respond to the aforementioned trends is subject to the ~~length of time~~extent and scope of the impact ~~from~~on our operations of the COVID-19 pandemic, as well as a number of other risks and uncertainties, – all of which may cause actual results to be materially different from expectations. For information about risks and uncertainties that could affect our results of

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operations, see the ~~Risk Factors~~Forward-Looking Statements section in ~~Part II of~~ this report, ~~and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (“Q1’20 10-Q”),~~ as well as the Forward-Looking Statements and Risk Factors sections in Part I of our Annual ~~Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”).~~Report.

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RESULTS OF OPERATIONS—OVERVIEW

We have provided below certain selected operating statistics for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ on a continuing operations basis, which includes the results of our same 65 hospitals operated throughout the three months ended June 30, 2020 and 2019, and three Chicago-area hospitals, which we divested effective January 28, 2019.basis. The following tables also show information about facilities in our Ambulatory Care segment that we control and, therefore, consolidate. We believe this information is useful to investors because it reflects our current portfolio of operations and the recent trends we are experiencing with respect to volumes, revenues and expenses. We present certain metrics on a per adjusted patient admission basis to show trends other than volume.


		Continuing Operations Three Months Ended June 30,												Continuing Operations Three Months Ended March 31,
Selected Operating Statistics	Selected Operating Statistics	2020		2019		Increase (Decrease)			Selected Operating Statistics	2021		2020		Increase (Decrease)
Hospital Operations – hospitals and related outpatient facilities
Hospital Operations – hospitals and related outpatient facilities:									Hospital Operations – hospitals and related outpatient facilities:
Number of hospitals (at end of period)	Number of hospitals (at end of period)	65		65		—		(1)	Number of hospitals (at end of period)	65		65		—		(1)
Total admissions	Total admissions	134,898		169,352		(20.3)	%		Total admissions	147,674		165,735		(10.9)	%
Adjusted patient admissions(2)	Adjusted patient admissions(2)	221,159		304,066		(27.3)	%		Adjusted patient admissions(2)	251,017		290,912		(13.7)	%
Paying admissions (excludes charity and uninsured)	Paying admissions (excludes charity and uninsured)	125,792		159,128		(20.9)	%		Paying admissions (excludes charity and uninsured)	138,756		155,820		(11.0)	%
Charity and uninsured admissions	Charity and uninsured admissions	9,106		10,224		(10.9)	%		Charity and uninsured admissions	8,918		9,915		(10.1)	%
Emergency department visits		388,038		637,107		(39.1)	%
Admissions through emergency department									Admissions through emergency department	112,730		122,291		(7.8)	%
Emergency department visits, outpatient									Emergency department visits, outpatient	450,830		641,282		(29.7)	%
Total emergency department visits									Total emergency department visits	563,560		763,573		(26.2)	%
Total surgeries	Total surgeries	73,722		105,577		(30.2)	%		Total surgeries	89,964		95,352		(5.7)	%
Patient days — total	Patient days — total	687,883		787,582		(12.7)	%		Patient days — total	797,489		810,479		(1.6)	%
Adjusted patient days(2)	Adjusted patient days(2)	1,094,208		1,387,929		(21.2)	%		Adjusted patient days(2)	1,321,890		1,385,763		(4.6)	%
Average length of stay (days)	Average length of stay (days)	5.10		4.65		9.7	%		Average length of stay (days)	5.40		4.89		10.4	%
Average licensed beds	Average licensed beds	17,219		17,221		—	%		Average licensed beds	17,178		17,218		(0.2)	%
Utilization of licensed beds(3)	Utilization of licensed beds(3)	43.9	%	50.3	%	(6.4)	%	(1)	Utilization of licensed beds(3)	51.6	%	51.7	%	(0.1)	%	(1)
Total visits	Total visits	983,321		1,693,805		(41.9)	%		Total visits	1,401,217		1,616,527		(13.3)	%
Paying visits (excludes charity and uninsured)	Paying visits (excludes charity and uninsured)	908,197		1,581,530		(42.6)	%		Paying visits (excludes charity and uninsured)	1,312,096		1,499,538		(12.5)	%
Charity and uninsured visits	Charity and uninsured visits	75,124		112,275		(33.1)	%		Charity and uninsured visits	89,121		116,989		(23.8)	%
Ambulatory Care
Ambulatory Care:									Ambulatory Care:
Total consolidated facilities (at end of period)	Total consolidated facilities (at end of period)	243		232		11		(1)	Total consolidated facilities (at end of period)	291		244		47		(1)
Total cases	Total cases	364,196		514,567		(29.2)	%		Total cases	553,814		501,226		10.5	%



(1)			The change is the difference between the ~~2020~~2021 and ~~2019~~2020 amounts shown.
(2)			Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
(3)			Utilization of licensed beds represents patient days divided by number of days in the period divided by average licensed beds.

Total admissions decreased by ~~34,454,~~18,061, or ~~20.3%~~10.9%, in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the three months ended ~~June 30, 2019,~~March 31, 2020, and total surgeries decreased by ~~31,855,~~5,388, or ~~30.2%~~5.7%, in the ~~2020~~2021 period compared to the ~~2019~~2020 period. ~~Our~~Total emergency department visits decreased ~~39.1%~~26.2% in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in the prior year. ~~Our~~The decrease in our patient volumes from continuing operations in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the three months ended ~~June 30, 2019 were negatively affected by shelter-in-place orders and~~March 31, 2020 continues to reflect the ~~mandated suspension~~overall adverse impact of ~~many elective procedures at our hospitals due to~~ the COVID-19 ~~pandemic, as well as~~pandemic. Despite the ~~divestiture~~severe weather impact of ~~three Chicago-area hospitals and affiliated operations effective January 28, 2019. Our~~Winter Storm Uri in February 2021, our Ambulatory Care total cases ~~decreased 29.2%~~increased 10.5% in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the ~~2019 period. Beginning in late March~~ 2020 ~~we closed or reduced operating hours at our ambulatory surgery centers and other outpatient centers that specialize in elective procedures~~period primarily due to the ~~COVID-19 pandemic. Nearly all~~acquisition of ~~these had reopened with reduced operations by June 30,~~the SCD Centers in December 2020.


	Continuing Operations Three Months Ended March 31,
Revenues	2021		2020		Increase (Decrease)
Net operating revenues:
Hospital Operations prior to inter-segment eliminations	$	3,947	$	3,834	2.9	%
Ambulatory Care	646		490		31.8	%
Conifer	310		332		(6.6)	%
Inter-segment eliminations	(122)		(136)		(10.3)	%
Total	$	4,781	$	4,520	5.8	%

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Continuing Operations
Three Months Ended June 30,
Revenues 2020 2019 Increase
(Decrease)
Net operating revenues
Hospital Operations prior to inter-segment eliminations $ 3,088 $ 3,827 (19.3) %
Ambulatory Care 368 524 (29.8) %
Conifer 305 355 (14.1) %
Inter-segment eliminations (113) (146) (22.6) %
Total $ 3,648 $ 4,560 (20.0) %

Net operating revenues ~~decreased~~increased by ~~$912~~$261 million, or ~~20.0%~~5.8%, in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in ~~2019,~~2020, primarily due to ~~decreased volumes as a result~~higher patient acuity, USPI’s acquisition of the ~~COVID-19 pandemic,~~SCD Centers in December 2020 and a more favorable payer mix, partially offset by increased acuity and improved terms of our managed care contracts. Our Hospital Operations and Ambulatory Care segments also recognized income from federal and state grants totaling $474 million and $49 million ($12 million of which is included in equity in earnings of unconsolidated affiliates), respectively, inlower patient volumes. During the three months ended ~~June 30, 2020,~~March 31, 2021, we recognized $31 million of grant income, which ~~amounts are~~amount is not included in net operating revenues.

Our accounts receivable days outstanding (“AR Days”) from continuing operations were ~~68.4~~55.8 days at ~~June 30, 2020~~March 31, 2021 and ~~58.4~~55.6 days at December 31, ~~2019,~~2020, compared to our target of less than 55 days. ~~Our~~ AR Days ~~at June 30, 2020 were negatively impacted~~are calculated as our accounts receivable from continuing operations on the last date in the quarter divided by our net operating revenues from continuing operations for the quarter ended on that date divided by the ~~decline~~number of days in ~~our average net revenue per day due to~~ the ~~COVID-19 pandemic.~~quarter. This calculation includes our Hospital Operations segment’s contract assets, as well as the accounts receivable of ~~our Memphis-area~~the urgent care facilities ~~that have been~~ classified ~~in assets~~as held for sale on our Condensed Consolidated Balance ~~Sheet~~Sheets at ~~June 30, 2020,~~March 31, 2021 and December 31, 2020. The AR Days calculation excludes ~~(i) three Chicago-area hospitals, which we divested effective January 28, 2019, and (ii)~~ our California provider fee revenues.


		Continuing Operations Three Months Ended June 30,											Continuing Operations Three Months Ended March 31,
Selected Operating Expenses	Selected Operating Expenses	2020		2019		Increase (Decrease)		Selected Operating Expenses	2021		2020		Increase (Decrease)
Hospital Operations
Hospital Operations:								Hospital Operations:
Salaries, wages and benefits	Salaries, wages and benefits	$	1,580	$	1,801	(12.3)	%	Salaries, wages and benefits	$	1,857	$	1,846	0.6	%
Supplies	Supplies	531		644		(17.5)	%	Supplies	646		650		(0.6)	%
Other operating expenses	Other operating expenses	842		885		(4.9)	%	Other operating expenses	916		862		6.3	%
Total	Total	$	2,953	$	3,330	(11.3)	%	Total	$	3,419	$	3,358	1.8	%
Ambulatory Care
Ambulatory Care:								Ambulatory Care:
Salaries, wages and benefits	Salaries, wages and benefits	$	119	$	157	(24.2)	%	Salaries, wages and benefits	$	174	$	162	7.4	%
Supplies	Supplies	79		108		(26.9)	%	Supplies	157		112		40.2	%
Other operating expenses	Other operating expenses	75		86		(12.8)	%	Other operating expenses	103		86		19.8	%
Total	Total	$	273	$	351	(22.2)	%	Total	$	434	$	360	20.6	%
Conifer
Conifer:								Conifer:
Salaries, wages and benefits	Salaries, wages and benefits	$	165	$	187	(11.8)	%	Salaries, wages and benefits	$	170	$	179	(5.0)	%
Supplies	Supplies	1		1		—	%	Supplies	1		1		—	%
Other operating expenses	Other operating expenses	66		64		3.1	%	Other operating expenses	53		65		(18.5)	%
Total	Total	$	232	$	252	(7.9)	%	Total	$	224	$	245	(8.6)	%
Total
Total:								Total:
Salaries, wages and benefits	Salaries, wages and benefits	$	1,864	$	2,145	(13.1)	%	Salaries, wages and benefits	$	2,201	$	2,187	0.6	%
Supplies	Supplies	611		753		(18.9)	%	Supplies	804		763		5.4	%
Other operating expenses	Other operating expenses	983		1,035		(5.0)	%	Other operating expenses	1,072		1,013		5.8	%
Total	Total	$	3,458	$	3,933	(12.1)	%	Total	$	4,077	$	3,963	2.9	%
Rent/lease expense(1)
Rent/lease expense(1):								Rent/lease expense(1):
Hospital Operations	Hospital Operations	$	67	$	59	13.6	%	Hospital Operations	$	77	$	65	18.5	%
Ambulatory Care	Ambulatory Care	20		21		(4.8)	%	Ambulatory Care	27		23		17.4	%
Conifer	Conifer	3		3		—	%	Conifer	3		3		—	%
Total	Total	$	90	$	83	8.4	%	Total	$	107	$	91	17.6	%



(1)			Included in other operating expenses.

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		Continuing Operations Three Months Ended June 30,											Continuing Operations Three Months Ended March 31,
Selected Operating Expenses per Adjusted Patient Admission	Selected Operating Expenses per Adjusted Patient Admission	2020		2019		Increase (Decrease)		Selected Operating Expenses per Adjusted Patient Admission	2021		2020		Increase (Decrease)
Hospital Operations
Hospital Operations:								Hospital Operations:
Salaries, wages and benefits per adjusted patient admission(1)	Salaries, wages and benefits per adjusted patient admission(1)	$	7,147	$	5,921	20.7	%	Salaries, wages and benefits per adjusted patient admission(1)	$	7,396	$	6,347	16.5	%
Supplies per adjusted patient admission(1)	Supplies per adjusted patient admission(1)	2,396		2,118		13.1	%	Supplies per adjusted patient admission(1)	2,571		2,236		15.0	%
Other operating expenses per adjusted patient admission(1)	Other operating expenses per adjusted patient admission(1)	3,811		2,908		31.1	%	Other operating expenses per adjusted patient admission(1)	3,647		2,961		23.2	%
Total per adjusted patient admission	Total per adjusted patient admission	$	13,354	$	10,947	22.0	%	Total per adjusted patient admission	$	13,614	$	11,544	17.9	%



(1)			~~Calculation excludes the expenses from our health plan businesses.~~ Adjusted patient admissions represents actual patient admissions adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient admissions by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.

Salaries, wages and benefits ~~decreased $221~~for our Hospital Operations segment increased $11 million, or ~~12.3%~~0.6%, in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in ~~2019. The decline~~2020. This change was primarily ~~due~~attributable to ~~reduced patient volumes and necessary employee furloughs and headcount reductions throughout the organization due to the COVID-19 pandemic,~~increased contract labor costs, as well as ~~lower health benefit costs; the effect of these changes was partially offset by~~increased incentive compensation and annual merit increases for certain of our employees, partially offset by

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lower health benefits costs. A higher average length of patient stay and a greater number of employed physicians also contributed to the increase. The increase was also partially offset by reduced patient volumes as a result of the COVID-19 pandemic and ~~an increased average patient length-of-stay.~~our continuing cost efficiency initiatives. On a per adjusted patient admission basis, salaries, wages and benefits increased ~~20.7%~~16.5% in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the three months ended ~~June 30, 2019~~March 31, 2020 due to reduced patient volumes as a result of the COVID-19 pandemic.

Supplies expense for our Hospital Operations segment decreased ~~$113~~$4 million, or ~~17.5%~~0.6%, in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in ~~2019.~~2020. The ~~decline~~decrease was primarily due to reduced patient volumes and our continued focus on cost efficiency initiatives, partially offset by ~~the~~ increased ~~cost of~~costs for certain supplies as a result of the COVID-19 pandemic.On a per adjusted patient admission basis, supplies expense increased ~~13.1%~~15.0% in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the three months ended ~~June 30, 2019~~March 31, 2020 primarily due to ~~reduced patient volumes and the~~ increased ~~cost of~~costs for certain supplies as a result of the ~~pandemic.~~COVID-19 pandemic and growth in our higher‑acuity, supply‑intensive surgical services.

Other operating expenses ~~decreased $43~~for our Hospital Operations segment increased $54 million, or ~~4.9%~~6.3%, in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in ~~2019.~~2020. The ~~decline~~increase was primarily due to ~~our execution of various strategies~~higher malpractice expense, increased rent and lease expense, higher medical fees, and increased legal and consulting fees. On a per adjusted patient admission basis, other operating expenses increased 23.2% in the three months ended March 31, 2021 compared to ~~improve cost efficiency, as well as reduced~~the three months ended March 31, 2020 due to the decrease in patient volumes as a result of the COVID-19 ~~pandemic.There~~pandemic and the fact that there is ~~proportionally~~ a ~~higher~~high level of fixed costs (e.g., rent expense) in other operating expenses than salaries, wages and benefits or supplies. On a per adjusted patient admission basis, other operating expenses increased 31.1% in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to reduced patient volumes as a result of the pandemic.expenses.

LIQUIDITY AND CAPITAL RESOURCES OVERVIEW

Cash and cash equivalents were ~~$3.514~~$2.141 billion ~~at June 30, 2020 compared to $613 million~~ at March 31, ~~2020.~~2021 compared to $2.446 billion at December 31, 2020.

Significant cash flow items in the three months ended ~~June 30, 2020~~March 31, 2021 included:

•~~$1.482 billion~~Net cash provided by operating activities before interest, taxes, discontinued operations and restructuring charges, acquisition-related costs, and litigation costs and settlements of ~~cash advances~~$777 million;

•Cash received from ~~Medicare pursuant to COVID-19 stimulus legislation ($1.378 billion~~federal, state and local grants of $59 million ($31 million is included in net cash provided by operating activities, and ~~$104~~$28 million of ~~advances~~grant funds received by our Ambulatory Care segment’s ~~non-consolidated~~unconsolidated affiliates is included in net cash provided by financing activities);

•Debt payments of $541 million, including $~~712~~495 million of cash ~~received from federal and state grants, including the Relief Fund ($674 million is included in net cash provided by operating activities, and $38 million~~to retire our 2025 Senior Notes;

•Interest payments of ~~grants received by our Ambulatory Care segment’s non-consolidated affiliates is included in net cash provided by financing activities);~~$190 million;

•Capital expenditures of $121 million;

•$~~89 million deferral of our payroll tax match in 2020 pursuant to COVID-19 stimulus legislation;~~

•~~$79~~119 million of ~~payments for our 401(k) match~~distributions paid to ~~employees that was deferred from the first quarter of 2020 due to the pandemic;~~noncontrolling interests;

•Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements of ~~$46~~$51 million;

•~~Capital expenditures~~Purchases of ~~$106~~businesses and joint venture interests of $25 million; and

•~~Interest payments~~Purchases of ~~$293 million;~~marketable securities and equity investments of $11 million.

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•Net~~Proceeds from sales of marketable securities, long-term investments and other assets of $25 million;~~

•~~$24 million of distributions paid to noncontrolling interests;~~

•~~Debt issuance costs of $21 million;~~

•~~$500 million of repayments of net cash borrowings under our credit facility;~~

•~~$600 million of proceeds from the issuance of $600 million aggregate principal amount of 4.625% senior secured first lien notes due 2028;~~

•~~$700 million of proceeds from the issuance of $700 million aggregate principal amount of 7.500% senior secured first lien notes due 2025;~~ ~~and~~

•~~$142 million of payments to purchase $135 million aggregate principal amount of our outstanding 8.125% senior unsecured notes due 2022.~~

~~Net~~ cash provided by operating activities was ~~$2.368 billion in the six months ended June 30, 2020 compared to $294~~$534 million in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2021 compared to $129 million in the three months ended March 31, 2020. Key factors contributing to the change between the ~~2020~~2021 and ~~2019~~2020 periods include the following:

•~~$1.378 billion of cash advances received from Medicare pursuant to COVID-19 stimulus legislation;~~

•~~$674~~An increase in net income before interest, taxes, discontinued operations and restructuring charges, acquisition-related costs, and litigation costs and settlements of $192 million (including $31 million of cash received from federal and state grants ~~including~~in the ~~Relief Fund;~~

•~~$89 million deferral of our payroll tax match in 2020 pursuant to COVID-19 stimulus legislation~~2021 period);

•AnAdditional cash inflows of $54 million related to supplemental Medicaid programs in California and Texas;

•Reduced cash outflows of $67 million attributable to a decrease in malpractice claim payments;

•Additional cash outflows of $79 million due to an increase in our annual 401(k) match funding;

•A decrease of ~~$34~~$17 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements; and

•The timing of other working capital ~~items.~~items, including improved patient accounts receivable collection performance.

FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, target, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements, including (but not limited to) disclosure regarding (i) the impact of the COVID-19 pandemic, (ii) our future earnings, financial position, and operational and strategic initiatives, and (iii) developments in the healthcare industry. Forward-looking statements represent management’s expectations, based on currently available information, as to the outcome and timing of future events, but, by their nature, address matters that are indeterminate. They involve known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. Such factors include, but are not limited to, the risks described in the ~~Risk Factors section in Part II of this report and our Q1’20 10-Q, as well as the~~ Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report.

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in our Annual Report ~~in our Q1’20 10-Q~~ and in this report. Should one or more of the risks and uncertainties described in these reports occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statement. We specifically disclaim any obligation to update any information contained in a forward-looking statement or any forward-looking statement in its entirety except as required by law.

All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary ~~statement.~~information.

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SOURCES OF REVENUE FOR OUR HOSPITAL OPERATIONS SEGMENT

We earn revenues for patient services from a variety of sources, primarily managed care payers and the federal Medicare program, as well as state Medicaid programs, indemnity-based health insurance companies and uninsured patients (that is, patients who do not have health insurance and are not covered by some other form of third-party arrangement).

The following table shows the sources of net patient service revenues less implicit price concessions for our hospitals and related outpatient facilities, expressed as percentages of net patient service revenues less implicit price concessions from all sources:

Three Months Ended
June 30,

Six Months Ended
June 30,

~~Net Patient Service Revenues Less Implicit Price Concessions from:~~

~~2020~~

~~2019~~

~~Increase (Decrease)(1)~~

~~2020~~

~~2019~~

~~Increase (Decrease)(1)~~

~~Medicare~~

~~21.1~~

~~20.3~~

~~0.8~~

~~20.4~~

~~20.7~~

~~(0.3)~~

~~Medicaid~~

~~9.2~~

~~8.9~~

~~0.3~~

~~8.5~~

~~8.9~~

~~(0.4)~~

~~Managed care(2)~~

~~64.5~~

~~65.7~~

~~(1.2)~~

~~65.1~~

~~65.7~~

~~(0.6)~~

~~Uninsured~~

~~0.8~~

~~0.3~~

~~0.5~~

~~1.0~~

~~0.2~~

~~0.8~~

~~Indemnity and other~~

~~4.4~~

~~4.8~~

~~(0.4)~~

~~5.0~~

~~4.5~~

~~0.5~~


	Three Months Ended March 31,
Net Patient Service Revenues Less Implicit Price Concessions from:	2021		2020		Increase (Decrease)(1)
Medicare	18.8	%	19.9	%	(1.1)	%
Medicaid	7.1	%	7.9	%	(0.8)	%
Managed care(2)	68.0	%	65.6	%	2.4	%
Uninsured	1.3	%	1.1	%	0.2	%
Indemnity and other	4.8	%	5.5	%	(0.7)	%



(1)			The change is the difference between the ~~2020~~2021 and ~~2019~~2020 percentages shown.
(2)			Includes Medicare and Medicaid managed care programs.

Our payer mix on an admissions basis for our hospitals and related outpatient facilities, expressed as a percentage of total admissions from all sources, is shown below:

Three Months Ended
June 30,

Six Months Ended
June 30,

~~Admissions from:~~

~~2020~~

~~2019~~

~~Increase (Decrease)(1)~~

~~2020~~

~~2019~~

~~Increase (Decrease)(1)~~

~~Medicare~~

~~22.5~~

~~24.8~~

~~(2.3)~~

~~23.6~~

~~25.5~~

~~(1.9)~~

~~Medicaid~~

~~6.4~~

~~6.1~~

~~0.3~~

~~6.2~~

~~6.1~~

~~0.1~~

~~Managed care(2)~~

~~61.5~~

~~60.3~~

~~1.2~~

~~61.0~~

~~60.0~~

~~1.0~~

~~Charity and uninsured~~

~~6.8~~

~~6.1~~

~~0.7~~

~~6.4~~

~~5.8~~

~~0.6~~

~~Indemnity and other~~

~~2.8~~

~~2.7~~

~~0.1~~

~~2.8~~

~~2.6~~

~~0.2~~


	Three Months Ended March 31,
Admissions from:	2021		2020		Increase (Decrease)(1)
Medicare	21.4	%	24.5	%	(3.1)	%
Medicaid	5.7	%	6.0	%	(0.3)	%
Managed care(2)	63.7	%	60.7	%	3.0	%
Charity and uninsured	6.0	%	6.0	%	—	%
Indemnity and other	3.2	%	2.8	%	0.4	%



(1)			The change is the difference between the ~~2020~~2021 and ~~2019~~2020 percentages shown.
(2)			Includes Medicare and Medicaid managed care programs.

GOVERNMENT PROGRAMS

The Centers for Medicare and Medicaid Services (“CMS”), an agency of the U.S. Department of Health and Human Services (“HHS”), is the single largest payer of healthcare services in the United States. Approximately 61 million individuals rely on healthcare benefits through Medicare, and approximately 7279 million individuals are enrolled in Medicaid and the Children’s Health Insurance Program (“CHIP”). These three programs are authorized by federal law and administered by CMS. Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, as well as some younger people with certain disabilities and conditions, and is provided without regard to income or assets. Medicaid is co-administered by the states and is jointly funded by the federal government and state governments. Medicaid is the nation’s main public health insurance program for people with low incomes and is the largest source of health coverage in the United States. The CHIP, which is also co-administered by the states and jointly funded, provides health coverage to children in families with incomes too high to qualify for Medicaid, but too low to afford private coverage. Unlike Medicaid, the CHIP is limited in duration and requires the enactment of reauthorizing legislation. ~~During~~Funding for the ~~three months ended March 31, 2018, separate pieces of legislation were enacted extending~~ CHIP ~~funding for a total of 10 years from~~has been reauthorized through federal fiscal year (“FFY”) ~~2018 (which began on October 1, 2017) through FFY~~ 2027.

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Medicare

Medicare offers its beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan (which includes “Part A” and “Part B”), is a fee-for-service (“FFS”) payment system. The other option, called Medicare Advantage (sometimes called “Part C” or “MA Plans”), includes health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), private ~~fee-for-service~~FFS Medicare special needs plans and Medicare medical savings account plans. ~~The major components of our~~Our total net patient service revenues from continuing operations of the hospitals and related outpatient

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facilities in our Hospital Operations segment for services provided to patients enrolled in the Original Medicare Plan for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 were $688 million and ~~2019 are set forth in the following table:~~$705 million, respectively.

Three Months Ended
June 30, Six Months Ended
June 30,
Revenue Descriptions 2020 2019 2020 2019
Medicare severity-adjusted diagnosis-related group — operating $ 312 $ 368 $ 702 $ 772
Medicare severity-adjusted diagnosis-related group — capital 26 32 61 68
Outliers 13 22 32 45
Outpatient 128 185 302 375
Disproportionate share 52 58 106 117
Other(1)
66 56 99 102
Total Medicare net patient service revenues $ 597 $ 721 $ 1,302 $ 1,479



~~(1)~~			The other revenue category includes Medicare Direct Graduate Medical Education and Indirect Medical Education (“IME”) revenues, IME revenues earned by our children’s hospital under the Children’s Hospitals Graduate Medical Education Payment Program administered by the Health Resources and Services Administration of HHS, inpatient psychiatric units, inpatient rehabilitation units, other revenue adjustments, and adjustments to the estimates for current and prior-year cost reports and related valuation allowances.

A general description of the types of payments we receive for services provided to patients enrolled in the Original Medicare Plan is provided in our Annual Report. Recent regulatory and legislative updates to the terms of these payment systems and their estimated effect on our revenues can be found under “Regulatory and Legislative Changes” below.

Medicaid

Medicaid programs and the corresponding reimbursement methodologies vary from ~~state to state~~state-to-state and from ~~year to~~ year‑to‑year. Estimated revenues under various state Medicaid programs, including state-funded Medicaid managed care programs, constituted approximately 18.2% and 18.9% of total net patient service revenues less implicit price concessions of our acute care hospitals and related outpatient facilities for the six months ended June 30, 2020 and 2019, respectively. We also receive disproportionate share hospital (“DSH”) and other supplemental revenues under various state Medicaid programs. For the six months ended June 30, 2020 and 2019, our total Medicaid revenues attributable to DSH and other supplemental revenues were approximately $363 million and $414 million, respectively. The 2020 period included $117 million related to the California provider fee program, $101 million related to the Michigan provider fee program, $90 million related to Medicaid DSH programs in multiple states, $29 million related to the Texas 1115 waiver program, and $26 million from a number of other state and local programs.

Even prior to the COVID-19 pandemic, several states in which we operate faced budgetary challenges that resulted in reduced Medicaid funding levels to hospitals and other providers. Because most states must operate with balanced budgets, and the Medicaid program is generally a significant portion of a state’s budget, states can be expected to adopt or consider adopting future legislation designed to reduce or not increase their Medicaid expenditures. In addition, some states delay issuing Medicaid payments to providers to manage state expenditures. As an alternative means of funding provider payments, many of the states in which we operate have adopted supplemental payment programs authorized under the Social Security Act. Continuing pressure on state budgets and other factors could adversely affect the Medicaid supplemental payments our hospitals receive.

Estimated revenues under various state Medicaid programs, including state-funded Medicaid managed care programs, constituted approximately 16.9% and 18.1% of total net patient service revenues less implicit price concessions of our acute care hospitals and related outpatient facilities for the three months ended March 31, 2021 and 2020, respectively. We also receive disproportionate share hospital (“DSH”) and other supplemental revenues under various state Medicaid programs. For the three months ended March 31, 2021 and 2020, our total Medicaid revenues attributable to DSH and other supplemental revenues were approximately $180 million and $182 million, respectively. The 2021 period included $46 million related to the California provider fee program, $62 million related to the Michigan provider fee program, $33 million related to Medicaid DSH programs in multiple states, $6 million related to the Texas Section 1115 waiver program, and $33 million from a number of other state and local programs.

Total Medicaid and Managed Medicaid net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment from Medicaid-related programs in the states in which our facilities are located, as well as from Medicaid programs in neighboring states, for the three months ended March 31, 2021 and 2020 were $617 million and $641 million, respectively. These revenues are presented net of provider taxes or assessments paid by our hospitals, which are reported as an offset reduction to FFS Medicaid revenue.

Medicaid and Managed Medicaid revenues comprised 42% and 58%, respectively, of our Medicaid-related net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment for the three months ended March 31, 2021.

Because we cannot predict what actions the federal government or the states may take under existing or future legislation and/or regulatory changes to address budget gaps, deficits, Medicaid expansion, provider fee programs or Medicaid Section 1115 waivers, we are unable to assess the effect that any such legislation or regulatory action might have on our business; however, the impact on our future financial position, results of operations or cash flows could be material.

Medicaid and Managed Medicaid net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment from Medicaid-related programs in the states in which our facilities are (or were, as the case may be) located, as well as from Medicaid programs in neighboring states, for the six months ended June 30, 2020 and 2019 are set forth in the following table. These revenues are presented net of provider taxes or assessments paid by our hospitals, which are reported as an offset reduction to fee-for-service Medicaid revenue.

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Six Months Ended
June 30,
Hospital Location 2020 2019
Alabama $ 50 $ 46
Arizona 81 72
California 383 441
Florida 98 111
Illinois — 5
Massachusetts 42 44
Michigan 272 361
South Carolina 30 28
Tennessee 17 18
Texas 188 222
$ 1,161 $ 1,348

Medicaid and Managed Medicaid revenues comprised 47% and 53%, respectively, of our Medicaid-related net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment for the six months ended June 30, 2020.

Regulatory and Legislative Changes

Material updates to the information set forth in our Annual Report about the Medicare and Medicaid payment systems, as well as other government programs impacting our business, are provided below.

Proposed Payment and Policy Changes to the Medicare Inpatient Prospective Payment ~~Systems~~

Systems—

Section 1886(d) of the Social Security Act requires CMS to update inpatient ~~fee-for-service~~FFS payment rates for hospitals reimbursed under the ~~Inpatient Prospective Payment System~~inpatient prospective payment systems (“IPPS”) annually. The updates generally become effective October 1, the beginning of the

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federal fiscal year. In ~~May 2020,~~April 2021, CMS issued ~~the~~ proposed ~~Changes~~changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year ~~2021~~2022 Rates (“Proposed IPPS Rule”). The Proposed IPPS Rule includes the following proposed payment and policy changes:

•A market basket increase of ~~3.0%~~2.5% for Medicare severity-adjusted diagnosis-related group (“MS-DRG”) operating payments for hospitals reporting specified quality measure data and that are meaningful users of electronic health record technology; CMS also proposed ~~certain adjustments to~~a 0.2% multifactor productivity reduction required by the ~~3.0% market basket~~ACA and a 0.5% increase required by the Medicare Access and CHIP Reauthorization Act that collectively result in a net operating payment update of ~~3.1% (before~~2.8% before budget neutrality ~~adjustments), including:~~

•~~A multifactor productivity reduction required by the ACA of 0.4%; and~~

•~~A 0.5% increase required under the Medicare Access and CHIP Reauthorization Act of 2015;~~adjustments;

•Updates to the three factors used to determine the amount and distribution of Medicare uncompensated care disproportionate share (“UC-DSH”) payments;

•A ~~1.3%~~1.22% net increase in the capital federal MS-DRG rate; ~~and~~

•An increase in the cost outlier threshold from ~~$26,552~~$29,064 to ~~$30,006.~~$30,967;

•An extension of the New COVID-19 Treatments Add-on Payment for certain eligible products through the end of the FFY in which the public health emergency as declared by the Secretary of HHS ends; and

•The establishment of new requirements and the revision of existing requirements for the Hospital Value-Based Purchasing, Hospital Readmissions Reduction and Hospital Acquired Condition Reduction programs.

According to CMS, the combined impact of the proposed payment and policy changes in the Proposed IPPS Rule for operating costs will yield an average ~~2.5%~~2.7% increase in Medicare operating MS-DRG ~~fee-for-service (“FFS”)~~FFS payments for hospitals in ~~large~~ urban areas ~~(populations over one million),~~ and an average ~~2.6%~~2.8% increase in ~~operating MS-DRG FFS~~such payments for proprietary hospitals in FFY ~~2021.~~2022. We estimate that all of the proposed payment and policy changes affecting operating MS-DRG and UC-DSH payments will result in an estimated ~~0.7%~~1.6% increase in our annual Medicare FFS IPPS payments, which yields an estimated increase of approximately ~~$14~~$32 million. Because of the uncertainty associated with various factors that may influence our future IPPS payments by individual hospital, including legislative, regulatory or legal actions, admission volumes, length of stay and case mix, as well as ~~the~~ potential changes to the ~~proposed rule,~~Proposed IPPS Rule, we cannot provide any assurances regarding our ~~estimate~~estimates of the impact of the proposed payment and policy changes.

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Historically, CMS has used charges reduced to cost to set the relative weights assigned to each MS-DRG. In the Proposed IPPS Rule, CMS expressed a concern that chargemaster rates rarely reflect the true market costs. In order to reduce its reliance on the hospital chargemaster, CMS proposed that, beginning in 2021, hospitals be required to report in the annual cost report the median payer-specific negotiated charge that the hospital has negotiated with all of its Medicare Advantage and third-party payers by MS-DRG. This information may potentially be used to set the IPPS MS-DRG relative weights in FFY 2024. This proposal is in addition to the pricing transparency requirements effective January 1, 2021 in the hospital price transparency final rule issued on November 27, 2019 that was recently upheld by a Federal District Court and is now before the U.S. Court of Appeals for the District of Columbia.

~~The Coronavirus Aid, Relief, and Economic Security Act of 2020 and Related Legislation~~

~~The CARES Actand the Paycheck Protection Program and Health Care Enhancement Act (“Paycheck Protection Program”), which was signed into law on April 24, 2020,~~ authorized up to $2 trillion in government spending to mitigate the economic effects of the COVID-19 pandemic. Below is a brief overview of certain provisions of the CARES Act and related legislation that have impacted and we expect will continue to impact our business. Please note that this summary is not exhaustive, and additional legislative action and regulatory developments may evolve rapidly. There is no assurance that we will continue to receive or remain eligible for funding or assistance under the CARES Act or similar measures. Statements regarding the projected impact of COVID-19 relief programs on our operations and financial condition are forward-looking and are made as of the date of this filing.

Public Health and Social Services Emergency ~~Fund.~~ Fund~~To address the fiscal burdens on healthcare providers created by the COVID-19 public health emergency, the CARES Act and the Paycheck Protection Program authorized $175 billion for the Relief Fund.~~ —During the three months ended ~~June 30, 2020, HHS commenced distribution~~March 31, 2021, our Hospital Operations and Ambulatory Care segments recognized approximately $24 million of ~~approximately $100 billion in several tranches from the~~Provider Relief Fund ~~to providers, including:~~

•~~A $50 billion general distribution to Medicare fee-for-service providers;~~

•~~An allocation of approximately $15 billion to Medicaid and CHIP providers that did not receive an allocation from the $50 billion general distribution;~~

•Targeted distributions comprised of (i) $12 billion for hospitals determined to be in areas particularly impacted by COVID-19 based on reported COVID-19 admissions, (ii) $10 billion to rural healthcare providers, (iii) $5 billion to skilled nursing facilities, (iv) $10 billion to safety net hospitals and (v) $500 million to tribal hospitals, clinics and urban health centers.

In July 2020, HHS announced the distribution of an additional $4 billion ($1 billion to rural hospitals and $3 billion to safety net hospitals) and the expansion of the Relief Fund to dental providers.

Payments from the Relief Fund are not loans and, therefore, they are not subject to repayment. However, as a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used forgrant income associated with lost ~~operating~~ revenues and COVID-related ~~costs, and that the providers will not seek collection~~costs. We recognized an additional $6 million of out-of-pocket payments from a COVID-19 patient that are greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network provider. Furthermore, HHS has indicated that it will be closely monitoring and, along with the Office of Inspector General, auditing providers to ensure that recipients comply with the terms and conditions of relief programs and to prevent fraud and abuse. All providers will be subject to civil and criminal penalties for any deliberate omissions, misrepresentations or falsifications of any information given to HHS. Except for certain immaterialProvider Relief Fund ~~payments we returned to HHS, we have formally accepted the terms~~grant income from our unconsolidated affiliates during this period. Our Hospital Operations and ~~conditions associated with the receipt~~Ambulatory Care segments also recognized $7 million of ~~Relief Fund payments we have received.~~

~~During~~grant income from state and local grant programs during the three months ended ~~June 30, 2020, we~~March 31, 2021. Grant income recognized ~~approximately $508 million~~by our Hospital Operations and ~~$12 million of Relief Fund income included~~Ambulatory Care segments was presented in grant income and grant income recognized through our unconsolidated affiliates was presented in equity in earnings of unconsolidated affiliates ~~respectively,~~ in our accompanying Condensed Consolidated ~~Statements~~Statement of Operations ~~associated with~~for the three months ended March 31, 2021. Based on the uncertainty regarding future estimates of lost ~~operating~~ revenues and COVID-related ~~costs. Additionally,~~costs or the impact of further updates to HHS guidance, if any, we ~~recognized $3 million~~cannot provide any assurances regarding the amount of grant income ~~from state grant programs included~~to be recognized in ~~grant income in our accompanying Condensed Consolidated Statements of Operations associated with lost operating revenues and COVID-related costs.~~the future.

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Medicare and Medicaid Payment Policy ~~Changes.~~ ChThe CARES Act also alleviates some of the financial strain on hospitals, physicians, and other healthcare providers and states through a series Medicare and Medicaid payment policies that temporarily increase Medicare and Medicaid reimbursement and allow for added flexibility, as described below.anges

•—Effective May 1, ~~2020 through December 31,~~ 2020, the 2% sequestration reduction on Medicare FFS and Medicare Advantage payments to hospitals, physicians and other providers ~~authorized by~~was suspended, but it had been scheduled to resume on April 1, 2021. On April 14, 2021, President Biden signed H.R. 1868, which included an extension of the ~~Sequestration Transparency Act~~suspension of ~~2020 is suspended and will resume effective January~~the 2% sequestration reduction through December 31, 2021. The ~~estimated~~ impact of ~~this change~~the suspension on our operations ~~is an increase of approximately~~ ~~$67 million~~ ~~of revenues in 2020. The suspension is financed by a one-year extension of the sequestration adjustment through 2030.~~

•~~The CARES Act instituted a 20% increase in the Medicare MS-DRG payment for COVID-19 hospital admissions for the duration of the public health emergency as declared by the Secretary of HHS.~~

•The scheduled reduction of $4 billion in federal Medicaid DSH allotments in FFY 2020, as mandated by the Affordable Care Act, is suspended until December 1, 2020. The projected impact of this change on our operations iswas an increase of approximately ~~$60~~$20 million of revenues in ~~2020, which is not subject to repayment. Also,~~ the federal DSH allotment reduction for FFY 2021 will be reduced from $8 billion to $4 billion. Notwithstanding these adjustments, the ACA-mandated reduction is not expected to be extended past its original termination in FFY 2025.

•The CARES Act expanded the Medicare accelerated payment program, which provides prepayment of claims to providers in certain circumstances, such as national emergencies or natural disasters. Under this measure, providers could request accelerated payments that may be retained for 120 days during which time providers continue to receive payments for services. At the end of the 120-period, the accelerated payment will be repaid via a 100% offset of payments on claims that would otherwise be paid. The repayment period for hospitals and other providers is one year and 210 days, respectively, from the date of receipt of the accelerated payment, after which interest is assessed on the unpaid balance. During the sixthree months ended ~~June 30, 2020, our hospitals and other providers applied~~March 31, 2021. We expect the suspension to result in an increase of approximately $80 million of revenues for ~~and received approximately $1.5 billion of accelerated payments.~~

•the year ending A 6.2% increase in the Federal Medical Assistance Percentage (“FMAP”) matching funds was instituted to help states respond to the COVID-19 pandemic. The additional funds are available to states from January 1, 2020 through the quarter in which the public health emergency period ends, provided that states meet certain conditions. An increase in states’ FMAP leverages December 31, 2021~~Medicaid’s existing financing structure,~~ which allows federal funds to be provided to states more quickly and efficiently than establishing a new program or allocating money from a new funding stream. Increased federal matching funds support states in responding to the increased need for services, such as testing and treatment during the COVID-19 public health emergency, as well as ~~increased enrollment~~ ~~as more people lose income and qualify for Medicaid during the economic downturn.~~

. Because of the uncertainty associated with various factors that may influence our future Medicare and Medicaid payments, including future legislative, legal or regulatory actions, or changes in volumes and case mix, there is a risk that ~~our estimates of the impact of the aforementioned payment and policy changes will be incorrect and that~~ actual payments received under, or the ultimate impact of, these programs will differ materially from our expectations.

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The American Rescue Plan Act of 2021—During the three months ended March 31, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (“ARPA”), a $1.9 trillion COVID-19 relief package, which includes a number of provisions that affect hospitals and health systems, specifically:

~~Tax Changes.~~ •~~Beginning March 27, 2020, all employers may elect~~Additional funding for rural health care providers for COVID-19 relief;

•An incentive for states that have not already done so to ~~defer payment~~expand Medicaid by temporarily increasing each respective state’s Federal Medical Assistance Percentage for their base program by five percentage points for two years;

•Federal subsidies valued at 100% of the ~~6.2% employer Social Security tax~~health insurance premium for eligible individuals and families to remain on their employer-based coverage through ~~December 31, 2020. Deferred tax amounts are required to be paid in equal amounts over two years, with payments due in December 2021~~September 30, 2021;

•Additional COVID-19 funding for vaccines, treatment, PPE, testing, contact tracing and December 2022. We expect that we will defer approximately $250 million of taxes in 2020 pursuant to this CARES Act provision. In addition, the CARES Act increases the interest expense deduction limitation from 30% of adjusted taxable income to 50% of adjusted taxable income for the 2019workforce development; and 2020 tax years, allowing businesses to take a larger deduction. This change is expected to increase our federal tax net operating loss (“NOL”) carryforwards into future years, as further described in Note 14

•Funding to the ~~accompanying Condensed Consolidated Financial Statements.~~Department of Labor for worker protection activities.

Significant Litigation

340B Litigation

The 340B program allows certain hospitals (i.e., only nonprofit organizations with specific federal designations and/or funding) (“340B Hospitals”) to purchase ~~separately payable~~ drugs at discounted rates from drug manufacturers. In the final rule regarding Hospital Outpatient Prospective Payment System (“OPPS”) payment and policy changes for calendar year (“CY”) 2018, CMS reduced the payment for 340B Drugs from the average sale price (“ASP”) plus 6% to ASP minus 22.5% and made a corresponding ~~budget-neutral~~budget‑neutral increase to payments to all hospitals for other drugs and services reimbursed under the OPPS (the “340B Payment Adjustment”). In the final rules regarding OPPS payment and policy changes for CYs 2019, 2020 and ~~2020,~~2021, CMS

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continued the 340B Payment Adjustment. Certain hospital associations and hospitals commenced litigation challenging CMS’ authority to impose the 340B Payment Adjustment for CYs 2018, 2019 and 2020. ~~During the three months ended June 30, 2019,~~Previously, the U.S. District Court for the District of Columbia (the “District Court”) held that the adoption of the 340B Payment Adjustment in the CYCYs 2018 and 2019 OPPS Final ~~Rule~~Rules exceeded CMS’ statutory authority by reducing drug reimbursement rates for 340B Hospitals. This holding followed the District Court’s December 2018 conclusion that HHS exceeded its statutory authority in reducing the CY 2018 OPPS for the 340B Payment Adjustment. The District Court did not grant a permanent injunction to the 340B Payment Adjustment, nor did it vacate the 2018 and 2019 rules. Also duringDuring the three months ended June 30, 2019, the District Court issued a Memorandum Opinion granting HHS’ motion for entry of final judgment, thus allowing HHS to proceed with a pending appeal of the District Court’s rulings atSeptember 2020, the U.S. Court of Appeals for the District of Columbia Circuit (the ~~“Circuit~~“Appeals Court”)~~. On July 31, 2020, a three-judge panel of the Circuit Court~~ reversed the District Court’s holding, finding that HHS’ decision to reduce the payment rate for 340B Drugs was based on a reasonable interpretation of the Medicare statute. The Appeals Court subsequently denied the 340B Hospital’s petition for a rehearing. During the three months ended March 31, 2021, the 340B Hospitals filed a timely petition asking the U.S. Supreme Court (“Supreme Court”) to reverse the Appeals Court’s decision. We cannot predict whether the Supreme Court will agree to review the Appeals Court’s decision or what further actions ~~the plaintiff hospital associations and hospitals will~~CMS or Congress might take orwith respect to the ~~ultimate outcome of the litigation relating to CMS’~~ 340B program; however, ~~an unfavorable outcome~~a reversal of the ~~litigation~~current payment policy and return to the prior 340B payment methodology could have an adverse effect on ~~the Company’s~~our net operating revenues and cash flows.

PRIVATE INSURANCE

Managed Care

We currently have thousands of managed care contracts with various HMOs and PPOs. HMOs generally maintain a full-service healthcare delivery network comprised of physician, hospital, pharmacy and ancillary service providers that HMO members must access through an assigned “primary care” physician. The member’s care is then managed by his or her primary care physician and other network providers in accordance with the HMO’s quality assurance and utilization review guidelines so that appropriate healthcare can be efficiently delivered in the most cost-effective manner. HMOs typically provide reduced benefits or reimbursement (or none at all) to their members who use non-contracted healthcare providers for non-emergency care.

PPOs generally offer limited benefits to members who use non-contracted healthcare providers. PPO members who use contracted healthcare providers receive a preferred benefit, typically in the form of lower co-pays, co-insurance or deductibles. As employers and employees have demanded more choice, managed care plans have developed hybrid products that combine elements of both HMO and PPO plans, including high-deductible healthcare plans that may have limited benefits, but cost the employee less in premiums.

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The amount of our managed care net patient service revenues, including Medicare and Medicaid managed care programs, from our hospitals and related outpatient facilities during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ was ~~$4.145~~$2.480 billion and ~~$4.684~~$2.321 billion, respectively. Our top ~~ten~~10 managed care payers generated 61% of our managed care net patient service revenues for the ~~six~~three months ended ~~June 30, 2020. National~~March 31, 2021. During the same period, national payers generated ~~44%~~43% of our managed care net patient service ~~revenues for the six months ended June 30, 2020.~~revenues. The remainder ~~comes~~came from regional or local payers. At ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019, 60%~~2020, 65% and ~~65%~~66%, respectively, of our net accounts receivable for our Hospital Operations segment were due from managed care payers.

Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted ~~fee-for-service~~FFS rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient’s bill is subject to adjustment on a ~~patient-by-patient~~patient‑by‑patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. We believe it is reasonably likely for there to be an approximately 3% increase or decrease in the estimated contractual allowances related to managed care plans. Based on reserves at ~~June 30, 2020,~~March 31, 2021, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately ~~$15~~$17 million. Some of the factors that can contribute to changes in the contractual allowance estimates include: (1) changes in reimbursement levels for procedures, supplies and drugs when threshold levels are triggered; (2) changes in reimbursement levels when stop-loss or outlier limits are reached; (3) changes in the admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (4) final coding of in-house and ~~discharged-not-final-billed~~discharged‑not‑final‑billed patients that change reimbursement levels; (5) secondary benefits determined after primary insurance payments; and (6) reclassification of patients among insurance plans with different coverage and payment levels. Contractual allowance estimates are periodically reviewed for accuracy by taking into consideration known contract terms, as well as payment history. We believe our estimation and review process enables us to identify instances on a timely basis where such estimates need to be revised. We do

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not believe there were any adjustments to estimates of patient bills that were material to our revenues. In addition, on a corporate-wide basis, we do not record any general provision for adjustments to estimated contractual allowances for managed care plans. Managed care accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for these payers and other factors that affect the estimation process.

We expect managed care governmental admissions to continue to increase as a percentage of total managed care admissions over the near term. However, the managed Medicare and Medicaid insurance plans typically generate lower yields than commercial managed care plans, which have been experiencing an improved pricing trend. Although we have benefited from solid year-over-year aggregate managed care pricing improvements for ~~several years,~~some time, we have seen these improvements moderate in recent years, and we believe ~~the~~this moderation could continue ~~in future years.~~into the future. In the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, our commercial managed care net inpatient revenue per admission from the hospitals in our Hospital Operations segment was approximately ~~93%~~85% higher than our aggregate yield on a per admission basis from government payers, including managed Medicare and Medicaid insurance plans.

Indemnity

An indemnity-based agreement generally requires the insurer to reimburse an insured patient for healthcare expenses after those expenses have been incurred by the patient, subject to policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her utilization of healthcare and selection of healthcare providers.

UNINSURED PATIENTS

Uninsured patients are patients who do not qualify for government programs payments, such as Medicare and Medicaid, do not have some form of private insurance and, therefore, are responsible for their own medical bills. A significant number of our uninsured patients are admitted through our hospitals’ emergency departments and often require high-acuity treatment that is more costly to provide and, therefore, results in higher billings, which are the least collectible of all accounts.

Self-pay accounts receivable, which include amounts due from uninsured patients, as well as co-pays, co-insurance amounts and deductibles owed to us by patients with insurance, pose significant collectability problems. At both ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, approximately 4% of our net accounts receivable for our Hospital Operations segment was self-pay. Further, a significant portion of our implicit price concessions relates to self-pay amounts. We provide revenue cycle management services through Conifer, which is subject to various statutes and regulations regarding consumer protection

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in areas including finance, debt collection and credit reporting activities. For additional information, see Item 1, Business — Regulations Affecting Conifer’s Operations, of Part I of our Annual Report.

Conifer has performed systematic analyses to focus our attention on the drivers of bad debt expense for each hospital. While emergency department use is the primary contributor to our implicit price concessions in the aggregate, this is not the case at all hospitals. As a result, we have increased our focus on targeted initiatives that concentrate on non-emergency department patients as well. These initiatives are intended to promote process efficiencies in collecting self-pay accounts, as well as co-pay, co-insurance and deductible amounts owed to us by patients with insurance, that we deem highly collectible. We leverage a statistical-based collections model that aligns our operational capacity to maximize our collections performance. We are dedicated to modifying and refining our processes as needed, enhancing our technology and improving staff training throughout the revenue cycle process in an effort to increase collections and reduce accounts receivable.

Over the longer term, several other initiatives we have previously announced should also help address ~~this challenge.~~the challenges associated with serving uninsured patients. For example, our Compact with Uninsured Patients (“Compact”) is designed to offer managed care-style discounts to certain uninsured patients, which enables us to offer lower rates to those patients who historically had been charged standard gross charges. Under the Compact, the discount offered to uninsured patients is recognized as a contractual allowance, which reduces net operating revenues at the time the self-pay accounts are recorded. The uninsured patient accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for self-pay accounts and other factors that affect the estimation process.

We also provide financial assistance through our charity and uninsured discount programs to uninsured patients who are unable to pay for the healthcare services they receive. Our policy is not to pursue collection of amounts determined to qualify for financial assistance; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital’s eligibility for Medicaid DSH payments. These payments are intended to mitigate our cost of uncompensated care. Some states have also developed provider fee or other supplemental payment programs to mitigate the shortfall of Medicaid reimbursement compared to the cost of caring for Medicaid patients.

~~Table~~The initial expansion of ~~Contents~~

health insurance coverage under the Affordable Care Act resulted in an increase in the number of patients using our facilities with either health insurance exchange or government healthcare insurance program coverage. However, we continue to have to provide uninsured discounts and charity care due to the failure of states to expand Medicaid coverage and for persons living in the country who are not permitted to enroll in a health insurance exchange or government healthcare insurance program.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Estimated costs for:	Estimated costs for:									Estimated costs for:
Uninsured patients	Uninsured patients	$	145	$	164	$	301	$	322	Uninsured patients	$	168	$	156
Charity care patients	Charity care patients	43		41		83		75		Charity care patients	20		40
Total	Total	$	188	$	205	$	384	$	397	Total	$	188	$	196

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RESULTS OF OPERATIONS

The following two tables summarize our consolidated net operating revenues, operating expenses and operating income from continuing operations, both in dollar amounts and as percentages of net operating revenues, for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020. We present metrics as a percentage of net operating revenues because a significant portion of our costs are variable.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net operating revenues:	Net operating revenues:									Net operating revenues:
Hospital Operations	Hospital Operations	$	3,088	$	3,827	$	6,922	$	7,689	Hospital Operations	$	3,947	$	3,834
Ambulatory Care	Ambulatory Care	368		524		858		1,004		Ambulatory Care	646		490
Conifer	Conifer	305		355		637		704		Conifer	310		332
Inter-segment eliminations	Inter-segment eliminations	(113)		(146)		(249)		(292)		Inter-segment eliminations	(122)		(136)
Net operating revenues	Net operating revenues	3,648		4,560		8,168		9,105		Net operating revenues	4,781		4,520
Grant income	Grant income	511		—		511		—		Grant income	31		—
Equity in earnings of unconsolidated affiliates	Equity in earnings of unconsolidated affiliates	31		42		59		76		Equity in earnings of unconsolidated affiliates	42		28
Operating expenses:	Operating expenses:									Operating expenses:
Salaries, wages and benefits	Salaries, wages and benefits	1,864		2,145		4,051		4,296		Salaries, wages and benefits	2,201		2,187
Supplies	Supplies	611		753		1,374		1,494		Supplies	804		763
Other operating expenses, net	Other operating expenses, net	983		1,035		1,996		2,100		Other operating expenses, net	1,072		1,013
Depreciation and amortization	Depreciation and amortization	206		214		409		422		Depreciation and amortization	224		203
Impairment and restructuring charges, and acquisition-related costs	Impairment and restructuring charges, and acquisition-related costs	54		36		109		55		Impairment and restructuring charges, and acquisition-related costs	20		55
Litigation and investigation costs	Litigation and investigation costs	2		18		4		31		Litigation and investigation costs	13		2
Net losses (gains) on sales, consolidation and deconsolidation of facilities		(1)		1		(3)		2
Net gains on sales, consolidation and deconsolidation of facilities										Net gains on sales, consolidation and deconsolidation of facilities	—		(2)
Operating income	Operating income	$	471	$	400	$	798	$	781	Operating income	$	520	$	327


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Net operating revenues	Net operating revenues	100.0	%	100.0	%	100.0	%	100.0	%	Net operating revenues	100.0	%	100.0	%
Grant income	Grant income	14.0	%	—	%	6.2	%	—	%	Grant income	0.6	%	—	%
Equity in earnings of unconsolidated affiliates	Equity in earnings of unconsolidated affiliates	0.8	%	0.9	%	0.7	%	0.8	%	Equity in earnings of unconsolidated affiliates	0.9	%	0.6	%
Operating expenses:	Operating expenses:									Operating expenses:
Salaries, wages and benefits	Salaries, wages and benefits	51.1	%	47.0	%	49.6	%	47.2	%	Salaries, wages and benefits	46.0	%	48.4	%
Supplies	Supplies	16.7	%	16.5	%	16.8	%	16.4	%	Supplies	16.8	%	16.9	%
Other operating expenses, net	Other operating expenses, net	26.9	%	22.7	%	24.4	%	23.1	%	Other operating expenses, net	22.4	%	22.4	%
Depreciation and amortization	Depreciation and amortization	5.6	%	4.7	%	5.0	%	4.6	%	Depreciation and amortization	4.7	%	4.5	%
Impairment and restructuring charges, and acquisition-related costs	Impairment and restructuring charges, and acquisition-related costs	1.5	%	0.8	%	1.3	%	0.6	%	Impairment and restructuring charges, and acquisition-related costs	0.4	%	1.2	%
Litigation and investigation costs	Litigation and investigation costs	0.1	%	0.4	%	—	%	0.3	%	Litigation and investigation costs	0.3	%	—	%
Net gains on sales, consolidation and deconsolidation of facilities	Net gains on sales, consolidation and deconsolidation of facilities	—	%	—	%	—	%	—	%	Net gains on sales, consolidation and deconsolidation of facilities	—	%	—	%
Operating income	Operating income	12.9	%	8.8	%	9.8	%	8.6	%	Operating income	10.9	%	7.2	%

Total net operating revenues ~~decreased~~increased by ~~$912~~$261 million, or ~~20.0%, and decreased by $937 million, or 10.3%~~5.8%, for the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 compared to the three ~~and six~~ months ended ~~June 30, 2019, respectively.~~March 31, 2020. Hospital Operations net operating revenues net of inter-segment eliminations ~~decreased~~ increased by ~~$706~~$127 million, or 3.4%, for the three months ended March 31, 2021 compared to the same period in 2020. These increases were primarily due to higher patient acuity and a more favorable payer mix, partially offset by lower patient volumes in the 2021 period. Our Hospital Operations segment also recognized income from federal, state and local grants totaling $24 million during the three months ended March 31, 2021, which was not included in net operating revenues.

Ambulatory Care net operating revenues increased by $156 million, or 31.8%, for the three months ended March 31, 2021 compared to the prior-year period despite the severe weather impact of Winter Storm Uri in February 2021. The change was driven by an increase in same-facility net operating revenues of $44 million due primarily to higher patient volumes and acuity, incremental revenue from new service lines and improved terms of our managed care contracts, as well as an increase from acquisitions of $118 million. These increases were partially offset by a decrease of $6 million due to the closure or deconsolidation of facilities. Our Ambulatory Care segment also recognized income from federal grants totaling $7 million during the three months ended March 31, 2021, which was not included in net operating revenues.

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~~19.2%, and decreased by $724 million, or 9.8%, for the three and six months ended June 30, 2020, respectively, compared to~~ the three and six months ended June 30, 2019, respectively, primarily due to the negative impact of shelter-in-place orders on patient volumes and the mandated suspension of many elective procedures at our hospitals due to the COVID-19 pandemic. Ambulatory CareConifer’s total net operating revenues decreased by ~~$156 million and $146~~$22 million, or ~~29.8% and 14.5%~~6.6%, for the three ~~and six months~~months ended ~~June 30, 2020, respectively,~~March 31, 2021 compared to the three ~~and six~~ months ended ~~June 30, 2019, respectively.~~March 31, 2020. The ~~change~~ ~~in 2020 revenues for the three-month period~~ ~~was driven by a decrease in same-facility net operating revenues~~portion of $166 million due primarily to the negative impact of shelter-in-place orders on patient volumes and the mandated suspension of many elective procedures due to the COVID-19 pandemic, as well as a decrease of $10 million due to the deconsolidation of a facility. These impacts were partially offset by an increase from acquisitions of $20 million. ~~The change in 2020 revenues for the six-month period was driven~~ by a decrease in same-facility net operating revenues of $157 million due primarily to the negative impact of shelter-in-place orders on patient volumes and the mandated suspension of many elective procedures due to the COVID-19 pandemic, as well as a decrease of $15 million due to the deconsolidation of a facility. These impacts were partially offset by an increase from acquisitions of $26 million. ~~Conifer net operating revenues decreased by $50 million and $67 million, or 14.1% and 9.5%, for the three and six months ended June 30, 2020, respectively, compared to the three and six months ended June 30, 2019, respectively. Conifer~~Conifer’s revenues from third-party customers, which are not eliminated in consolidation, decreased ~~$17 million and $24~~$8 million, or ~~8.1% and 5.8%~~4.1%, for the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 compared to the ~~three and six months ended June 30, 2019, respectively. Conifer revenues from third-party customers were negatively impacted~~same period in 2020. This decrease was primarily attributable to expected client attrition, partially offset by ~~(i) the wind-down and termination of contracts for facilities its clients previously owned then divested, (ii) other client terminations at the end of their contract terms and (iii) the impact~~new business expansion. The remainder of the ~~COVID-19 pandemic on~~decrease in Conifer’s total net operating revenues was primarily driven by the ~~revenue of Conifer's clients.~~revised terms in the Amended RCM Agreement.

The following table shows selected operating expenses of our three reportable business segments. Information for our Hospital Operations segment is presented on a same-hospital basis, which includes the results of our same 65 hospitals operated throughout the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019. Our same-hospital information excludes the results of three Chicago-area hospitals, which we divested effective January 28, 2019.~~2020. We present same-hospital data because we believe it provides investors with useful information regarding the performance of our hospitals and other operations that are comparable for the periods presented.


		Three Months Ended June 30,										Six Months Ended June 30,									Three Months Ended March 31,
Selected Operating Expenses	Selected Operating Expenses	2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)		Selected Operating Expenses	2021		2020		Increase (Decrease)
Hospital Operations — Same-Hospital
Hospital Operations — Same-Hospital:														Hospital Operations — Same-Hospital:
Salaries, wages and benefits	Salaries, wages and benefits	$	1,580	$	1,802	(12.3)	%	$	3,426	$	3,598	(4.8)	%	Salaries, wages and benefits	$	1,857	$	1,846	0.6	%
Supplies	Supplies	530		644		(17.7)	%	1,181		1,281		(7.8)	%	Supplies	646		651		(0.8)	%
Other operating expenses	Other operating expenses	841		882		(4.6)	%	1,711		1,791		(4.5)	%	Other operating expenses	916		870		5.3	%
Total	Total	$	2,951	$	3,328	(11.3)	%	$	6,318	$	6,670	(5.3)	%	Total	$	3,419	$	3,367	1.5	%
Ambulatory Care
Ambulatory Care:														Ambulatory Care:
Salaries, wages and benefits	Salaries, wages and benefits	$	119	$	157	(24.2)	%	$	281	$	310	(9.4)	%	Salaries, wages and benefits	$	174	$	162	7.4	%
Supplies	Supplies	79		108		(26.9)	%	191		207		(7.7)	%	Supplies	157		112		40.2	%
Other operating expenses	Other operating expenses	75		86		(12.8)	%	161		168		(4.2)	%	Other operating expenses	103		86		19.8	%
Total	Total	$	273	$	351	(22.2)	%	$	633	$	685	(7.6)	%	Total	$	434	$	360	20.6	%
Conifer
Conifer:														Conifer:
Salaries, wages and benefits	Salaries, wages and benefits	$	165	$	187	(11.8)	%	$	344	$	372	(7.5)	%	Salaries, wages and benefits	$	170	$	179	(5.0)	%
Supplies	Supplies	1		1		—	%	2		2		—	%	Supplies	1		1		—	%
Other operating expenses	Other operating expenses	66		64		3.1	%	131		128		2.3	%	Other operating expenses	53		65		(18.5)	%
Total	Total	$	232	$	252	(7.9)	%	$	477	$	502	(5.0)	%	Total	$	224	$	245	(8.6)	%
Total
Total:														Total:
Salaries, wages and benefits	Salaries, wages and benefits	$	1,864	$	2,146	(13.1)	%	$	4,051	$	4,280	(5.4)	%	Salaries, wages and benefits	$	2,201	$	2,187	0.6	%
Supplies	Supplies	610		753		(19.0)	%	1,374		1,490		(7.8)	%	Supplies	804		764		5.2	%
Other operating expenses	Other operating expenses	982		1,032		(4.8)	%	2,003		2,087		(4.0)	%	Other operating expenses	1,072		1,021		5.0	%
Total	Total	$	3,456	$	3,931	(12.1)	%	$	7,428	$	7,857	(5.5)	%	Total	$	4,077	$	3,972	2.6	%
Rent/lease expense(1)
Rent/lease expense(1):														Rent/lease expense(1):
Hospital Operations	Hospital Operations	$	66	$	59	11.9	%	$	131	$	118	11.0	%	Hospital Operations	$	77	$	65	18.5	%
Ambulatory Care	Ambulatory Care	20		21		(4.8)	%	43		41		4.9	%	Ambulatory Care	27		23		17.4	%
Conifer	Conifer	3		3		—	%	6		6		—	%	Conifer	3		3		—	%
Total	Total	$	89	$	83	7.2	%	$	180	$	165	9.1	%	Total	$	107	$	91	17.6	%



(1)			Included in other operating expenses.

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RESULTS OF OPERATIONS BY SEGMENT

Our operations are reported in three segments:

•Hospital Operations, which is comprised of ~~our~~ acute care and specialty hospitals, ancillary outpatient facilities, micro-hospitals, imaging centers, physician practices and urgent care ~~centers, micro-hospitals and physician practices.~~centers. As described in Note 4 to the accompanying Condensed Consolidated Financial Statements, certain of these facilities ~~are~~were classified as held for sale at ~~June 30, 2020.~~March 31, 2021.

•Ambulatory Care, which is comprised of USPI’s ambulatory surgery centers, urgent care centers ~~imaging centers~~ and surgical hospitals. As described in Note 4 to the accompanying Condensed Consolidated Financial Statements, certain of these facilities were classified as held for sale at March 31, 2021. For the three months ended March 31, 2021 and 2020, our Ambulatory Care segment also included imaging centers, which were transferred to our Hospital Operations segment effective April 1, 2021.

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•Conifer, which provides revenue cycle management and value-based care services to hospitals, ~~healthcare~~health systems, physician practices, employers and other ~~customers.~~clients.

Hospital Operations Segment

The following tables show operating statistics of our continuing operations hospitals and related outpatient facilities on a same-hospital basis, unless otherwise indicated, which includes the results of our same 65 hospitals operated throughout the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019 and excludes the results of three Chicago-area hospitals, which we divested effective January 28, 2019.~~2020. We present same-hospital data because we believe it provides investors with useful information regarding the performance of our hospitals and other operations that are comparable for the periods presented. We present certain metrics on a ~~per adjusted patient admission~~per-adjusted-patient-admission and ~~per adjusted patient day~~per-adjusted-patient-day basis to show trends other than volume. We present certain metrics as a percentage of net operating revenues because a significant portion of our operating expenses are variable.


		Same-Hospital Continuing Operations															Same-Hospital Continuing Operations											Same-Hospital Continuing Operations
		Three Months Ended June 30,															Six Months Ended June 30,											Three Months Ended March 31,
Admissions, Patient Days and Surgeries	Admissions, Patient Days and Surgeries	2020		2019		Increase (Decrease)					2020			2019			Increase (Decrease)			Admissions, Patient Days and Surgeries		2021		2020			Increase (Decrease)
Number of hospitals (at end of period)	Number of hospitals (at end of period)	65		65		—		(1)	65			65			—		(1)	Number of hospitals (at end of period)	65			65		—		(1)
Total admissions	Total admissions	134,898		169,352		(20.3)	%		300,633			342,822			(12.3)	%		Total admissions	147,674			165,735		(10.9)	%
Adjusted patient admissions(2)	Adjusted patient admissions(2)	221,159		304,066		(27.3)	%		512,071			609,937			(16.0)	%		Adjusted patient admissions(2)	251,017			290,912		(13.7)	%
Paying admissions (excludes charity and uninsured)	Paying admissions (excludes charity and uninsured)	125,792		159,129		(20.9)	%		281,612			322,761			(12.7)	%		Paying admissions (excludes charity and uninsured)	138,756			155,820		(11.0)	%
Charity and uninsured admissions	Charity and uninsured admissions	9,106		10,223		(10.9)	%		19,021			20,061			(5.2)	%		Charity and uninsured admissions	8,918			9,915		(10.1)	%
Admissions through emergency department	Admissions through emergency department	98,193		121,088		(18.9)	%		220,484			246,316			(10.5)	%		Admissions through emergency department	112,730			122,291		(7.8)	%
Paying admissions as a percentage of total admissions	Paying admissions as a percentage of total admissions	93.2	%	94.0	%	(0.8)	%	(1)	93.7	%		94.1	%		(0.4)	%	(1)	Paying admissions as a percentage of total admissions	94.0		%	94.0	%	—	%	(1)
Charity and uninsured admissions as a percentage of total admissions	Charity and uninsured admissions as a percentage of total admissions	6.8	%	6.0	%	0.8	%	(1)	6.3	%		5.9	%		0.4	%	(1)	Charity and uninsured admissions as a percentage of total admissions	6.0		%	6.0	%	—	%	(1)
Emergency department admissions as a percentage of total admissions	Emergency department admissions as a percentage of total admissions	72.8	%	71.5	%	1.3	%	(1)	73.3	%		71.8	%		1.5	%	(1)	Emergency department admissions as a percentage of total admissions	76.3		%	73.8	%	2.5	%	(1)
Surgeries — inpatient	Surgeries — inpatient	34,973		44,641		(21.7)	%		76,935			89,194			(13.7)	%		Surgeries — inpatient	36,787			41,962		(12.3)	%
Surgeries — outpatient	Surgeries — outpatient	38,749		60,936		(36.4)	%		92,139			118,832			(22.5)	%		Surgeries — outpatient	53,177			53,390		(0.4)	%
Total surgeries	Total surgeries	73,722		105,577		(30.2)	%		169,074			208,026			(18.7)	%		Total surgeries	89,964			95,352		(5.7)	%
Patient days — total	Patient days — total	687,883		787,582		(12.7)	%		1,498,362			1,602,911			(6.5)	%		Patient days — total	797,489			810,479		(1.6)	%
Adjusted patient days(2)	Adjusted patient days(2)	1,094,208		1,387,929		(21.2)	%		2,479,971			2,795,982			(11.3)	%		Adjusted patient days(2)	1,321,890			1,385,763		(4.6)	%
Average length of stay (days)	Average length of stay (days)	5.10		4.65		9.7	%		4.98			4.68			6.4	%		Average length of stay (days)	5.40			4.89		10.4	%
Licensed beds (at end of period)	Licensed beds (at end of period)	17,219		17,221		—	%		17,219			17,221			—	%		Licensed beds (at end of period)	17,178			17,219		(0.2)	%
Average licensed beds	Average licensed beds	17,219		17,221		—	%		17,219			17,221			—	%		Average licensed beds	17,178			17,218		(0.2)	%
Utilization of licensed beds(3)	Utilization of licensed beds(3)	43.9	%	50.3	%	(6.4)	%	(1)	47.8	%		51.4	%		(3.6)	%	(1)	Utilization of licensed beds(3)	51.6		%	51.7	%	(0.1)	%	(1)



(1)			The change is the difference between ~~2020~~the 2021 and ~~2019~~2020 amounts shown.
(2)			Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.
(3)			Utilization of licensed beds represents patient days divided by number of days in the period divided by average licensed beds.

~~Table of Contents~~


		Same-Hospital Continuing Operations															Same-Hospital Continuing Operations											Same-Hospital Continuing Operations
		Three Months Ended June 30,															Six Months Ended June 30,											Three Months Ended March 31,
Outpatient Visits	Outpatient Visits	2020		2019		Increase (Decrease)					2020			2019			Increase (Decrease)			Outpatient Visits		2021		2020			Increase (Decrease)
Total visits	Total visits	983,321		1,693,805		(41.9)	%		2,599,848			3,380,669			(23.1)	%		Total visits	1,401,217			1,616,527		(13.3)	%
Paying visits (excludes charity and uninsured)	Paying visits (excludes charity and uninsured)	908,197		1,581,555		(42.6)	%		2,407,737			3,159,190			(23.8)	%		Paying visits (excludes charity and uninsured)	1,312,098			1,499,540		(12.5)	%
Charity and uninsured visits	Charity and uninsured visits	75,124		112,250		(33.1)	%		192,111			221,479			(13.3)	%		Charity and uninsured visits	89,119			116,987		(23.8)	%
Emergency department visits	Emergency department visits	388,038		637,107		(39.1)	%		1,029,320			1,288,959			(20.1)	%		Emergency department visits	450,830			641,282		(29.7)	%
Surgery visits	Surgery visits	38,749		60,936		(36.4)	%		92,139			118,832			(22.5)	%		Surgery visits	53,177			53,390		(0.4)	%
Paying visits as a percentage of total visits	Paying visits as a percentage of total visits	92.4	%	93.4	%	(1.0)	%	(1)	92.6	%		93.4	%		(0.8)	%	(1)	Paying visits as a percentage of total visits	93.6		%	92.8	%	0.8	%	(1)
Charity and uninsured visits as a percentage of total visits	Charity and uninsured visits as a percentage of total visits	7.6	%	6.6	%	1.0	%	(1)	7.4	%		6.6	%		0.8	%	(1)	Charity and uninsured visits as a percentage of total visits	6.4		%	7.2	%	(0.8)	%	(1)



(1)			The change is the difference between ~~2020~~the 2021 and ~~2019~~2020 amounts shown.

Same-Hospital
Continuing Operations Same-Hospital
Continuing Operations
Three Months Ended
June 30, Six Months Ended
June 30,
Revenues 2020 2019 Increase
(Decrease) 2020 2019 Increase
(Decrease)
Total segment net operating revenues(1)
$ 2,975 $ 3,681 (19.2) % $ 6,675 $ 7,371 (9.4) %
Selected revenue data – hospitals and related outpatient facilities
Net patient service revenues(1)(2)
$ 2,830 $ 3,547 (20.2) % $ 6,372 $ 7,104 (10.3) %
Net patient service revenue per adjusted patient admission(1)(2)
$ 12,796 $ 11,665 9.7 % $ 12,444 $ 11,647 6.8 %
Net patient service revenue per adjusted patient day(1)(2)
$ 2,586 $ 2,556 1.2 % $ 2,569 $ 2,541 1.1 %

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	Same-Hospital Continuing Operations
	Three Months Ended March 31,
Revenues	2021		2020		Increase (Decrease)
Total segment net operating revenues(1)	$	3,822	$	3,700	3.3	%
Selected revenue data – hospitals and related outpatient facilities:
Net patient service revenues(1)(2)	$	3,647	$	3,542	3.0	%
Net patient service revenue per adjusted patient admission(1)(2)	$	14,529	$	12,176	19.3	%
Net patient service revenue per adjusted patient day(1)(2)	$	2,759	$	2,556	7.9	%



(1)			Revenues are net of implicit price concessions.
(2)			Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.


		Same-Hospital Continuing Operations															Same-Hospital Continuing Operations											Same-Hospital Continuing Operations
		Three Months Ended June 30,															Six Months Ended June 30,											Three Months Ended March 31,
Total Segment Selected Operating Expenses	Total Segment Selected Operating Expenses	2020		2019		Increase (Decrease)					2020			2019			Increase (Decrease)			Total Segment Selected Operating Expenses		2021		2020			Increase (Decrease)
Salaries, wages and benefits as a percentage of net operating revenues	Salaries, wages and benefits as a percentage of net operating revenues	53.1	%	49.0	%	4.1	%	(1)	51.3	%		48.8	%		2.5	%	(1)	Salaries, wages and benefits as a percentage of net operating revenues	48.6		%	49.9	%	(1.3)	%	(1)
Supplies as a percentage of net operating revenues	Supplies as a percentage of net operating revenues	17.8	%	17.5	%	0.3	%	(1)	17.7	%		17.4	%		0.3	%	(1)	Supplies as a percentage of net operating revenues	16.9		%	17.6	%	(0.7)	%	(1)
Other operating expenses as a percentage of net operating revenues	Other operating expenses as a percentage of net operating revenues	28.3	%	24.0	%	4.3	%	(1)	25.6	%		24.3	%		1.3	%	(1)	Other operating expenses as a percentage of net operating revenues	24.0		%	23.5	%	0.5	%	(1)



(1)			The change is the difference between ~~2020~~the 2021 and ~~2019~~2020 amounts shown.

Revenues

Same-hospital net operating revenues ~~decreased $706~~increased $122 million, or ~~19.2%~~3.3%, during the three months ended ~~June 30, 2020~~March 31, 2021 compared to the three months ended ~~June 30, 2019,~~March 31, 2020, primarily due to ~~the negative impact of shelter-in-place orders on~~higher patient ~~volumes~~acuity and ~~the mandated suspension of many elective procedures at our hospitals due to the COVID-19 pandemic,~~a more favorable payer mix, partially offset by ~~increased acuity and improved terms of our managed care contracts.~~ lower patient volumes in the 2021 period. Our Hospital Operations segment also recognized income from federal, state and ~~state~~local grants totaling ~~$474~~$24 million in the three months ended ~~June 30, 2020,~~March 31, 2021, which is not included in net operating revenues. Same-hospital admissions decreased ~~20.3%~~10.9% in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in ~~2019.~~2020. Same-hospital outpatient visits decreased ~~41.9%~~13.3% in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the prior-year period.

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Same-hospital net operating revenues decreased $696 million, or 9.4%, during the six months ended June 30, 2020 compared to the six months ended June 30, 2019, primarily due to the negative impact of shelter-in-place orders on patient volumes and the mandated suspension of many elective procedures at our hospitals due to the COVID-19 pandemic, partially offset by increased acuity and improved terms of our managed care contracts. Our Hospital Operations segment also recognized income from federal and state grants totaling $474 million in the six months ended June 30, 2020, which is not included in net operating revenues. Same-hospital admissions decreased 12.3% in the six months ended June 30, 2020 compared to the same period in 2019. Same-hospital outpatient visits decreased 23.1% in the six months ended June 30, 2020 compared to the prior-year period.

The following table shows the consolidated net accounts receivable by payer at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Medicare	Medicare	$	172	$	189	Medicare	$	174	$	152
Medicaid	Medicaid	73		69		Medicaid	50		49
Net cost report settlements receivable and valuation allowances	Net cost report settlements receivable and valuation allowances	40		12		Net cost report settlements receivable and valuation allowances	43		34
Managed care	Managed care	1,340		1,618		Managed care	1,593		1,567
Self-pay uninsured	Self-pay uninsured	16		25		Self-pay uninsured	34		32
Self-pay balance after insurance	Self-pay balance after insurance	77		76		Self-pay balance after insurance	72		74
Estimated future recoveries	Estimated future recoveries	163		162		Estimated future recoveries	156		156
Other payers	Other payers	339		337		Other payers	325		318
Total Hospital Operations	Total Hospital Operations	2,220		2,488		Total Hospital Operations	2,447		2,382
Ambulatory Care	Ambulatory Care	214		253		Ambulatory Care	296		307
Total discontinued operations	Total discontinued operations	1		2		Total discontinued operations	2		1
		$	2,435	$	2,743		$	2,745	$	2,690

When we have an unconditional right to payment, subject only to the passage of time, the right is treated as a receivable. Patient accounts receivable, including billed accounts and certain unbilled accounts, as well as estimated amounts due from third-party payers for retroactive adjustments, are recognized as receivables if our right to consideration is unconditional and only the passage of time is required before payment of that consideration is due. Estimated uncollectable amounts are generally considered implicit price concessions that are a direct reduction to patient accounts receivable rather than allowance for doubtful accounts. Amounts related to services provided to patients for which we have not billed and that do not meet the conditions of unconditional right to payment at the end of the reporting period are contract assets. For our Hospital Operations segment, our contract assets consist primarily of services that we have provided to patients who are still receiving inpatient care in our facilities at the end of the reporting period. Our Hospital Operations segment’s contract assets are included in other current assets in the accompanying Condensed Consolidated Balance Sheets at June 30, 2020 and December 31, 2019.

Collection of accounts receivable has been a key area of focus, particularly over the past several years. At ~~June 30, 2020,~~March 31, 2021, our Hospital Operations segment collection rate on self-pay accounts was approximately ~~22.9%~~26.1%. Our ~~self-pay~~self‑pay collection rate includes payments made by patients, including co-pays, co-insurance amounts and deductibles paid by patients with insurance. Based on our accounts receivable from uninsured patients and co-pays, co-insurance amounts and deductibles owed to us by patients with insurance at ~~June 30, 2020,~~March 31, 2021, a 10% decrease or increase in our self-pay collection rate, or approximately 2%, which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to patient accounts receivable of approximately ~~$10~~$9 million. There are various factors that can impact collection

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trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, the volume of patients through our emergency departments, the increased burden of co-pays and deductibles to be made by patients with insurance, and business practices related to collection efforts. These factors, many of which have been affected by the COVID-19 pandemic, continuously change and can have an impact on collection trends and our estimation process.

Payment pressure from managed care payers also affects the collectability of our accounts receivable. We typically experience ongoing managed care payment delays and disputes; however, we continue to work with these payers to obtain adequate and timely reimbursement for our services. Our estimated Hospital Operations segment collection rate from managed care payers was approximately ~~97.9%~~97.2% at ~~June 30, 2020.~~March 31, 2021.

We manage our implicit price concessions using hospital-specific goals and benchmarks such as (1) total cash collections, (2) point-of-service cash collections, (3) AR Days and (4) accounts receivable by aging category. The following tables present the approximate aging by payer of our net accounts receivable from the continuing operations of our Hospital Operations segment of ~~$2.180~~$2.404 billion and ~~$2.476~~$2.348 billion at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively, excluding cost report settlements receivable and valuation allowances of ~~$40~~$43 million and ~~$12~~$34 million, respectively, at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

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	March 31, 2021
	Medicare		Medicaid		Managed Care		Indemnity, Self-Pay and Other		Total
0-60 days	90	%	39	%	58	%	24	%	51	%
61-120 days	6	%	30	%	17	%	13	%	16	%
121-180 days	2	%	12	%	8	%	8	%	8	%
Over 180 days	2	%	19	%	17	%	55	%	25	%
Total	100	%	100	%	100	%	100	%	100	%


		June 30, 2020																			December 31, 2020
		Medicare		Medicaid		Managed Care		Indemnity, Self-Pay and Other		Total			Medicare		Medicaid		Managed Care		Indemnity, Self-Pay and Other		Total
0-60 days	0-60 days	92	%	47	%	52	%	20	%	47	%	0-60 days	91	%	33	%	58	%	24	%	52	%
61-120 days	61-120 days	4	%	19	%	13	%	11	%	12	%	61-120 days	5	%	31	%	15	%	13	%	14	%
121-180 days	121-180 days	2	%	13	%	12	%	11	%	11	%	121-180 days	2	%	14	%	8	%	8	%	8	%
Over 180 days	Over 180 days	2	%	21	%	23	%	58	%	30	%	Over 180 days	2	%	22	%	19	%	55	%	26	%
Total	Total	100	%	100	%	100	%	100	%	100	%	Total	100	%	100	%	100	%	100	%	100	%

December 31, 2019
Medicare Medicaid Managed
Care Indemnity,
Self-Pay
and Other Total
0-60 days 91 % 49 % 56 % 21 % 51 %
61-120 days 5 % 21 % 16 % 14 % 15 %
121-180 days 2 % 10 % 10 % 10 % 9 %
Over 180 days 2 % 20 % 18 % 55 % 25 %
Total 100 % 100 % 100 % 100 % 100 %

Conifer continues to implement revenue cycle initiatives to improve our cash flow. These initiatives are focused on standardizing and improving patient access processes, including pre-registration, registration, verification of eligibility and benefits, liability identification and collections at point-of-service, and financial counseling. These initiatives are intended to reduce denials, improve service levels to patients and increase the quality of accounts that end up in accounts receivable. Although we continue to focus on improving our methodology for evaluating the collectability of our accounts receivable, we may incur future charges if there are unfavorable changes in the trends affecting the net realizable value of our accounts receivable.

At ~~June 30, 2020,~~March 31, 2021, we had a cumulative total of patient account assignments to Conifer of ~~$3.229~~$2.321 billion related to our continuing operations. These accounts have already been written off and are not included in our receivables or in the allowance for doubtful accounts; however, an estimate of future recoveries from all the accounts assigned to Conifer is determined based on our historical experience and recorded in accounts receivable.

Patient advocates from Conifer’s Medicaid Eligibility Program (“MEP”) screen patients in the hospital to determine whether those patients meet eligibility requirements for financial assistance programs. They also expedite the process of applying for these government programs. Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending, under the MEP, with appropriate contractual allowances recorded. Based on recent trends, approximately 98% of all accounts in the MEP are ultimately approved for benefits under a government program, such as Medicaid.

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The following table shows the approximate amount of accounts receivable in the MEP still awaiting determination of eligibility under a government program at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 by aging category:


		June 30,		December 31,
		2020		2019			March 31, 2021		December 31, 2020
0-60 days	0-60 days	$	83	$	89	0-60 days	$	80	$	91
61-120 days	61-120 days	9		11		61-120 days	10		24
121-180 days	121-180 days	4		4		121-180 days	4		6
Over 180 days	Over 180 days	6		11		Over 180 days	6		6
Total	Total	$	102	$	115	Total	$	100	$	127

Salaries, Wages and Benefits

Same-hospital salaries, wages and benefits ~~decreased by $222~~increased $11 million, or ~~12.3%~~0.6%, in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in ~~2019. The decline~~2020. This change was primarily ~~due~~attributable to ~~reduced patient volumes and necessary employee furloughs and headcount reductions throughout the organization due to the COVID-19 pandemic,~~increased contract labor costs, as well as ~~lower health benefit costs; the effect of these changes was partially offset by~~increased incentive compensation and annual merit increases for certain of our employees, partially offset by lower health benefits costs. A higher average length of patient stay and a greater number of employed physicians also contributed to the increase. This increase was partially offset by reduced patient volumes as a result of the COVID-19 pandemic and ~~an increased average patient length-of-stay.~~our continuing cost efficiency initiatives. Same-hospital salaries, wages and benefits as a percentage of net operating revenues ~~increased~~decreased by ~~410~~130 basis points to ~~53.1%~~48.6% in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the three months ended ~~June 30, 2019~~March 31, 2020, primarily due to ~~reduced~~increased patient ~~revenues as a result of the COVID-19 pandemic.~~revenues. Salaries, wages and benefits expense for the three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ included stock-based compensation expense of $8$10 million and ~~$10~~$7 million, respectively.

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Supplies

Same-hospital ~~salaries, wages and benefits~~supplies expense decreased ~~$172~~$5 million, or ~~4.8%~~0.8%, in the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in ~~2019.~~2020. The ~~decline~~decrease was primarily due to reduced patient volumes and ~~necessary employee furloughs and headcount reductions throughout~~our continued focus on cost efficiency initiatives, including the ~~organization due to the COVID-19 pandemic, as well as lower health benefit costs; the effect~~practices described below. The impact of these ~~changes~~factors was partially offset by ~~annual merit increases~~increased costs for certain ~~of our employees, a greater number of employed physicians and an increased average patient length-of-stay.~~Same-hospital salaries, wages and benefits as a percentage of net operating revenues increased by 250 basis points to 51.3% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to reduced patient revenuessupplies as a result of the COVID-19 ~~pandemic. Salaries, wages~~pandemic and ~~benefits expense for the six months ended June 30, 2020 and 2019 included stock-based compensation expense of $15 million and $16 million, respectively.~~

~~Supplies~~

~~Same-hospital supplies expense decreased $114 million, or 17.7%,~~growth in the three months ended June 30, 2020 compared to the same period in 2019. The decline was primarily due to reduced patient volumes, partially offset by the increased cost of certain supplies as as a result of the COVID-19 pandemic.our higher-acuity, supply-intensive surgical services. Same-hospital supplies expense as a percentage of net operating revenues ~~increased~~decreased by 3070 basis points to ~~17.8%~~16.9% in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the three months ended June 30, 2019 due to reduced patient revenues and the increased cost of certain supplies as a result of the COVID-19 pandemic. Same-hospital supplies expense decreased $100 million, or 7.8%, in the six months ended June 30,March 31, 2020, ~~compared to the same period in 2019. The decline was~~ primarily due to ~~reduced~~increased patient volumes, partially offset by the increased cost of certain supplies as as a result of the COVID-19 pandemic. Same-hospital supplies expense as a percentage of net operating revenues increased by 30 basis points to 17.7% in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to reduced patient revenues and the increased cost of certain supplies as a result of the COVID-19 pandemic.revenues.

We strive to control supplies expense through product standardization, consistent contract terms and ~~end-to-end~~end‑to‑end contract management, improved utilization, bulk purchases, focused spending with a smaller number of vendors and operational improvements. The items of current ~~cost reduction~~cost-reduction focus include ~~personal protective equipment,~~PPE, cardiac stents and pacemakers, orthopedics, implants, and high-cost pharmaceuticals.

Other Operating Expenses, Net

Same-hospital other operating expenses ~~decreased~~increased by ~~$41~~$46 million, or ~~4.6%~~5.3%, in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in 2019. The decline was primarily due to our execution of various strategies to improve cost efficiency, as well as reduced patient volumes as a result of the COVID-19 pandemic. There is proportionally a higher level of fixed costs (e.g., rent expense) in other operating expenses than salaries, wages and benefits or supplies.2020. Same-hospital other operating expenses as a percentage of net operating revenues increased by ~~430~~50 basis points ~~to 28.3% for the three months ended June 30, 2020 compared~~ to 24.0% for the three months ended ~~June 30, 2019 primarily due~~March 31, 2021 compared to ~~reduced patient revenues as a result of~~23.5% for the ~~pandemic.~~three months ended March 31, 2020. The changes in other operating expenses included:

•increased ~~medical fees~~malpractice expense of ~~$29~~$18 million;

•~~decreased software costs of $22 million;~~

•~~decreased consulting~~increased rent and ~~legal fees~~lease expense of $12 million;

•~~decreased costs~~increased medical fees of ~~contracted services of $9 million;~~

•~~decreased malpractice expense of $2~~$8 million; and

•~~decreased costs~~increased legal and consulting fees of ~~$17 million associated with funding indigent care services at our hospitals, which costs were substantially offset by reduced net patient revenues.~~$5 million.

Same-hospital other operating expenses decreased by $80 million, or 4.5%, in the six months ended June 30, 2020 compared to the same period in 2019. Same-hospital other operating expenses as a percentage of net operating revenues increased by 130 basis points to 25.6% in the six months ended June 30, 2020 compared to 24.3% for the six months ended June 30, 2019 primarily due to reduced patient revenues as a result of the COVID-19 pandemic. The changes in other operating expenses included:

4944

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•~~increased medical fees of $57 million;~~

•~~decreased software costs of $34 million;~~

•~~decreased consulting and legal fees of $23 million;~~

•~~decreased costs of contracted services of $8 million;~~

•~~decreased malpractice expense of $41 million; and~~

•~~decreased costs of $29 million associated with funding indigent care services at our hospitals, which costs were substantially offset by reduced net patient revenues.~~

Ambulatory Care Segment

Our Ambulatory Care segment is comprised of USPI’s ambulatory surgery centers and surgical hospitals. At March 31, 2021, our Ambulatory Care segment also included imaging centers, which were transferred to our Hospital Operations segment effective April 1, 2021, and urgent care centers, ~~imaging centers~~which were classified as held for sale at March 31, 2021 and ~~surgical hospitals.~~December 31, 2020. USPI operates its surgical facilities in partnership with local physicians and, in many of these facilities, a ~~healthcare~~health system partner. We hold an ownership interest in each facility, with each being operated through a separate legal entity in most cases. USPI operates facilities on a day-to-day basis through management services contracts. Our sources of earnings from each facility consist of:

•management services revenues, computed as a percentage of each facility’s net revenues (often net of implicit price concessions); and

•our share of each facility’s net income (loss), which is computed by multiplying the facility’s net income (loss) times the percentage of each facility’s equity interests owned by USPI.

Our role as an owner and day-to-day manager provides us with significant influence over the operations of each facility. For many of the facilities our Ambulatory Care segment operates ~~(107~~(108 of ~~350~~399 facilities at ~~June 30, 2020)~~March 31, 2021), this influence does not represent control of the facility, so we account for our investment in the facility under the equity method for an unconsolidated affiliate. USPI controls ~~243~~291 of the facilities our Ambulatory Care segment operates, and we account for these investments as consolidated subsidiaries. Our net earnings from a facility are the same under either method, but the classification of those earnings differs. For consolidated subsidiaries, our financial statements reflect 100% of the revenues and expenses of the subsidiaries, after the elimination of intercompany amounts. The net profit attributable to owners other than USPI is classified within “net income available to noncontrolling interests.”

For unconsolidated affiliates, our ~~consolidated~~ statements of operations reflect our earnings in two line items:

•equity in earnings of unconsolidated affiliates—our share of the net income (loss) of each facility, which is based on the facility’s net income (loss) and the percentage of the facility’s outstanding equity interests owned by USPI; and

•management and administrative services revenues, which is included in our net operating revenues—income we earn in exchange for managing the day-to-day operations of each facility, usually quantified as a percentage of each facility’s net revenues less implicit price concessions.

Our Ambulatory Care segment operating income is driven by the performance of all facilities USPI operates and by USPI’s ownership interests in those facilities, but our individual revenue and expense line items contain only consolidated businesses, which represent ~~69%~~73% of those facilities. This translates to trends in consolidated operating income that often do not correspond with changes in consolidated revenues and expenses, which is why we disclose certain statistical and financial data on a pro forma systemwide basis that includes both consolidated and unconsolidated (equity method) facilities.

Results of Operations

The following table summarizes certain statement of operations items for the periods indicated:


	Three Months Ended March 31,
Ambulatory Care Results of Operations	2021		2020		Increase (Decrease)
Net operating revenues	$	646	$	490	31.8	%
Grant income	$	7	$	—	N/A
Equity in earnings of unconsolidated affiliates	$	38	$	26	46.2	%
Salaries, wages and benefits	$	174	$	162	7.4	%
Supplies	$	157	$	112	40.2	%
Other operating expenses, net	$	103	$	86	19.8	%

Our Ambulatory Care net operating revenues increased by $156 million, or 31.8%, during the three months ended March 31, 2021 as compared to the same period in 2020 despite the severe weather impact of Winter Storm Uri in February 2021. The change was driven by an increase in same-facility net operating revenues of $44 million due primarily to higher patient volumes and acuity, incremental revenue from new service lines and improved terms of our managed care contracts, as

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~~Results~~well as an increase from acquisitions of ~~Operations~~

~~The following table summarizes certain consolidated statements~~$118 million. These increases were partially offset by a decrease of ~~operations items for~~$6 million due to the ~~periods indicated:~~

Three Months Ended
June 30, Six Months Ended
June 30,
Ambulatory Care Results of Operations 2020 2019 Increase (Decrease) 2020 2019 Increase (Decrease)
Net operating revenues $ 368 $ 524 (29.8) % $ 858 $ 1,004 (14.5) %
Grant income $ 37 $ — N/A $ 37 $ — N/A
Equity in earnings of unconsolidated affiliates $ 35 $ 34 2.9 % $ 61 $ 65 (6.2) %
Salaries, wages and benefits $ 119 $ 157 (24.2) % $ 281 $ 310 (9.4) %
Supplies $ 79 $ 108 (26.9) % $ 191 $ 207 (7.7) %
Other operating expenses, net $ 75 $ 86 (12.8) % $ 161 $ 168 (4.2) %

closure or deconsolidation of facilities. Our Ambulatory Care segment also recognized income from federal grants totaling $7 million during the three months ended March 31, 2021, which is not included in net operating ~~revenues decreased~~revenues.

Salaries, wages and benefits expense increased by ~~$156~~$12 million, or ~~29.8%~~7.4%, during the three months ended ~~June 30, 2020~~March 31, 2021 as compared to the same period in ~~2019. The change~~2020. Salaries, wages and benefits expense was driven by a decrease in same-facility net operating revenues of $166 million due primarily to the impact of shelter-in-place orders on patient volumes and the mandated suspension of many elective procedures as a result of the COVID-19 pandemic, as well as a decrease of $10 million due to the deconsolidation of a facility, partially offsetimpacted by an increase from acquisitions of ~~$20 million. Our Ambulatory Care net operating revenues decreased by $146~~$19 million, or 14.5%, during the six months ended June 30, 2020 as compared to the same period in 2019. The change was driven by a decrease in same-facility net operating revenues of $157 million due primarily to the COVID-19 pandemic, as well as a decrease of $15 million due to the deconsolidation of a facility, partially offset ~~by an increase from acquisitions of $26 million.~~

Salaries, wages and benefits expense decreased by $38 million, or 24.2%, during the three months ended June 30, 2020 as compared to the same period in 2019. Salaries, wages and benefits expense was impacted by a decrease in same-facility salaries, wages and benefits expense of ~~$41~~$5 million due to expense management efforts and $2 million due to the closure or deconsolidation of facilities. Salaries, wages and benefits expense for three months ended March 31, 2021 and 2020 included stock-based compensation expense of $3 million and $5 million, respectively.

Supplies expense increased by $45 million, or 40.2%, during the three months ended March 31, 2021 as compared to the same period in 2020. The change was driven by an increase from acquisitions of $37 million, as well as an increase in same‑facility supplies expense of $10 million due primarily to ~~the necessary flexing of staff as patient volumes decreased~~an increase in cases at our consolidated centers, ~~due to shelter-in-place orders~~higher costs driven by the higher level of patient acuity, and ~~the mandated suspension~~higher pricing of ~~many elective procedures due to~~certain supplies as a result of the COVID-19 pandemic, ~~as well as~~partially offset by a decrease of $2 million due to the closure or deconsolidation of ~~a facility. These impacts were partially offset~~facilities.

Other operating expenses increased by ~~an increase from acquisitions of $5 million. Salaries, wages and benefits expense decreased by $29~~$17 million, or ~~9.4%~~19.8%, during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 as compared to the same period in ~~2019. Salaries, wages and benefits expense~~2020. The change was impacted by a decrease in same-facility salaries, wages and benefits expense of $33 million due primarily to the COVID-19 pandemic, as well as a decrease of $3 million due to the deconsolidation of a facility. These impacts were partially offsetdriven by an increase from acquisitions of ~~$7 million.~~

~~Supplies expense decreased by $29~~$13 million, or 26.9%, during the three months ended June 30, 2020 as compared to the same period in 2019. The change was driven by a decrease in same-facility supplies expense of $32 million due primarily to reduced patient volumes as a result of the COVID-19 pandemic, as well as ~~a decrease of $3 million due to the deconsolidation of a facility, partially offset by~~ an increase from acquisitions of $6 million. Supplies expense decreased by $16 million, or 7.7%, during the six months ended June 30, 2020 as compared to the same period in 2019. The change was driven by a decrease in same-facility supplies expense of $20 million as a result of the COVID-19 pandemic, as well as a decrease of $4 million due to the deconsolidation of a facility, partially offset by an increase from acquisitions of $8 million.

~~Other operating expenses decreased by $11 million, or 12.8%, during the three months ended June 30, 2020 as compared to the same period in 2019. The change was driven by a decrease~~ in same-facility other operating expenses of ~~$14~~$5 million, ~~due primarily to strong expense management while patient volumes were reduced as a result of the COVID-19 pandemic, as well as~~partially offset by a decrease of $2$1 million due to the ~~deconsolidation~~closure of a facility, partially offset by an increase from acquisitions of $5 million. Other operating expenses decreased by $7 million, or 4.2%, during the six months ended June 30, 2020 as compared to the same period in 2019. The change was driven by a decrease in same-facility other operating expenses of $11 million due primarily to strong expense management while patient volumes were reduced as a result of the COVID-19 pandemic, as well as a decrease of $3 million due to the deconsolidation of a facility, partially offset by an increase from acquisitions of $7 million.facilities.

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Facility Growth

The following table summarizes the changes in our same-facility revenue year-over-year on a pro forma systemwide basis, which includes both consolidated and unconsolidated (equity method) facilities. While we do not record the revenues of unconsolidated facilities, we believe this information is important in understanding the financial performance of our Ambulatory Care segment because these revenues are the basis for calculating our management services revenues and, together with the expenses of our unconsolidated facilities, are the basis for our equity in earnings of unconsolidated affiliates.

Ambulatory Care Facility Growth Three Months Ended
June 30, 2020 Six Months Ended
June 30, 2020
Net revenues (28.2)% (15.4)%
Cases (33.7)% (19.3)%
Net revenue per case 8.2% 4.8%

Ambulatory Care Facility Growth

Three Months Ended
March 31, 2021

Net revenues

6.7%

Cases

2.6%

Net revenue per case

4.0%

Joint Ventures with ~~Healthcare~~Health System Partners

USPI’s business model is to jointly own its facilities with local physicians and, in many of these facilities, a ~~not-for-profit healthcare~~not‑for‑profit health system partner. Accordingly, as of ~~June 30, 2020,~~March 31, 2021, the majority of facilities in our Ambulatory Care segment are operated in this model.


Ambulatory Care Facilities									~~Six~~Three Months Ended ~~June 30, 2020~~March 31, 2021
Facilities:
With a ~~healthcare~~health system partner									~~223~~225
Without a ~~healthcare~~health system partner									~~127~~174
Total facilities operated									~~350~~399

Change from December 31, ~~2019~~2020:
Acquisitions									54
De novo									21
Dispositions/Mergers									~~(3)~~(2)
Total increase in number of facilities operated									43

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we acquired controlling interests in ~~one multi-specialty~~three ambulatory surgery ~~center~~centers in ~~each of Colorado, Tennessee~~Maryland and ~~Arizona, and two~~one in Florida. We paid cash totaling approximately ~~$55~~$24 million for these acquisitions. ~~All of these acquired~~The Maryland facilities are jointly owned with ~~local physicians, and~~physicians. The Florida facility is jointly owned with a ~~healthcare~~health system partner ~~is an owner~~and physicians. During the three months ended March 31, 2021, we deconsolidated two surgery centers in ~~all~~which we previously had a controlling interest and sold ownership to a health care system for approximately $12 million.

Table of ~~the facilities except the two facilities in Florida.~~Contents

We also regularly engage in the purchase of equity interests with respect to our investments in unconsolidated affiliates and consolidated facilities that do not result in a change of control. These transactions are primarily the acquisitions of equity interests in ambulatory ~~care facilities~~surgery centers and the investment of additional cash in facilities that need capital for acquisitions, new construction or other business growth opportunities. During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we invested approximately $1 million in such transactions.

Conifer Segment

Our Conifer segment generated net operating revenues of ~~$305~~$310 million and ~~$355~~$332 million during the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $637 million and $704 million during the six months ended June 30, 2020 and 2019,~~ respectively, a portion of which was eliminated in consolidation as described in Note 18 to the accompanying Condensed Consolidated Financial Statements. Conifer revenues from third-party customers, which are not eliminated in consolidation, decreased ~~$17 million and $24~~$8 million, or ~~8.1% and 5.8%~~4.1%, for the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 compared to the ~~same periods in 2019. Conifer revenues from third-party customers~~2020 period. These decreases were ~~negatively impacted~~attributable to expected client attrition, partially offset by (i) the wind-down and termination of contracts for facilities its clients previously owned then divested, (ii) other client terminations at the end of their contract terms and (iii) the impact of the COVID-19 pandemic on the revenue of Conifer's clients.new business expansion.

Salaries, wages and benefits expense for Conifer decreased ~~$22~~$9 million, or ~~11.8%~~5.0%, in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the ~~same period in 2019, and decreased $28 million, or 7.5%, in the six~~three months ended ~~June 30,~~March 31, 2020 ~~compared to the same period in 2019, in both cases~~ primarily due to ~~furloughs~~continued expense discipline and ~~headcount reductions throughout~~cost savings realized through our Global Business Center (“GBC”) in the ~~organization.~~Philippines. Salaries, wages and benefits expense in the three months ended March 31, 2021 and 2020 included stock-based compensation expense of $1 million in both periods.

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Other operating expenses for Conifer ~~increased $2~~decreased $12 million, or ~~3.1%~~18.5%, in the three months ended ~~June 30, 2020~~March 31, 2021 compared to the ~~same period in 2019, and increased $3 million, or 2.3%, in the six~~three months ended ~~June 30, 2020 compared to the same period in 2019.~~March 31, 2020.

~~Agreements document~~In March 2021, we entered into the ~~current~~Amended RCM Agreement effective January 1, 2021. The Amended RCM Agreement updates certain terms and conditions ~~of various~~related to the revenue cycle management services Conifer provides to Tenet hospitals, as well as certain administrative services our Hospital Operations segment provides to Conifer; however, execution of a restructured services agreement between Conifer and Tenet is a condition to completion of the proposed spin-off.hospitals. Conifer’s contract with Tenet represented ~~39.1%~~39.4% of the net operating revenues Conifer recognized in the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

Consolidated

Impairment and Restructuring Charges, and Acquisition-Related Costs

During the three months ended ~~June 30,~~March 31, 2021, we recorded impairment and restructuring charges and acquisition‑related costs of $20 million, consisting of $16 million of restructuring charges and $4 million of acquisition-related costs. Restructuring charges consisted of $4 million of employee severance costs, $6 million related to the transition of various administrative functions to our GBC and $6 million of other restructuring costs. Acquisition‑related costs consisted of $4 million of transaction costs. Our impairment and restructuring charges and acquisition‑related costs for the three months ended March 31, 2021 were comprised of $10 million from our Hospital Operations segment, $4 million from our Ambulatory Care segment and $6 million from our Conifer segment.

During the three months ended March 31, 2020, we recorded impairment and restructuring charges and ~~acquisition-related~~acquisition‑related costs of ~~$54~~$55 million, consisting of $49 million of restructuring charges and $5 million of impairment charges. Restructuring charges consisted of $27 million of employee severance costs, $10 million related to our Global Business Center in the Philippines, and $12 million of other restructuring costs. Our impairment and restructuring charges and acquisition-related costs for the three months ended June 30, 2020 were comprised of $32 million from our Hospital Operations segment, $7 million from our Ambulatory Care segment and $15 million from our Conifer segment.

~~During the three months ended June 30, 2019, we recorded impairment and restructuring charges and acquisition-related costs of $36 million, consisting of $4 million of impairment charges, $31~~$54 million of restructuring charges and $1 million of acquisition-related costs. Restructuring charges consisted of ~~$11~~$10 million of employee severance costs, $15 million related to the transition of various administrative functions to our GBC, $23 million of charges due to the termination of USPI’s previous management equity plan, $1 million of contract and lease termination fees, and ~~$19~~$5 million of other restructuring costs. Acquisition-related costs consisted of $1 million of transaction costs. Our impairment and restructuring charges and acquisition-related costs for the three months ended ~~June 30, 2019~~March 31, 2020 were comprised of ~~$26~~$18 million from our Hospital Operations segment, $2$24 million from our Ambulatory Care segment and $8$13 million from our Conifer segment.

During the six months ended June 30, 2020, we recorded impairment and restructuring charges and acquisition-related costs of $109 million, consisting of $5 million of impairment charges, $103 million of restructuring charges and $1 million of acquisition-related costs. Restructuring charges consisted of $37 million of employee severance costs, $25 million related to our Global Business Center in the Philippines, $23 million of charges due to the termination of the USPI management equity plan, $1 million of contract and lease termination fees, and $17 million of other restructuring costs. Acquisition-related costs consisted of $1 million of transaction costs. Our impairment and restructuring charges and acquisition-related costs for the six months ended June 30, 2020 were comprised of $50 million from our Hospital Operations segment, $31 million from our Ambulatory Care segment and $28 million from our Conifer segment.

During the six months ended June 30, 2019, we recorded impairment and restructuring charges and acquisition-related costs of $55 million, consisting of $5 million of impairment charges, $47 million of restructuring charges and $3 million of acquisition-related costs. Restructuring charges consisted of $18 million of employee severance costs, $2 million of contract and lease termination fees, and $27 million of other restructuring costs. Acquisition-related costs consisted of $3 million of transaction costs. Our impairment and restructuring charges and acquisition-related costs for the six months ended June 30, 2019 were comprised of $36 million from our Hospital Operations segment, $5 million from our Ambulatory Care segment and $14 million from our Conifer segment.

Litigation and Investigation Costs

Litigation and investigation costs for the three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ were $2$13 million and ~~$18 million, respectively. Litigation and investigation costs for the six months ended June 30, 2020 and 2019 were $4 million and $31~~$2 million, respectively.

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Net Gains ~~(Losses)~~ on Sales, Consolidation and Deconsolidation of Facilities

During the three months ended ~~June 30,~~March 31, 2020, we recorded net gains on sales, consolidation and deconsolidation of facilities of approximately ~~$1 million, primarily due to a post-closing adjustment on the sale of three of our hospitals in the Chicago-area.~~

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~~During the three months ended June 30, 2019, we recorded net losses on sales, consolidation and deconsolidation of facilities of approximately $1~~$2 million, primarily comprised of ~~a $2 million loss related to consolidation changes of certain USPI businesses due to ownership changes, partially offset by a $1 million of gains on the sale of our Chicago-area facilities.~~

~~During the six months ended June 30, 2020, we recorded net gains on sales, consolidation and deconsolidation of facilities of approximately $3 million, primarily comprised of~~aggregate gains of $11 million related to consolidation changes of certain USPI businesses due to ownership changes, partially offset by $5a loss of $6 million ofrelated to post-closing adjustments on the 2019 sale of three of our hospitals in the ~~Chicago-area~~Chicago area and a loss of $3 million ofrelated to post-closing adjustments on the 2018 sale of MacNeal Hospital.

During the six months ended June 30, 2019, we recorded net losses on sales, consolidation and deconsolidation of facilities of approximately $2 million, primarily comprised of a $6 million loss on the sale of our Chicago-area facilities, partially offset by $3 million of gains related to consolidation changes of certain USPI businesses due to ownership changes, as well as post-closing adjustments on several other divestitures.

Interest Expense

Interest expense for the three months ended ~~June 30, 2020~~March 31, 2021 was ~~$255~~$240 million compared to ~~$247~~$243 million for the same period in ~~2019. Interest expense for both the six month periods ended June 30, 2020 and 2019 was $498 million.~~2020.

Loss from Early Extinguishment of Debt

~~Loss From Early Extinguishment of Debt~~

Loss from early extinguishment of debt was ~~$4 million for both the three and six month periods ended June 30, 2020. Loss from early extinguishment of debt was zero and $47~~$23 million for the three ~~and six~~ months ended ~~June 30, 2019, respectively. The loss~~March 31, 2021 related to the retirement of our 2025 Senior Notes in ~~the 2020 period included $8 million due to the debt repurchase transactions~~advance of their maturity date, as described in Note 6 to the accompanying Condensed Consolidated Financial Statements partially offset by $4 million of gains on extinguishment of mortgage notes. The loss in the 2019 period was due to the debt transactions described in Note 8 to the Consolidated Financial Statements in our Annual Report.Statements.

Income Tax Expense


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
Tax expense at statutory federal rate of 21%	Tax expense at statutory federal rate of 21%	$	45	$	32	$	63	$	50	Tax expense at statutory federal rate of 21%	$	56	$	18
State income taxes, net of federal income tax benefit	State income taxes, net of federal income tax benefit	10		6		15		9		State income taxes, net of federal income tax benefit	13		5
Tax benefit attributable to noncontrolling interests	Tax benefit attributable to noncontrolling interests	(16)		(19)		(30)		(36)		Tax benefit attributable to noncontrolling interests	(25)		(14)

Nontaxable gains	Nontaxable gains	—		—		3		(1)		Nontaxable gains	—		3

Stock-based compensation	Stock-based compensation	—		1		—		—		Stock-based compensation	(1)		—
Change in valuation allowance	Change in valuation allowance	2		11		(88)		35		Change in valuation allowance	—		(90)

Other items	Other items	4		2		7		(4)		Other items	2		3
Income tax expense (benefit)	Income tax expense (benefit)	$	45	$	33	$	(30)	$	53	Income tax expense (benefit)	$	45	$	(75)

As a result of the change in the business interest expense disallowance rules, as discussed in Note 14 to the accompanying Condensed Consolidated Financial Statements, we recorded an income tax benefit of $88 million during the six months ended June 30, 2020 to decrease the valuation allowance for interest expense carryforwards due to the additional deduction of interest expense.

Net Income Available to Noncontrolling Interests

Net income available to noncontrolling interests was ~~$81~~$125 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$95~~$66 million for the three months ended ~~June 30, 2019.~~March 31, 2020. Net income available to noncontrolling interests for the ~~three months ended June 30, 2020~~2021 period was comprised of $6$17 million related to our Hospital Operations segment, ~~$63~~$92 million related to our

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Ambulatory Care segment and ~~$12~~$16 million related to our Conifer segment. Of the portion related to our Ambulatory Care segment, $2$4 million related to the minority interests in USPI.

Net income available to noncontrolling interests was $147 million for the six months ended June 30, 2020 compared to $179 million for the six months ended June 30, 2019. Net income available (loss attributable) to noncontrolling interests for the six months ended June 30, 2020 was comprised of $(1) million related to our Hospital Operations segment, $120 million related to our Ambulatory Care segment and $28 million related to our Conifer segment. Of the portion related to our Ambulatory Care segment, $3 million related to the minority interests in USPI.

ADDITIONAL SUPPLEMENTAL NON-GAAP DISCLOSURES

The financial information provided throughout this report, including our Condensed Consolidated Financial Statements and the notes thereto, has been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, we use certain non-GAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements, some of which are recurring or involve cash payments. We use this information in our analysis of the performance of our business, excluding items we do not consider relevant to the performance of our continuing operations. In addition, we use these measures to define certain performance targets under our compensation programs.

~~“Adjusted~~“Adjusted EBITDA” is a non-GAAP measure ~~defined by the Company~~we define as net income available (loss attributable) to Tenet Healthcare Corporation common shareholders before (1) the cumulative effect of changes in accounting principle, (2) net ~~income available (loss attributable)~~loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax, (4) income tax benefit

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(expense), (5) gain (loss) from early extinguishment of debt, (6) other non-operating income (expense), net, (7) interest expense, (8) litigation and investigation (costs) benefit, net of insurance recoveries, (9) net gains (losses) on sales, consolidation and deconsolidation of facilities, (10) impairment and restructuring charges and acquisition-related costs, (11) depreciation and amortization, and (12) income (loss) from divested and closed businesses (i.e., our health plan businesses). Litigation and investigation costs do not include ordinary course of business malpractice and other litigation and related expense.

~~The Company believes~~We believe the foregoing non-GAAP measure is useful to investors and analysts because it presents additional information about ~~the Company’s~~our financial performance. Investors, analysts, ~~Company~~company management and ~~the Company’s~~our board of directors utilize this non-GAAP measure, in addition to GAAP measures, to track ~~the Company’s~~our financial and operating performance and compare ~~the Company’s~~that performance to peer companies, which utilize similar ~~non-GAAP~~non‑GAAP measures in their presentations. The human resources committee of ~~the Company’s~~our board of directors also uses certain ~~non-GAAP~~non‑GAAP measures to evaluate management’s performance for the purpose of determining incentive compensation. ~~The Company believes~~We believe that Adjusted EBITDA is a useful measure, in part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to GAAP and other non-GAAP measures, as factors in determining the estimated fair value of shares of ~~the Company’s~~our common stock. Company management also regularly reviews the Adjusted EBITDA performance for each operating segment. ~~The Company does~~We do not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance. The non-GAAP Adjusted EBITDA measure ~~the Company utilizes~~we utilize may not be comparable to similarly titled measures reported by other companies. Because this measure excludes many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly, investors are encouraged to use GAAP measures when evaluating ~~the Company’s~~our financial performance.

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The following table shows the reconciliation of Adjusted EBITDA to net income available to Tenet Healthcare Corporation common shareholders (the most comparable GAAP term) for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Three Months Ended June 30,									Six Months Ended June 30,
																					Three Months Ended March 31,
		2020			2019			2020			2019				2021			2020
Net income available to Tenet Healthcare Corporation common shareholders	Net income available to Tenet Healthcare Corporation common shareholders	$	88		$	26		$	181		$	14		Net income available to Tenet Healthcare Corporation common shareholders	$	97		$	93
Less: Net income available to noncontrolling interests	Less: Net income available to noncontrolling interests	(81)			(95)			(147)			(179)			Less: Net income available to noncontrolling interests	(125)			(66)
Income (loss) from discontinued operations, net of tax		—			2			(1)			10
Loss from discontinued operations, net of tax														Loss from discontinued operations, net of tax	—			(1)
Income from continuing operations	Income from continuing operations	169			119			329			183			Income from continuing operations	222			160
Income tax benefit (expense)	Income tax benefit (expense)	(45)			(33)			30			(53)			Income tax benefit (expense)	(45)			75
Loss from early extinguishment of debt	Loss from early extinguishment of debt	(4)			—			(4)			(47)			Loss from early extinguishment of debt	(23)			—
Other non-operating income (expense), net		2			(1)			3			—
Other non-operating income, net														Other non-operating income, net	10			1
Interest expense	Interest expense	(255)			(247)			(498)			(498)			Interest expense	(240)			(243)
Operating income	Operating income	471			400			798			781			Operating income	520			327
Litigation and investigation costs	Litigation and investigation costs	(2)			(18)			(4)			(31)			Litigation and investigation costs	(13)			(2)
Net gains (losses) on sales, consolidation and deconsolidation of facilities		1			(1)			3			(2)
Net gains on sales, consolidation and deconsolidation of facilities														Net gains on sales, consolidation and deconsolidation of facilities	—			2
Impairment and restructuring charges, and acquisition-related costs	Impairment and restructuring charges, and acquisition-related costs	(54)			(36)			(109)			(55)			Impairment and restructuring charges, and acquisition-related costs	(20)			(55)
Depreciation and amortization	Depreciation and amortization	(206)			(214)			(409)			(422)			Depreciation and amortization	(224)			(203)
Loss from divested and closed businesses (i.e., the Company’s health plan businesses)		—			—			—			(1)

Adjusted EBITDA	Adjusted EBITDA	$	732		$	669		$	1,317		$	1,292		Adjusted EBITDA	$	777		$	585

Net operating revenues	Net operating revenues	$	3,648		$	4,560		$	8,168		$	9,105		Net operating revenues	$	4,781		$	4,520
Less: Net operating revenues from health plans		—			1			—			1
Adjusted net operating revenues		$	3,648		$	4,559		$	8,168		$	9,104

Net income available to Tenet Healthcare Corporation common shareholders as a % of net operating revenues	Net income available to Tenet Healthcare Corporation common shareholders as a % of net operating revenues	2.4		%	0.6		%	2.2		%	0.2		%	Net income available to Tenet Healthcare Corporation common shareholders as a % of net operating revenues	2.0		%	2.1		%

Adjusted EBITDA as % of adjusted net operating revenues (Adjusted EBITDA margin)		20.1		%	14.7		%	16.1		%	14.2		%
Adjusted EBITDA as % of net operating revenues (Adjusted EBITDA margin)														Adjusted EBITDA as % of net operating revenues (Adjusted EBITDA margin)	16.3		%	12.9		%

LIQUIDITY AND CAPITAL RESOURCES

CASH REQUIREMENTS

There have been no material changes to our obligations to make future cash payments under contracts, such as debt and lease agreements, and under contingent commitments, such as standby letters of credit and minimum revenue guarantees, as disclosed in our Annual Report, except for additional lease obligations and the long-term debt transactions disclosed in Notes 1 and 6, respectively, to our accompanying Condensed Consolidated Financial Statements.

At ~~June 30, 2020,~~March 31, 2021, using the last 12 months of Adjusted EBITDA, our ratio of total long-term debt, net of cash and cash equivalent balances, to Adjusted EBITDA was ~~4.49x.~~3.92x. This ratio at ~~June 30, 2020~~March 31, 2021 was temporarily impacted by the increase in cash received from advances from Medicare. We anticipate this ratio will fluctuate from quarter to quarter based on

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earnings performance and other factors, including the use of our revolving credit facility as a source of liquidity, repayment of Medicare advances in 2021 and 2022 and acquisitions that involve the assumption of long-term debt. We seek to manage this ratio and increase the efficiency of our balance sheet by following our business plan and managing our cost structure, including through possible asset divestitures, and through other changes in our capital structure. As part of our long-term objective to manage our capital structure, we may ~~issue equity or convertible securities, and we may~~ seek to retire, purchase, redeem or refinance some of our outstanding debt or issue equity or convertible securities, in each case subject to prevailing market conditions, our liquidity requirements, operating results, contractual restrictions and other factors. Our ability to achieve our leverage and capital structure objectives is subject to numerous risks and uncertainties, many of which are described in the ~~Risk Factors section in Part II of this report and our Q1’20 10-Q, as well as the~~ Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report.

Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations), equipment and information systems additions and replacements, introduction of

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new medical technologies, design and construction of new buildings, and various other capital improvements, as well as commitments to make capital expenditures in connection with acquisitions of businesses. Capital expenditures were ~~$288~~$121 million and ~~$336~~$182 million in the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. We ~~have reduced our planned capital expenditures for 2020 by approximately 40%. We now~~ anticipate that our capital expenditures for continuing operations for the year ending December 31, ~~2020~~2021 will total approximately ~~$400~~$700 million to ~~$450~~$750 million, including ~~$136~~$93 million that was accrued as a liability at December 31, ~~2019.~~2020.

Interest payments, net of capitalized interest, were ~~$465~~$190 million and ~~$484~~$172 million in the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Income tax payments, net of tax refunds, were $5$2 million in the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$13~~$3 million in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020.

SOURCES AND USES OF CASH

Our liquidity for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was primarily derived from net cash provided by operating activities, cash on hand and borrowings under our revolving credit facility. During the three months ended March 31, 2021, we also received supplemental funds from federal, state and local grants provided under COVID-19 relief legislation. We had ~~$3.514~~$2.141 billion of cash and cash equivalents on hand at ~~June 30, 2020~~March 31, 2021 to fund our operations and capital expenditures, and our borrowing availability under our credit facility was ~~$1.757~~$1.900 billion based on our borrowing base calculation at ~~June 30, 2020.~~March 31, 2021.

~~Our~~When operating under normal conditions, our primary source of operating cash is the collection of accounts receivable. As such, our operating cash flow is impacted by levels of cash collections, as well as levels of implicit price concessions, due to shifts in payer mix and other factors.

Net cash provided by operating activities was ~~$2.368 billion in the six months ended June 30, 2020 compared to $294~~$534 million in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2021 compared to $129 million in the three months ended March 31, 2020. Key factors contributing to the change between the ~~2020~~2021 and ~~2019~~2020 periods include the following:

•~~$1.378 billion~~An increase in net income before interest, taxes, discontinued operations and restructuring charges, acquisition-related costs, and litigation costs and settlements of ~~cash advances received from Medicare pursuant to COVID-19 stimulus legislation;~~

•~~$674~~$192 (including $31 million of cash received from federal and state grants ~~including~~in the ~~Relief Fund;~~

•~~$89 million deferral of our payroll tax match in 2020 pursuant to COVID-19 stimulus legislation~~2021 period);

•AnAdditional cash inflows of $54 million related to supplemental Medicaid programs in California and Texas;

•Reduced cash outflows of $67 million attributable to a decrease in malpractice claim payments;

•Additional cash outflows of $79 million due to an increase in our annual 401(k) match funding;

•A decrease of ~~$34~~$17 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements; and

•The timing of other working capital ~~items.~~items, including improved patient accounts receivable collection performance.

Net cash used in investing activities was ~~$289~~$145 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$303~~$204 million for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The ~~2020~~2021 amount included ~~an increase~~a decrease in ~~proceeds from sales~~investments for purchases of ~~marketable securities, long-term investments and other assets~~businesses or joint venture interests of ~~$26 million. The 2019 period included proceeds from sales of facilities and other assets of $40~~$30 million ~~due~~compared to the ~~sale of three hospitals and hospital-affiliated operations in the Chicago area.~~2020 period. Capital expenditures were ~~$288~~$121 million and ~~$336~~$182 million in the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Net cash provided by financing activities was $1.173 billion for the six months ended June 30, 2020 compared to net cash used in financing activities of $153 million for the six months ended June 30, 2019. The 2020 amount included proceeds from the issuance of ~~$700 million aggregate principal amount of 7.500%~~ ~~senior secured first lien notes due 2025 and~~ ~~$600 million aggregate principal amount of 4.625%~~ senior secured first lien notes due 2028. The 2020 amount also included $104 million of cash advances from Medicare and $38 million of stimulus grants received by our Ambulatory Care segment’s non-consolidated affiliates, as well as $142 million of payments for our purchases of $135 million aggregate principal amount of our outstanding 8.125% senior unsecured notes due 2022. The 2019 amount included proceeds from the issuance of $1.5 billion aggregate principal amount of 6.250% senior secured second lien notes due 2027, as well as the payments for our purchases of $300 million aggregate principal amount of our outstanding 6.750% senior notes due 2020, $750 million aggregate principal amount of our outstanding 7.500% senior secured second lien notes due 2022, and $468 million aggregate principal amount of our outstanding 5.500% senior unsecured notes due 2019. The 2019 amount also included net borrowings under our credit facility of $190 million.

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Net cash used in financing activities was $694 million for the three months ended March 31, 2021 compared to net cash provided by financing activities of $426 million for the three months ended March 31, 2020. The 2021 amount included payments of $541 million to reduce our long-term debt, including a payment of $495 million to retire our 2025 Senior Notes, and distributions to noncontrolling interests of $119 million. The 2020 amount included borrowings, net of repayments, of $500 million under our credit facility.

We record our equity securities and our debt securities classified as available-for-sale at fair market value. The majority of our investments are valued based on quoted market prices or other observable inputs. We have no investments that we expect will be negatively affected by the current economic conditions such that they will materially impact our financial condition, results of operations or cash flows.

DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS

Credit ~~Agreement.~~Agreement—We have a senior secured revolving credit facility that, at ~~June 30, 2020,~~March 31, 2021, provided for revolving loans in an aggregate principal amount of up to ~~$1.9~~$1.900 billion with a $200 million subfacility for standby letters of credit. At ~~June 30, 2020,~~March 31, 2021, we had no cash borrowings outstanding under the revolving credit facility, and we had less than $1 million of standby letters of credit outstanding. Based on our eligible receivables, ~~$1.757~~$1.900 billion was available for borrowing under the revolving credit facility at ~~June 30, 2020.~~March 31, 2021. At ~~June 30, 2020,~~March 31, 2021, we were in compliance with all covenants and conditions in our senior secured revolving credit facility.

On April 24, 2020, we amended our credit agreement (as amended to date, the “Credit Agreement”) to, among other things, (i) increase the aggregate revolving credit commitments from ~~$1.5~~$1.500 billion to ~~$1.9~~$1.900 billion (the “Increased Commitments”), subject to borrowing availability, and (ii) increase the advance rate andand raise limits on certain eligible accounts receivable in the calculation of the borrowing base, in each case, for an incremental period of 364 days. ~~For additional information regarding~~In April 2021, we further amended the Credit Agreement ~~see~~to, among other things, extend the availability of the Increased Commitments through April 22, 2022 and reduce the interest rate margins. See Note 6 to the accompanying Condensed Consolidated Financial ~~Statements.~~Statements for additional information about our Credit Facility and related amendments.

Letter of Credit ~~Facility.~~Facility—In March 2020, we amended our letter of credit facility (as amended, the “LC Facility”) to extend the scheduled maturity date of the LC Facility from March 7, 2021 to September 12, 2024 and to increase the aggregate principal amount of standby and documentary letters of credit that from time to time may be issued thereunder from $180 million to $200 million. On July 29, 2020, we further amended the LC Facility to incrementally increase the maximum secured debt covenant from ~~4.00~~4.25 to 1.00 on a quarterly basis up to 6.00 to 1.00 for the quarter ~~ending~~ended March 31, 2021, which maximum ratio will step down incrementally on a quarterly basis through the quarter ending December 31, 2021. Obligations under the LC Facility are guaranteed and secured by a ~~first-priority~~first‑priority pledge of the capital stock and other ownership interests of certain of our wholly owned domestic hospital subsidiaries on an equal ranking basis with our senior secured first lien notes. At ~~June 30, 2020,~~March 31, 2021, we were in compliance with all covenants and conditions in ~~our~~the LC Facility. At ~~June 30, 2020,~~March 31, 2021, we had ~~$88~~$92 million of standby letters of credit outstanding under the LC Facility.

Senior Unsecured and Senior Secured ~~Notes.~~ Notes—In ~~June 2020,~~March 2021, we ~~purchased $135~~retired approximately $478 million aggregate principal amount of our ~~8.125% senior unsecured notes due 2022 for $142 million.~~2025 Senior Notes in advance of their maturity date. We paid approximately $495 million from cash on hand to retire the notes. In connection with the ~~purchase,~~retirement, we recorded a loss from early extinguishment of debt of $8$23 million in the three months ended ~~June 30, 2020,~~March 31, 2021, primarily related to ~~the write-off of associated unamortized issuance costs and~~ the difference between the purchase price and the par value of the ~~notes.In July 2020, we purchased $104 million aggregate principal amount~~notes, as well as the write-off of ~~our 8.125% senior unsecured notes due 2022 for $109 million.~~associated unamortized issuance costs.

On June 16, 2020, we sold $600 million aggregate principal amount of 4.625% senior secured first lien notes, which will mature on June 15, 2028 (the “2028 Senior Secured First Lien Notes”). We will pay interest on the 2028 Senior Secured First Lien Notes semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2020.

For additional information regarding our long-term debt, see Note 6 to the accompanying Condensed Consolidated Financial Statements and Note 78 to the ~~Consolidated~~Consolidated Financial Statements included in our Annual Report.

LIQUIDITY

Broad economic factors resulting from the COVID-19 pandemic, including increased unemployment rates and reduced consumer spending, are impacting our service mix, revenue mix and patient volumes. Business closings and layoffs in the areas we operate ~~may lead~~have led to increases in the uninsured and underinsured populations and adversely affect demand for our services, as well as the ability of patients to pay for services as rendered. Any increase in the amount of or deterioration in the collectability of patient accounts receivable ~~will~~could adversely affect our cash flows and results of operations. If general economic conditions continue to deteriorate or remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be impacted.

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While demand for our services is expected to further rebound in the future, we have taken, and continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and operating revenues from the ~~COVID-19 pandemic~~. Inpandemic. These actions included the sale and redemption of various senior unsecured and senior secured notes, which eliminated any significant debt maturities until June ~~2020, we sold $600 million aggregate principal amount of~~2023 and will reduce our ~~2028 Senior Secured First Lien Notes.~~ future annual cash interest expense payments. In April ~~2020,~~2021, we ~~sold~~ ~~$700 million~~ ~~aggregate principal amount of our 2025 Senior Secured First Lien Notes, a portion of the proceeds of which were used to repay borrowings outstanding under our Credit Agreement. In addition, we~~further amended our Credit Agreement into extend the availability of the Incremental Amounts through April ~~2020 to increase our borrowing availability and make certain changes with respect to the calculation of our borrowing base.~~ ~~We also cut our planned capital expenditures for 2020 by approximately 40%. Furthermore,~~22, 2022. Additionally, we have decreased our employee headcount throughout the organization, and we have deferred certain operating expenses that are not expected to impact our response to COVID-19. In addition, we are reducing variable costs across the enterprisecontinued cost efficiency initiatives, as ~~a result of softening patient volumes~~well as necessary cost reductions due to the decline in patient volumes associated with the COVID-19 ~~pandemic.~~pandemic, to substantially offset incremental costs, including temporary staffing and premium pay, as well as higher supply costs for PPE. We have also sought to compensate for the COVID-19 pandemic’s disruption of our patient volumes and mix by growing our services for which demand has been more resilient, including our higher-acuity service lines. While the length of time that will be required for our patient volumes and mix to return to pre-pandemic levels is unknown, especially demand for lower-acuity services, we believe demand for our higher-acuity service lines will continue to grow. We believe these actions, together with government relief packages, to the extent available to us, will help us to continue operating during the uncertainty caused by the COVID-19 pandemic. ~~As more fully described under “Sources of Revenue for Our Hospital Operations Segment – Government Programs” above:~~

•The Medicare Fee-for-Service accelerated and advanced payment program has been expanded. During the six months ended June 30, 2020, our hospitals and other providers applied for and received approximately $1.5 billion of accelerated payments. ~~We expect to repay these advances within the next year.~~

•Beginning March 27, 2020, all employers may elect to defer payment of the 6.2% employer Social Security tax through December 31, 2020. Deferred tax amounts are required to be paid in equal amounts over two years, with payments due in December 2021 and December 2022. We expect that we will defer approximately $250 million of taxes in 2020 pursuant to this CARES Act provision.

•~~To address the fiscal burdens on healthcare providers created by the COVID-19 public health emergency, the CARES Act and other legislation authorized $175 billion for the Relief Fund.~~ ~~In the three months ended June 30, 2020, we received cash payments of~~ ~~$712 million~~ ~~due to grants from the Relief Fund and state grant programs.In July 2020, we received cash payments of $155 million from the Relief Fund.~~ Payments from the Relief Fund are not loans and, therefore, they are not subject to repayment. However, as a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for lost operating revenues and COVID-related costs, and that the providers will not seek collection of out-of-pocket payments from a COVID-19 patient that are greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network provider.

•Effective May 1, 2020 through December 31, 2020, the 2% sequestration reduction on Medicare FFS and Medicare Advantage payments to hospitals, physicians and other providers authorized by the Sequestration Transparency Act of 2020 is suspended and will resume effective January 2021. The estimated impact of this change on our operations is an increase of approximately ~~$67 million~~ ~~of revenues in 2020.~~

From time to time, we expect to engage in additional capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at that time. We believe our existing debt agreements provide flexibility for future secured or unsecured borrowings.

Our cash on hand fluctuates day-to-day throughout the year based on the timing and levels of routine cash receipts and disbursements, including our book overdrafts, and required cash disbursements, such as interest ~~payments.~~payments and income tax payments, as well as cash disbursements required to respond to the COVID-19 pandemic. Cash flows from operating activities in the first quarter of the calendar year are usually lower than in subsequent quarters of the year, primarily due to the timing of certain working capital requirements during the first quarter, including our annual 401(k) matching contributions and annual incentive compensation payouts. These fluctuations result in material intra-quarter net operating and investing uses of cash that have caused, and in the future will cause, us to use our Credit Agreement as a source of liquidity. We believe that existing cash and cash equivalents on hand, borrowing availability under our Credit Agreement, anticipated future cash provided by our operating activities and possible additional government relief packages ~~and our operating activities~~ should be adequate to meet our current cash needs. These sources of liquidity, in combination with any potential future debt incurrence, should also be adequate to finance planned capital expenditures, payments on the current portion of our long-term debt, payments to joint venture partners, including those related to put and call arrangements and other presently known operating needs.

Long-term liquidity for debt service and other purposes will be dependent on the amount of cash provided by operating activities and, subject to favorable market and other conditions, the successful completion of future borrowings and potential refinancings. However, our cash requirements could be materially affected by the use of cash in acquisitions of businesses, repurchases of securities, the exercise of put rights or other exit options by our joint venture partners, and contractual commitments to fund capital expenditures in, or intercompany borrowings to, businesses we own. In addition, liquidity could be

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adversely affected by a deterioration in our results of operations, including our ability to generate sufficient cash from operations, as well as by the various risks and uncertainties discussed in this section, ~~and~~ other sections of this report and in our Annual Report, ~~and Q1’20 10-Q,~~ including any costs associated with legal proceedings and government investigations.

We do not rely on commercial paper or other short-term financing arrangements nor do we enter into repurchase agreements or other short-term financing arrangements not otherwise reported in our balance ~~sheets.~~sheet. In addition, we do not have significant exposure to floating interest rates given that all of our current long-term indebtedness has fixed rates of interest except for borrowings under our Credit Agreement.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, except for ~~$193~~$187 million of standby letters of credit outstanding and guarantees at ~~June 30, 2020.~~March 31, 2021.

CRITICAL ACCOUNTING ESTIMATES

In preparing our Condensed Consolidated Financial Statements in conformity with GAAP, we must use estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may vary from those estimates.

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We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different outcomes under different conditions or when using different assumptions.

Our critical accounting estimates have not changed from the description provided in our Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following table presents information about certain of our market-sensitive financial instruments at ~~June 30, 2020.~~March 31, 2021. The fair values were determined based on quoted market prices for the same or similar instruments. The average effective interest rates presented are based on the rate in effect at the reporting date. The effects of unamortized discounts and issue costs are excluded from the table.


																										Maturity Date, Years Ending December 31,
		Maturity Date, Years Ending December 31,																																				2021			2022			2023			2024		2025	Thereafter	Total	Fair Value
		2020			2021			2022			2023			2024			Thereafter			Total			Fair Value
		(Dollars in Millions)																																													(Dollars in Millions)
Fixed rate long-term debt	Fixed rate long-term debt	$	160		$	128		$	2,731		$	1,908		$	2,488		$	8,659		$	16,074		$	16,029	Fixed rate long-term debt	$	113		$	103		$	1,930		$	2,495		$	2,131		$	8,625		$	15,397		$	16,081
Average effective interest rates	Average effective interest rates	5.7		%	4.7		%	8.5		%	7.3		%	4.9		%	5.9		%	6.3		%			Average effective interest rates	4.4		%	4.7		%	6.7		%	4.6		%	5.9		%	5.6		%	5.6		%

We have no affiliation with partnerships, trusts or other entities (sometimes referred to as “special-purpose” or “variable-interest” entities) whose purpose is to facilitate off-balance sheet financial transactions or similar arrangements by us. As a result, we have no exposure to the financing, liquidity, market or credit risks associated with such entities.

We do not hold or issue derivative instruments for trading purposes and are not a party to any instruments with leverage or prepayment features.

ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this ~~report.~~report with respect to our operations that existed prior to the acquisition of controlling ownership interests in the SCD Centers by USPI’s subsidiaries in December 2020. The evaluation was performed under the supervision and with the participation of management, including our chief executive officer and chief financial officer. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at ~~June 30, 2020~~March 31, 2021 to ensure that material information is recorded, processed, summarized and reported by management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the SEC rules thereunder.

There were no changes in our internal control over financial reporting during the quarter ended ~~June 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Because we provide healthcare services in a highly regulated industry, we have been and expect to continue to be party to various lawsuits, claims and regulatory investigations from time to time. For information regarding material legal proceedings in which we are involved, see Note12 to our accompanying Condensed Consolidated Financial Statements, which is incorporated by reference.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2019 (“Annual Report”), except that the following risk factor has been updated since our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 to reflect the heightened impact in the United States of the COVID-19 pandemic since we filed our Annual Report.

The COVID-19 pandemic is significantly affecting our operations and financial condition, and our liquidity could also be negatively impacted, particularly if the U.S. economy remains unstable for a significant period of time.

The spread of COVID-19 and the ensuing response of federal, state and local authorities beginning in March 2020 resulted in a material reduction in our patient volumes and operating revenues that is ongoing. Known and unknown risks and uncertainties caused by the COVID-19 pandemic, including those described below, are having, and will likely continue to have, a material impact on our business, financial condition, results of operations and cash flows. Because the ultimate extent and scope of the COVID-19 pandemic is unknown, the risks and uncertainties described in our Annual Report may also be heightened.

We have taken measures within the communities we serve, both voluntarily and in accordance with governmental mandates, to try to limit the spread of the virus and to mitigate the burden on the healthcare system. From mid-March through early May 2020, we suspended many elective procedures at our hospitals and closed or reduced operating hours at our ambulatory surgery centers and other outpatient centers that specialize in elective procedures. Restrictive measures, including travel bans, social distancing, quarantines and shelter-in-place orders, also reduced – and continue to impact – the volume of procedures performed at our facilities more generally, as well as the volume of emergency room and physician office visits. Collectively, these measures had an adverse impact on our business and financial results in the six months ended June 30, 2020, as further described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report. Although we have re-opened the vast majority of our outpatient facilities throughout our network in accordance with guidelines from the Centers for Medicare and Medicaid Services and other agencies, given the geographic diversity of our operations, we cannot predict when all of our facilities will be fully operational. Moreover, if an area in which we operate experiences a surge in COVID-19 cases, we may be forced to reduce services once more. Any federal, state or local law, regulation, order or other action imposing direct or indirect restrictions on our business due to the COVID-19 pandemic or otherwise may have an adverse impact on our financial condition, results of operations and cash flows.

We are treating patients with COVID-19 in our hospitals and, in some areas, the increased demand for care is putting a strain on our resources and staff, which may cause some of our hospitals to reduce their operating capacity. In addition, even with appropriate protective measures, exposure to COVID-19 increases the risk that physicians, nurses and others in our hospitals may contract the virus, which could further limit our ability to treat all patients who seek care. If conditions worsen, some of our hospitals may experience workforce disruptions. Furthermore, we may be subject to lawsuits from patients, employees and others exposed to COVID-19 at our facilities. Such actions may involve large demands, as well as substantial defense costs. Our professional and general liability insurance may not cover all claims against us.

We are also experiencing supply chain disruptions, including shortages, delays and significant price increases in medical supplies, particularly personal protective equipment. These shortages and delays may impact our ability to see, admit and treat patients.

Broad economic factors resulting from the COVID-19 pandemic, including increased unemployment rates and reduced consumer spending, are impacting our service mix, revenue mix and patient volumes. Business closings and layoffs in the areas 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 to pay for services as rendered. Any increase in the amount of or deterioration in the collectability of patient accounts receivable will adversely affect our cash flows and results of operations. If general economic conditions continue to deteriorate or remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be impacted. We may be required to engage in capital markets and other financing activities to remain operational. There can be no assurance that we will be able to raise additional funds on terms acceptable to us, if at all.

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~~ITEM 5. OTHER INFORMATION~~

On July 29, 2020, we entered into Amendment No. 5 (the “LC Amendment”) to the Letter of Credit Facility Agreement, dated as of March 7, 2014 (as amended by the LC Amendment and in effect as of July 29, 2020, the “LC Agreement”), by and among us, the letter of credit participants and issuers party thereto, and Barclays Bank PLC, as administrative agent.

The LC Amendment increased the LC Agreement’s maximum secured debt covenant from 4.00 to 1.00 on a quarterly basis up to 6.00 to 1.00 for the quarter ending March 31, 2021, which maximum ratio will step down on a quarterly basis through the quarter ending December 31, 2021. The foregoing description of the LC Amendment is a summary and is qualified in its entirety by reference to the LC Amendment, which is filed herewith as Exhibit 10(a), and is incorporated herein by reference.2020.

ITEM 6. EXHIBITS

Unless otherwise indicated, the following exhibits are filed with this report:

~~(4)~~

~~Instruments Defining the Rights of Security Holders, Including Indentures~~

~~(a)~~

Thirty-Fifth Supplemental Indenture, dated as of June 16, 2020, among the Registrant, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee, relating to 4.625% Senior Secured First Lien Notes Due 2028 (Incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed June 16, 2020)

(10)

Material Contracts

(a)

Amendment No. 5,6, dated as of ~~July~~April 2919 , ~~2020,~~2021, to ~~the Letter of~~that certain Amended and Restated Credit ~~Facility~~ Agreement, dated as of ~~March 7, 2014, by and~~October 19, 2010, among ~~Tenet Healthcare Corporation,~~ the ~~letter of credit~~ ~~participants~~Registrant, the lenders and issuers party thereto , and ~~Barclays Bank PLC,~~Citicorp USA, Inc., as administrative agent

~~(b)~~

~~Exchange and Registration Rights Agreement, dated as of June 16, 2020, among the Registrant, the guarantors party thereto and Barclays Capital Inc. as representative of the other initial purchasers~~of t he ~~notesnamed therein~~ (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed April ~~Form~~23 ~~8-K~~ ~~filed June 16, 2020~~), 2021)

(31)

Rule 13a-14(a)/15d-14(a) Certifications

(a)

Certification of Ronald A. Rittenmeyer, Executive Chairman and Chief Executive Officer

(b)

Certification of Daniel J. Cancelmi, Executive Vice President and Chief Financial Officer

(32)

Section 1350 ~~Certification~~Certifications of Ronald A. Rittenmeyer, Executive Chairman and Chief Executive Officer, and Daniel J. Cancelmi, Executive Vice President and Chief Financial Officer

(101 SCH)

Inline XBRL Taxonomy Extension Schema Document

(101 CAL)

Inline XBRL Taxonomy Extension Calculation Linkbase Document

(101 DEF)

Inline XBRL Taxonomy Extension Definition Linkbase Document

(101 LAB)

Inline XBRL Taxonomy Extension Label Linkbase Document

(101 PRE)

Inline XBRL Taxonomy Extension Presentation Linkbase Document

(101 INS)

Inline XBRL Taxonomy Extension Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

(104)

Cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2020~~March 31, 2021 formatted in Inline XBRL (included in Exhibit 101)

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Table of Contents

SIGNATURES

Pursuant to the requirements 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.


		TENET HEALTHCARE CORPORATION (Registrant)

Date: ~~August 3, 2020~~April 30, 2021	By:	/s/ R. SCOTT RAMSEY
		R. Scott Ramsey
		Senior Vice President, Controller
		(Principal Accounting Officer)

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	As Reported		Effect of Change in Accounting Principle		As Adjusted
At December 31, 2019:
Deferred income taxes	$	169	$	14	$	183
Professional and general liability reserves	$	585	$	50	$	635
Other long-term liabilities	$	1,405	$	10	$	1,415
Accumulated deficit	$	(2,467)	$	(46)	$	(2,513)


	Three Months Ended June 30, 2020										Six Months Ended June 30, 2020
	Prior to Change in Accounting Principle		Effect of Change in Accounting Principle		As Reported		Prior to Change in Accounting Principle		Effect of Change in Accounting Principle		As Reported
Salaries, wages and benefits	$	1,864	$	—	$	1,864	$	4,058	$	(7)	$	4,051
Other operating expenses, net	$	983	$	—	$	983	$	2,030	$	(34)	$	1,996
Operating income	$	471	$	—	$	471	$	757	$	41	$	798
Income tax benefit (expense)	$	(45)	$	—	$	(45)	$	40	$	(10)	$	30
Net income	$	169	$	—	$	169	$	297	$	31	$	328
Net income from continuing operations available to Tenet Healthcare Corporation common shareholders	$	88	$	—	$	88	$	151	$	31	$	182
Earnings per share available to Tenet Healthcare Corporation common shareholders from continuing operations:
Basic	$	0.84	$	—	$	0.84	$	1.44	$	0.30	$	1.74
Diluted	$	0.83	$	—	$	0.83	$	1.43	$	0.29	$	1.72


	Three Months Ended June 30, 2019										Six Months Ended June 30, 2019
	As Reported		Effect of Change in Accounting Principle		As Adjusted		As Reported		Effect of Change in Accounting Principle		As Adjusted
Salaries, wages and benefits	$	2,148	$	(3)	$	2,145	$	4,301	$	(5)	$	4,296
Other operating expenses, net	$	1,044	$	(9)	$	1,035	$	2,117	$	(17)	$	2,100
Operating income	$	388	$	12	$	400	$	759	$	22	$	781
Income tax expense	$	(30)	$	(3)	$	(33)	$	(47)	$	(6)	$	(53)
Net income	$	112	$	9	$	121	$	177	$	16	$	193
Net income (loss) from continuing operations available (attributable) to Tenet Healthcare Corporation common shareholders	$	15	$	9	$	24	$	(12)	$	16	$	4
Earnings (loss) per share available (attributable) to Tenet Healthcare Corporation common shareholders from continuing operations:
Basic	$	0.15	$	0.08	$	0.23	$	(0.12)	$	0.16	$	0.04
Diluted	$	0.14	$	0.09	$	0.23	$	(0.12)	$	0.16	$	0.04


			Six Months Ending		Years Ending										Later Years
			December 31,
	Total		2020		2021		2022		2023		2024
Amortization of intangible assets	$	922	$	87	$	132	$	118	$	106	$	88	$	391


	Three Months Ended June 30,						Six Months Ended June 30,
Revenue Descriptions	2020		2019		2020		2019
Medicare severity-adjusted diagnosis-related group — operating	$	312	$	368	$	702	$	772
Medicare severity-adjusted diagnosis-related group — capital	26		32		61		68
Outliers	13		22		32		45
Outpatient	128		185		302		375
Disproportionate share	52		58		106		117
Other(1)	66		56		99		102
Total Medicare net patient service revenues	$	597	$	721	$	1,302	$	1,479


	Six Months Ended June 30,
Hospital Location	2020		2019
Alabama	$	50	$	46
Arizona	81		72
California	383		441
Florida	98		111

Illinois	—		5
Massachusetts	42		44
Michigan	272		361

South Carolina	30		28
Tennessee	17		18
Texas	188		222
	$	1,161	$	1,348


Ambulatory Care Facility Growth	Three Months Ended June 30, 2020	Six Months Ended June 30, 2020
Net revenues	(28.2)%	(15.4)%
Cases	(33.7)%	(19.3)%
Net revenue per case	8.2%	4.8%