UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
| | | | | |
ý | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2022 |
OR
| | | | | |
¨ | 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 ý 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 ý 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).
| | | | | | | | | | | | | | | | | | | | | | | |
UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, DC 20549 |
| | | | | | | |
Form 10-Q |
| | | | | | | |
ý Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2023 |
| | | | | | | |
Large accelerated filerOR |
ý | | | Accelerated filer | ¨ | Non-accelerated filer | ¨ | |
¨ 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 (State of Incorporation) | | | 95-2557091 (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: |
| | | | | | | | | | | | | | | | | | | | |
Smaller reporting company | ¨ | Title of each class | | Emerging growth companyTrading 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 | |
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 (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 ý 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 ý 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). |
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨ No | | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer ý | Accelerated filer ¨ | Non-accelerated filer ¨ | |
At October 21, 2022, there were 108,123,186 shares of the Registrant’s common stock outstanding. | | | | | | | | | | | | | | | | | | | | | | | |
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 ý |
|
Number of shares of the Registrant’s common stock outstanding at October 20, 2023 – 101,552 (in thousands) |
TENET HEALTHCARE CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in Millions, Share Amounts in Thousands
(Unaudited)
| | | | | | | | | | | | | | |
| | September 30, | | December 31, |
| | 2022 | | 2021 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 1,208 | | | $ | 2,364 | |
Accounts receivable | | 2,826 | | | 2,770 | |
Inventories of supplies, at cost | | 394 | | | 384 | |
Income tax receivable | | 4 | | | — | |
| | | | |
Other current assets | | 1,566 | | | 1,557 | |
Total current assets | | 5,998 | | | 7,075 | |
Investments and other assets | | 3,312 | | | 3,254 | |
Deferred income taxes | | 55 | | | 65 | |
Property and equipment, at cost, less accumulated depreciation and amortization ($6,295 at September 30, 2022 and $5,960 at December 31, 2021) | | 6,291 | | | 6,427 | |
Goodwill | | 9,979 | | | 9,261 | |
Other intangible assets, at cost, less accumulated amortization ($1,422 at September 30, 2022 and $1,374 at December 31, 2021) | | 1,441 | | | 1,497 | |
Total assets | | $ | 27,076 | | | $ | 27,579 | |
LIABILITIES AND EQUITY | | | | |
Current liabilities: | | | | |
Current portion of long-term debt | | $ | 131 | | | $ | 135 | |
Accounts payable | | 1,240 | | | 1,300 | |
Accrued compensation and benefits | | 781 | | | 896 | |
Professional and general liability reserves | | 279 | | | 254 | |
Accrued interest payable | | 249 | | | 203 | |
| | | | |
Contract liabilities | | 111 | | | 959 | |
Other current liabilities | | 1,485 | | | 1,362 | |
Total current liabilities | | 4,276 | | | 5,109 | |
Long-term debt, net of current portion | | 14,962 | | | 15,511 | |
Professional and general liability reserves | | 804 | | | 791 | |
Defined benefit plan obligations | | 400 | | | 421 | |
Deferred income taxes | | 235 | | | 36 | |
Contract liabilities – long-term | | 14 | | | 15 | |
Other long-term liabilities | | 1,810 | | | 1,439 | |
Total liabilities | | 22,501 | | | 23,322 | |
Commitments and contingencies | | | | |
Redeemable noncontrolling interests in equity of consolidated subsidiaries | | 2,068 | | | 2,203 | |
Equity: | | | | |
Shareholders’ equity: | | | | |
Common stock, $0.05 par value; authorized 262,500,000 shares; 156,276,317 shares issued at September 30, 2022 and 155,520,691 shares issued at December 31, 2021 | | 8 | | | 8 | |
Additional paid-in capital | | 4,771 | | | 4,877 | |
Accumulated other comprehensive loss | | (229) | | | (233) | |
Accumulated deficit | | (905) | | | (1,214) | |
Common stock in treasury, at cost, 48,327,503 shares at September 30, 2022 and 48,331,649 shares at December 31, 2021 | | (2,410) | | | (2,410) | |
Total shareholders’ equity | | 1,235 | | | 1,028 | |
Noncontrolling interests | | 1,272 | | | 1,026 | |
Total equity | | 2,507 | | | 2,054 | |
Total liabilities and equity | | $ | 27,076 | | | $ | 27,579 | |
| | | | | | | | | | | | | | |
| | September 30, | | December 31, |
| | 2023 | | 2022 |
ASSETS | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 1,054 | | | $ | 858 | |
Accounts receivable | | 2,897 | | | 2,943 | |
Inventories of supplies, at cost | | 413 | | | 405 | |
| | | | |
Assets held for sale | | 140 | | | — | |
Other current assets | | 1,855 | | | 1,775 | |
Total current assets | | 6,359 | | | 5,981 | |
Investments and other assets | | 3,152 | | | 3,147 | |
Deferred income taxes | | 4 | | | 19 | |
Property and equipment, at cost, less accumulated depreciation and amortization ($6,462 at September 30, 2023 and $6,201 at December 31, 2022) | | 6,260 | | | 6,462 | |
Goodwill | | 10,415 | | | 10,123 | |
Other intangible assets, at cost, less accumulated amortization ($1,463 at September 30, 2023 and $1,428 at December 31, 2022) | | 1,400 | | | 1,424 | |
Total assets | | $ | 27,590 | | | $ | 27,156 | |
LIABILITIES AND EQUITY | | | | |
Current liabilities: | | | | |
Current portion of long-term debt | | $ | 141 | | | $ | 145 | |
Accounts payable | | 1,202 | | | 1,504 | |
Accrued compensation and benefits | | 787 | | | 778 | |
Professional and general liability reserves | | 264 | | | 255 | |
Accrued interest payable | | 273 | | | 213 | |
Liabilities held for sale | | 17 | | | — | |
Contract liabilities | | 86 | | | 110 | |
Other current liabilities | | 1,662 | | | 1,471 | |
Total current liabilities | | 4,432 | | | 4,476 | |
Long-term debt, net of current portion | | 14,901 | | | 14,934 | |
Professional and general liability reserves | | 787 | | | 790 | |
Defined benefit plan obligations | | 327 | | | 331 | |
Deferred income taxes | | 278 | | | 217 | |
Other long-term liabilities | | 1,684 | | | 1,800 | |
Total liabilities | | 22,409 | | | 22,548 | |
Commitments and contingencies | | | | |
Redeemable noncontrolling interests in equity of consolidated subsidiaries | | 2,303 | | | 2,149 | |
Equity: | | | | |
Shareholders’ equity: | | | | |
Common stock, $0.05 par value; authorized 262,500 shares; 157,247 shares issued at September 30, 2023 and 156,462 shares issued at December 31, 2022 | | 8 | | | 8 | |
Additional paid-in capital | | 4,818 | | | 4,778 | |
Accumulated other comprehensive loss | | (176) | | | (181) | |
Accumulated deficit | | (436) | | | (803) | |
Common stock in treasury, at cost, 55,695 shares at September 30, 2023 and 54,216 shares at December 31, 2022 | | (2,750) | | | (2,660) | |
Total shareholders’ equity | | 1,464 | | | 1,142 | |
Noncontrolling interests | | 1,414 | | | 1,317 | |
Total equity | | 2,878 | | | 2,459 | |
Total liabilities and equity | | $ | 27,590 | | | $ | 27,156 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in Millions, Except Per-Share Amounts
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Net operating revenues | Net operating revenues | | $ | 4,801 | | | $ | 4,894 | | | $ | 14,184 | | | $ | 14,629 | | Net operating revenues | | $ | 5,066 | | | $ | 4,801 | | | $ | 15,169 | | | $ | 14,184 | |
Grant income | Grant income | | 54 | | | 3 | | | 154 | | | 53 | | Grant income | | 3 | | | 54 | | | 14 | | | 154 | |
Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | | 51 | | | 45 | | | 151 | | | 141 | | Equity in earnings of unconsolidated affiliates | | 51 | | | 51 | | | 155 | | | 151 | |
Operating expenses: | Operating expenses: | | | | | Operating expenses: | | | | |
Salaries, wages and benefits | Salaries, wages and benefits | | 2,230 | | | 2,209 | | | 6,538 | | | 6,690 | | Salaries, wages and benefits | | 2,288 | | | 2,230 | | | 6,831 | | | 6,538 | |
Supplies | Supplies | | 817 | | | 827 | | | 2,413 | | | 2,490 | | Supplies | | 877 | | | 817 | | | 2,659 | | | 2,413 | |
Other operating expenses, net | Other operating expenses, net | | 1,018 | | | 1,051 | | | 2,966 | | | 3,177 | | Other operating expenses, net | | 1,101 | | | 1,018 | | | 3,319 | | | 2,966 | |
Depreciation and amortization | Depreciation and amortization | | 209 | | | 209 | | | 628 | | | 654 | | Depreciation and amortization | | 224 | | | 209 | | | 654 | | | 628 | |
Impairment and restructuring charges, and acquisition-related costs | Impairment and restructuring charges, and acquisition-related costs | | 24 | | | 15 | | | 97 | | | 55 | | Impairment and restructuring charges, and acquisition-related costs | | 47 | | | 24 | | | 84 | | | 97 | |
Litigation and investigation costs | Litigation and investigation costs | | 12 | | | 29 | | | 50 | | | 64 | | Litigation and investigation costs | | 14 | | | 12 | | | 28 | | | 50 | |
Net gains on sales, consolidation and deconsolidation of facilities | | — | | | (412) | | | — | | | (427) | | |
Net losses (gains) on sales, consolidation and deconsolidation of facilities | | Net losses (gains) on sales, consolidation and deconsolidation of facilities | | 1 | | | — | | | (12) | | | — | |
Operating income | Operating income | | 596 | | | 1,014 | | | 1,797 | | | 2,120 | | Operating income | | 568 | | | 596 | | | 1,775 | | | 1,797 | |
Interest expense | Interest expense | | (222) | | | (227) | | | (671) | | | (702) | | Interest expense | | (227) | | | (222) | | | (674) | | | (671) | |
Other non-operating income, net | Other non-operating income, net | | 6 | | | 7 | | | 6 | | | 16 | | Other non-operating income, net | | 4 | | | 6 | | | 8 | | | 6 | |
Loss from early extinguishment of debt | Loss from early extinguishment of debt | | — | | | (20) | | | (109) | | | (74) | | Loss from early extinguishment of debt | | — | | | — | | | (11) | | | (109) | |
Income from continuing operations, before income taxes | Income from continuing operations, before income taxes | | 380 | | | 774 | | | 1,023 | | | 1,360 | | Income from continuing operations, before income taxes | | 345 | | | 380 | | | 1,098 | | | 1,023 | |
Income tax expense | Income tax expense | | (112) | | | (197) | | | (297) | | | (303) | | Income tax expense | | (79) | | | (112) | | | (243) | | | (297) | |
Income from continuing operations, before discontinued operations | Income from continuing operations, before discontinued operations | | 268 | | | 577 | | | 726 | | | 1,057 | | Income from continuing operations, before discontinued operations | | 266 | | | 268 | | | 855 | | | 726 | |
Discontinued operations: | | | | | |
Income from operations | | — | | | 1 | | | 1 | | | — | | |
| Income from discontinued operations | | — | | | 1 | | | 1 | | | — | | |
| Income from discontinued operations, net of tax | | Income from discontinued operations, net of tax | | — | | | — | | | — | | | 1 | |
Net income | Net income | | 268 | | | 578 | | | 727 | | | 1,057 | | Net income | | 266 | | | 268 | | | 855 | | | 727 | |
Less: Net income available to noncontrolling interests | Less: Net income available to noncontrolling interests | | 137 | | | 129 | | | 418 | | | 392 | | Less: Net income available to noncontrolling interests | | 165 | | | 137 | | | 488 | | | 418 | |
Net income available to Tenet Healthcare Corporation common shareholders | Net income available to Tenet Healthcare Corporation common shareholders | | $ | 131 | | | $ | 449 | | | $ | 309 | | | $ | 665 | | Net income available to Tenet Healthcare Corporation common shareholders | | $ | 101 | | | $ | 131 | | | $ | 367 | | | $ | 309 | |
Amounts available to Tenet Healthcare Corporation common shareholders | | | | | | | | | |
Amounts available to Tenet Healthcare Corporation common shareholders: | | Amounts available to Tenet Healthcare Corporation common shareholders: | | | | | | | | |
Income from continuing operations, net of tax | Income from continuing operations, net of tax | | $ | 131 | | | $ | 448 | | | $ | 308 | | | $ | 665 | | Income from continuing operations, net of tax | | $ | 101 | | | $ | 131 | | | $ | 367 | | | $ | 308 | |
Income from discontinued operations, net of tax | Income from discontinued operations, net of tax | | — | | | 1 | | | 1 | | | — | | Income from discontinued operations, net of tax | | — | | | — | | | — | | | 1 | |
Net income available to Tenet Healthcare Corporation common shareholders | Net income available to Tenet Healthcare Corporation common shareholders | | $ | 131 | | | $ | 449 | | | $ | 309 | | | $ | 665 | | Net income available to Tenet Healthcare Corporation common shareholders | | $ | 101 | | | $ | 131 | | | $ | 367 | | | $ | 309 | |
Earnings per share available to Tenet Healthcare Corporation common shareholders: | Earnings per share available to Tenet Healthcare Corporation common shareholders: | | | | | | | | | Earnings per share available to Tenet Healthcare Corporation common shareholders: | | | | | | | | |
Basic | Basic | | | | | Basic | | | | |
Continuing operations | Continuing operations | | $ | 1.21 | | | $ | 4.18 | | | $ | 2.86 | | | $ | 6.23 | | Continuing operations | | $ | 0.99 | | | $ | 1.21 | | | $ | 3.60 | | | $ | 2.86 | |
Discontinued operations | Discontinued operations | | — | | | 0.01 | | | 0.01 | | | — | | Discontinued operations | | — | | | — | | | — | | | 0.01 | |
| | | $ | 1.21 | | | $ | 4.19 | | | $ | 2.87 | | | $ | 6.23 | | | | $ | 0.99 | | | $ | 1.21 | | | $ | 3.60 | | | $ | 2.87 | |
Diluted | Diluted | | | | | | | | | Diluted | | | | | | | | |
Continuing operations | Continuing operations | | $ | 1.16 | | | $ | 4.12 | | | $ | 2.81 | | | $ | 6.13 | | Continuing operations | | $ | 0.94 | | | $ | 1.16 | | | $ | 3.41 | | | $ | 2.81 | |
Discontinued operations | Discontinued operations | | — | | | 0.01 | | | 0.01 | | | — | | Discontinued operations | | — | | | — | | | — | | | 0.01 | |
| | | $ | 1.16 | | | $ | 4.13 | | | $ | 2.82 | | | $ | 6.13 | | | | $ | 0.94 | | | $ | 1.16 | | | $ | 3.41 | | | $ | 2.82 | |
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 | | 107,923 | | | 107,050 | | | 107,732 | | | 106,727 | | Basic | | 101,544 | | | 107,923 | | | 101,869 | | | 107,732 | |
Diluted | Diluted | | 109,888 | | | 108,761 | | | 112,288 | | | 108,465 | | Diluted | | 104,425 | | | 109,888 | | | 105,021 | | | 112,288 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
Dollars in Millions
(Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income | Net income | | $ | 268 | | | $ | 578 | | | $ | 727 | | | $ | 1,057 | | Net income | | $ | 266 | | | $ | 268 | | | $ | 855 | | | $ | 727 | |
Other comprehensive income: | Other comprehensive income: | | Other comprehensive income: | |
Amortization of net actuarial loss included in other non-operating income, net | Amortization of net actuarial loss included in other non-operating income, net | | 2 | | | 2 | | | 7 | | | 8 | | Amortization of net actuarial loss included in other non-operating income, net | | 1 | | | 2 | | | 5 | | | 7 | |
Unrealized losses on debt securities held as available-for-sale | | (1) | | | — | | | (4) | | | — | | |
Unrealized loss on debt securities held as available-for-sale | | Unrealized loss on debt securities held as available-for-sale | | — | | | (1) | | | — | | | (4) | |
| Foreign currency translation adjustments | | 2 | | | 1 | | | 3 | | | 1 | | |
Foreign currency translation adjustments and other | | Foreign currency translation adjustments and other | | 1 | | | 2 | | | 1 | | | 3 | |
Other comprehensive income before income taxes | Other comprehensive income before income taxes | | 3 | | | 3 | | | 6 | | | 9 | | Other comprehensive income before income taxes | | 2 | | | 3 | | | 6 | | | 6 | |
Income tax expense related to items of other comprehensive income | Income tax expense related to items of other comprehensive income | | (1) | | | — | | | (2) | | | (2) | | Income tax expense related to items of other comprehensive income | | — | | | (1) | | | (1) | | | (2) | |
Total other comprehensive income, net of tax | Total other comprehensive income, net of tax | | 2 | | | 3 | | | 4 | | | 7 | | Total other comprehensive income, net of tax | | 2 | | | 2 | | | 5 | | | 4 | |
Comprehensive net income | Comprehensive net income | | 270 | | | 581 | | | 731 | | | 1,064 | | Comprehensive net income | | 268 | | | 270 | | | 860 | | | 731 | |
Less: Comprehensive income available to noncontrolling interests | Less: Comprehensive income available to noncontrolling interests | | 137 | | | 129 | | | 418 | | | 392 | | Less: Comprehensive income available to noncontrolling interests | | 165 | | | 137 | | | 488 | | | 418 | |
Comprehensive income available to Tenet Healthcare Corporation common shareholders | Comprehensive income available to Tenet Healthcare Corporation common shareholders | | $ | 133 | | | $ | 452 | | | $ | 313 | | | $ | 672 | | Comprehensive income available to Tenet Healthcare Corporation common shareholders | | $ | 103 | | | $ | 133 | | | $ | 372 | | | $ | 313 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
TENET HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
(Unaudited)
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Net income | Net income | | $ | 727 | | | $ | 1,057 | | Net income | | $ | 855 | | | $ | 727 | |
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 | | 628 | | | 654 | | Depreciation and amortization | | 654 | | | 628 | |
Deferred income tax expense | Deferred income tax expense | | 208 | | | 183 | | Deferred income tax expense | | 75 | | | 208 | |
Stock-based compensation expense | Stock-based compensation expense | | 47 | | | 43 | | Stock-based compensation expense | | 48 | | | 47 | |
Impairment and restructuring charges, and acquisition-related costs | Impairment and restructuring charges, and acquisition-related costs | | 97 | | | 55 | | Impairment and restructuring charges, and acquisition-related costs | | 84 | | | 97 | |
Litigation and investigation costs | Litigation and investigation costs | | 50 | | | 64 | | Litigation and investigation costs | | 28 | | | 50 | |
Net gains on sales, consolidation and deconsolidation of facilities | Net gains on sales, consolidation and deconsolidation of facilities | | — | | | (427) | | Net gains on sales, consolidation and deconsolidation of facilities | | (12) | | | — | |
Loss from early extinguishment of debt | Loss from early extinguishment of debt | | 109 | | | 74 | | Loss from early extinguishment of debt | | 11 | | | 109 | |
Equity in earnings of unconsolidated affiliates, net of distributions received | Equity in earnings of unconsolidated affiliates, net of distributions received | | 14 | | | 10 | | Equity in earnings of unconsolidated affiliates, net of distributions received | | 5 | | | 14 | |
Amortization of debt discount and debt issuance costs | Amortization of debt discount and debt issuance costs | | 23 | | | 25 | | Amortization of debt discount and debt issuance costs | | 25 | | | 23 | |
Pre-tax income from discontinued operations | Pre-tax income from discontinued operations | | (1) | | | — | | Pre-tax income from discontinued operations | | — | | | (1) | |
Net gains from the sale of investments and long-lived assets | Net gains from the sale of investments and long-lived assets | | (115) | | | (16) | | Net gains from the sale of investments and long-lived assets | | (25) | | | (115) | |
Other items, net | Other items, net | | 12 | | | (7) | | Other items, net | | (1) | | | 12 | |
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 | | (39) | | | (202) | | Accounts receivable | | 31 | | | (39) | |
Inventories and other current assets | Inventories and other current assets | | 89 | | | (111) | | Inventories and other current assets | | (49) | | | 89 | |
Income taxes | Income taxes | | (59) | | | 67 | | Income taxes | | (46) | | | (59) | |
Accounts payable, accrued expenses, contract liabilities and other current liabilities | Accounts payable, accrued expenses, contract liabilities and other current liabilities | | (942) | | | (149) | | Accounts payable, accrued expenses, contract liabilities and other current liabilities | | (38) | | | (942) | |
Other long-term liabilities | Other long-term liabilities | | (28) | | | 8 | | Other long-term liabilities | | 10 | | | (28) | |
Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements | Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements | | (157) | | | (116) | | Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements | | (105) | | | (157) | |
Net cash used in operating activities from discontinued operations, excluding income taxes | Net cash used in operating activities from discontinued operations, excluding income taxes | | (1) | | | (1) | | Net cash used in operating activities from discontinued operations, excluding income taxes | | — | | | (1) | |
Net cash provided by operating activities | Net cash provided by operating activities | | 662 | | | 1,211 | | Net cash provided by operating activities | | 1,550 | | | 662 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
Purchases of property and equipment | Purchases of property and equipment | | (472) | | | (354) | | Purchases of property and equipment | | (543) | | | (472) | |
Purchases of businesses or joint venture interests, net of cash acquired | Purchases of businesses or joint venture interests, net of cash acquired | | (224) | | | (64) | | Purchases of businesses or joint venture interests, net of cash acquired | | (110) | | | (224) | |
Proceeds from sales of facilities and other assets | Proceeds from sales of facilities and other assets | | 209 | | | 1,235 | | Proceeds from sales of facilities and other assets | | 38 | | | 209 | |
| Proceeds from sales of marketable securities, long-term investments and other assets | Proceeds from sales of marketable securities, long-term investments and other assets | | 61 | | | 18 | | Proceeds from sales of marketable securities, long-term investments and other assets | | 40 | | | 61 | |
Purchases of marketable securities and equity investments | Purchases of marketable securities and equity investments | | (68) | | | (23) | | Purchases of marketable securities and equity investments | | (54) | | | (68) | |
| Other items, net | Other items, net | | (8) | | | (10) | | Other items, net | | (7) | | | (8) | |
Net cash provided by (used in) investing activities | | (502) | | | 802 | | |
Net cash used in investing activities | | Net cash used in investing activities | | (636) | | | (502) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
| Repayments of borrowings | Repayments of borrowings | | (2,786) | | | (3,183) | | Repayments of borrowings | | (1,478) | | | (2,786) | |
Proceeds from borrowings | Proceeds from borrowings | | 2,020 | | | 1,413 | | Proceeds from borrowings | | 1,368 | | | 2,020 | |
Repurchases of common stock | | Repurchases of common stock | | (90) | | | — | |
Debt issuance costs | Debt issuance costs | | (24) | | | (15) | | Debt issuance costs | | (16) | | | (24) | |
Distributions paid to noncontrolling interests | Distributions paid to noncontrolling interests | | (432) | | | (316) | | Distributions paid to noncontrolling interests | | (425) | | | (432) | |
Proceeds from the sale of noncontrolling interests | Proceeds from the sale of noncontrolling interests | | 16 | | | 14 | | Proceeds from the sale of noncontrolling interests | | 37 | | | 16 | |
Purchases of noncontrolling interests | Purchases of noncontrolling interests | | (61) | | | (19) | | Purchases of noncontrolling interests | | (127) | | | (61) | |
| Medicare advances and grants received by unconsolidated affiliates, net of recoupment | | — | | | (8) | | |
| Other items, net | Other items, net | | (49) | | | (53) | | Other items, net | | 13 | | | (49) | |
Net cash used in financing activities | Net cash used in financing activities | | (1,316) | | | (2,167) | | Net cash used in financing activities | | (718) | | | (1,316) | |
Net decrease in cash and cash equivalents | | (1,156) | | | (154) | | |
Net increase (decrease) in cash and cash equivalents | | Net increase (decrease) in cash and cash equivalents | | 196 | | | (1,156) | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 2,364 | | | 2,446 | | Cash and cash equivalents at beginning of period | | 858 | | | 2,364 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 1,208 | | | $ | 2,292 | | Cash and cash equivalents at end of period | | $ | 1,054 | | | $ | 1,208 | |
Supplemental disclosures: | Supplemental disclosures: | | | | | Supplemental disclosures: | | | | |
Interest paid, net of capitalized interest | Interest paid, net of capitalized interest | | $ | (601) | | | $ | (664) | | Interest paid, net of capitalized interest | | $ | (589) | | | $ | (601) | |
Income tax payments, net | Income tax payments, net | | $ | (148) | | | $ | (54) | | Income tax payments, net | | $ | (212) | | | $ | (148) | |
See accompanying Notes to Condensed Consolidated Financial Statements.
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” or “us”) is a diversified healthcare services company headquartered in Dallas, Texas. Our expansive, nationwide care delivery network includes our subsidiary USPI Holding Company, Inc. (“USPI”), which operated or had indirect ownership interests in approximately 440 ambulatory surgery centers and 24 surgical hospitals at September 30, 2022. We hold noncontrolling interests in 164 of these facilities, which are recorded using the equity method of accounting. We also operated 61 acute care and specialty hospitals, approximately 110 other outpatient facilities, a network of employed physicians and a Global Business Center (“GBC”) in Manila, Philippines at September 30, 2022. In addition, we operate Conifer Health Solutions, LLC, in which we own an interest of approximately 76%, through our Conifer Holdings, Inc. subsidiary (“Conifer”).
Effective June 30, 2022, we purchased all of the shares previously held by Baylor University Medical Center (“Baylor”) in USPI for $406 million, which increased our ownership interest in USPI’s voting shares from 95% to 100%. See Note 13 for additional information about this transaction.
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 our 61 acute care and specialty hospitals, a network of employed physicians and 107 outpatient facilities, including imaging centers, ancillary outpatientemergency facilities micro‑hospitals and physician practices.micro‑hospitals. Our Ambulatory Care segment is comprised of the operations of our subsidiary USPI Holding Company, Inc. (“USPI”), which holdsheld indirect ownership interests in and manages457 ambulatory surgery centers and 24 surgical hospitals.hospitals at September 30, 2023. USPI held noncontrolling interests in 157 of these facilities, which are recorded using the equity method of accounting. Effective June 30, 2022, we purchased all of the shares in USPI that Baylor University Medical Center (“Baylor”) held on that date for $406 million, which increased our ownership interest in USPI’s voting shares from 95% to 100% (see Note 13 for additional information about this transaction). Our Conifer segment provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.
Almost all of the services comprising the operations of our Conifer segment are provided by Conifer Health Solutions, LLC, in which we own an interest of approximately 76% through our Conifer Holdings, Inc. subsidiary (“Conifer”), or by one of its direct or indirect wholly owned subsidiaries. In addition, we operate a Global Business Center (“GBC”) in Manila, Philippines.
This quarterly report supplements our Annual Report on Form 10‑K for the year ended December 31, 20212022 (“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 includeddollar amounts presented in these notes to our Condensed Consolidated Financial Statements relate to our continuing operations, with dollar amountsand these accompanying notes are expressed in millions (except per‑share amounts)., and all share amounts are expressed in thousands.
Effective January 1, 2022, weWe adopted the Financial Accounting Standards Board (“FASB”)Board’s Accounting Standards Update (“ASU”) 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), effective as of January 1, 2022 using the modified retrospective method. Among other amendments, ASU 2020-06 changed the accounting for diluted earnings‑per‑share for convertible instruments and contracts that may be settled in cash or stock. ASU 2020-06 eliminated an entity’s ability to rebut the presumption of share settlement for convertible instruments and contracts that can be partially or fully settled in cash at the issuer’s election. Additionally, ASU 2020-06 requires that the if‑converted method, which is more dilutive than the treasury stock method, be used for all convertible instruments. As a result of our adoption of ASU 2020-06, diluted weighted average shares outstanding increased by one millionapproximately 2,095 thousand shares and four million2,330 thousand shares for the three and nine-month periods ended September 30, 2023, respectively, and diluted earnings per share available to Tenet common shareholders decreased by $0.04$0.05 and $0.02,$0.16, respectively, for these same periods. For the three and nine months ended September 30, 2022.2022, the adoption of ASU 2020-06 resulted in an increase in diluted weighted average shares outstanding of 1,134 thousand shares and 3,564 thousand shares, respectively, and a decrease in diluted earnings per share available to Tenet common shareholders of $0.04 and $0.02, respectively.
Certain prior-year amounts have been reclassified to conform to the current-year presentation. Contract liabilities – long-term are no longer significant enough to present separately. These obligations are now included in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.
Although theour Condensed Consolidated Financial Statements and these 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 ourThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), we are required requires us 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. The 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 the 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 nine‑month periods ended September 30, 20222023 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‑19COVID-19 pandemic on our operations, business, financial condition and cash flows; the impact of the demand for, and availability of, qualified medical personnel on compensation costs; the impact of cybersecurity incidents on our operations; 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 cybersecurity incidents, 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 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.
FactorsOur hospitals and outpatient facilities are subject to various factors that affect our service mix, revenue mix and patient volumes and, thereby, theimpact our net patient service revenues and results of operations at our ambulatory surgery centers, hospitals and other healthcare facilitiesoperations. These factors include, but are not limited to:among others: changes in federal, state and local healthcare and business regulations, including mandated closures and other operating restrictions;regulations; changes in general economic conditions nationally and regionally, including inflation and the impacts of the COVID-19 pandemic and other factors on the business conditions,environment, the economy and the financial markets; the number of uninsured and underinsured individuals in local communities treated at our facilities; 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 or permit procedures to be performed in an outpatient rather than inpatient setting; local healthcare competitors; utilization pressure by managed care organizations, as well as managed care contract negotiations or terminations; 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.
Certain prior-year amounts have been reclassified to conform to the current‑year presentation. Due to their increased significance, net gains from the sale of investments and long-lived assets are presented separately in the operating activities section of the accompanying Condensed Consolidated Statements of Cash Flows. In prior periods, this activity was included in other items, net within the operating activities section.
COVID‑19 Pandemic
TheFor the duration of the COVID‑19 pandemic has impacted all three segments of our business, as well as our patients, communitiespublic health emergency, which began in January 2020 and employees,expired in varying degrees since March 2020. Throughout this time,May 2023, federal, state and local authorities have undertakenundertook several actions designed to assist healthcare providers in providingdelivering care to COVID‑19 and other patients and to mitigate the adverse economic impact of the COVID‑19 pandemic. Among other things, federal legislation (collectively, the “COVID Acts”) authorized aggregate grant payments of $178 billion to be distributed through the Public Health and Social Services Emergency Fund (“PRF”) to healthcare providers who experienced lost revenues and increased expenses as a result of the pandemic. The COVID Acts also revised the Medicare accelerated payment program (“MAPP”) and permitted employers to defer payroll Social Security tax payments in 2020.. Our participation in these programs and the related accounting policies are summarized below.
Grant Income–As detailed in the table below, weOur Hospital Operations segment received cash payments from the PRF and state and local grantCOVID‑19 relief programs totaling $9 million during the three and nine months ended September 30, 20222023 and, 2021. Grant funds received byduring the same period in 2022, our Hospital Operations segment and those facilities in our Ambulatory Care segment that we consolidatesegments together received funds totaling $155 million. These grant funds are included in cash flows from operating activities in our condensed consolidated statements of cash flows. Grant funds received by unconsolidated affiliates for which we provide cash management services (“Cash‑Managed Affiliates”) are included in cash flows from financing activities.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Grant funds received from COVID-19 relief programs: | | | | | | | | |
Included in cash flows from operating activities: | | | | | | | | |
Hospital Operations | | $ | 51 | | | $ | 2 | | | $ | 152 | | | $ | 29 | |
Ambulatory Care | | — | | | — | | | 3 | | | 9 | |
| | $ | 51 | | | $ | 2 | | | $ | 155 | | | $ | 38 | |
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Included in cash flows from financing activities: | | | | | | | | |
Cash‑Managed Affiliates | | $ | — | | | $ | — | | | $ | — | | | $ | 27 | |
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To receive distributions, providers must agreeagreed to certain terms and conditions, including, among other things, that the funds are beingwould be used for lost revenues and unreimbursed COVID‑pandemic‑related costs as defined by the U.S. Department of Health and Human Services (“HHS”), and that the providers willwould not seek collection of out‑of‑out‑of‑pocket payments from a COVID‑COVID‑19 patient that are greater than what the patient would have otherwise been required to pay if the care had been provideddelivered by an in‑in‑network provider. All recipients of PRF payments arewere required to comply with the reporting requirements described in the terms and conditions and as determined by the Secretary of HHS. PRF funds not utilized by the established deadlines, generally 12 to 18 months after receipt, of the grant funds, will be recouped by HHS.
We recognize grant payments as income when there is reasonable assurance that we have complied with the conditions associated with the grant. The estimates we use to recognize grant income could change materially in the future based on our operating performance or fluctuations in the severity of COVID‑19 outbreaks at individual locations, as well as the government’s grant compliance guidance. The table below summarizes grant income recognized by our Hospital Operations and Ambulatory Care segments, which is presented in grant income and grant income recognized through our unconsolidated affiliates, which is presented in equity in earnings of unconsolidated affiliates, in each case in our condensed consolidated statements of operations.operations:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Grant income recognized from COVID-19 relief programs: | Grant income recognized from COVID-19 relief programs: | | | | | | | | | Grant income recognized from COVID-19 relief programs: | | | | | | | | |
Included in grant income: | | |
| Hospital Operations | Hospital Operations | | $ | 54 | | | $ | 2 | | | $ | 150 | | | $ | 30 | | Hospital Operations | | $ | 3 | | | $ | 54 | | | $ | 13 | | | $ | 150 | |
Ambulatory Care | Ambulatory Care | | — | | | 1 | | | 4 | | | 23 | | Ambulatory Care | | — | | | — | | | 1 | | | 4 | |
| | $ | 54 | | | $ | 3 | | | $ | 154 | | | $ | 53 | | | $ | 3 | | | $ | 54 | | | $ | 14 | | | $ | 154 | |
| Included in equity in earnings of unconsolidated affiliates: | | |
Unconsolidated affiliates | | $ | — | | | $ | 1 | | | $ | — | | | $ | 12 | | |
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At both September 30, 2022 and December 31, 2021, we hadWe did not have any remaining deferred grant payment balances of $5payments at September 30, 2023. Our liability related to deferred grant payments was $7 million at December 31, 2022, which amounts wereamount was recorded in other current liabilities in the accompanying Condensed Consolidated Balance Sheets for those periods.
that period.
Medicare Accelerated Payment Program (MAPP)–In certain circumstances, when a healthcare facility 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 MAPP. The COVID Acts revised the MAPP to disburse payments to healthcare providers more quickly and to allow recipients to retain the advance payments for one year from the date of receipt before recoupment commenced through offsets of Medicare claims payments. Recipients were also permitted to repay the advance payments at any time. Our Hospital Operations and Ambulatory Care segments both received advance payments from the MAPP following its expansion under the COVID Acts in the year ended December 31, 2020; however, no additional advances were received during the nine months ended September 30, 20222023 or 2021.2022.
The table below summarizestheir respective Medicare claims payments. No advances were recouped or repaid during the nine months ended September 30, 2023, and there was no outstanding liability related to MAPP advances received in prior periods that were repaidat September 30, 2023 or recouped duringDecember 31, 2022. During the three and nine months ended September 30, 2022, $876 million of advances received in prior periods by our Hospital Operations segment and 2021. Advances to$4 million of advances received in prior periods by those facilities in our Ambulatory Care segment that we consolidate were repaid or recouped. Amounts recouped from our Hospital Operations segment and those facilities in our Ambulatory Care segment that we consolidate, were recouped through a reduction of their respective Medicare claims payments and, together with any repayments,amounts we voluntarily repaid in advance of recoupment, are presented in cash flows from operating activities in our condensed consolidated statements of cash flows. Advance payments to our Cash‑Managed Affiliates were recouped through a reduction of those affiliates’ Medicare claims payments and, together with any repayments, are presented in cash flows from financing activities.
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
MAPP advances repaid or recouped: | | | | | | | | |
Included in cash flows from operating activities: | | | | | | | | |
Hospital Operations | | $ | 403 | | | $ | 161 | | | $ | 876 | | | $ | 302 | |
Ambulatory Care | | 2 | | | 13 | | | 4 | | | 24 | |
| | $ | 405 | | | $ | 174 | | | $ | 880 | | | $ | 326 | |
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Included in cash flows from financing activities: | | | | | | | | |
Cash‑Managed Affiliates | | $ | — | | | $ | 14 | | | $ | — | | | $ | 26 | |
Leases
During the threenine months ended September 30, 2023 and 2022, allwe recorded right‑of‑use assets related to non‑cancellable finance leases of the remaining MAPP advances we received were fully repaid or recouped, which resulted in no outstanding liability at September 30, 2022. In the accompanying Condensed Consolidated Balance Sheets, advances totaling $880$42 million were included in contract liabilities at December 31, 2021.
Deferraland $64 million, respectively, and related to non‑cancellable operating leases of Employment Tax Payments–The COVID Acts permitted employers to defer payment of the 6.2% employer Social Security tax beginning March 27, 2020 through December 31, 2020. Deferred tax amounts are required to be paid in equal amounts over two years, with payments due in December 2021$116 million and December 2022. We paid the first half of the Social Security taxes we deferred in 2020 in December 2021. At both September 30, 2022 and December 31, 2021, deferred Social Security tax payments totaling $128$296 million, were included in accrued compensation and benefits in the accompanying Condensed Consolidated Balance Sheets.
Leasesrespectively.
During the threenine months ended March 31,September 30, 2022, we sold several medical office buildings held in our Hospital Operations segment for net cash proceeds of $147 million and concurrently entered into operating lease agreements to continue use of the facilities. We recognized a gain of $69 million from the sale of these buildings, included in other operating expenses, net in the accompanying Condensed Consolidated Statement of Operations, and we recognized right-of-use assets and operating lease obligations of $109 million, in each case in the three months ended March 31, 2022.
During the nine months ended September 30, 2022 and 2021, we recorded right‑of‑use assets related to non‑cancellable finance leases of $64 million and $81 million, respectively, and related to non‑cancellable operating leases of $296 million and $121 million, respectively.2022.
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 $1.208$1.054 billion and $2.364 billion$858 million at September 30, 20222023 and December 31, 2021,2022, respectively. At September 30, 20222023 and December 31, 2021,2022, our book overdrafts were $197$150 million and $226$266 million, respectively, which were classified as accounts payable. At September 30, 20222023 and December 31, 2021, $1452022, $101 million and $188$140 million, respectively, of total cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets were intended for the operations of our insurance‑related subsidiaries.
Also at September 30, 20222023 and December 31, 2021,2022, we had $71$61 million and $95$196 million, respectively, of property and equipment purchases accrued for items received but not yet paid. Of these amounts, $59$46 million and $88$191 million, respectively, were included in accounts payable.
In June 2022, we acquired all of Baylor’s 5% voting ownership interest in USPI. We paid $11 million from cash on hand and recognized a liability of $377 million, the present value of the liability on the acquisition date, for the remainder of the purchase price. We recorded reductions in redeemable noncontrolling interest of $365 million for the carrying value of Baylor’s ownership interest and $23 million to additional paid-in capital for the difference between the carrying value and present value of the purchase price for the shares on the acquisition date. This has been reflected as noncash financing activity in the
accompanying Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2022. Payments made subsequent to the transaction’s close are reflected as cash activity within the financing section of our condensed consolidated statement of cash flows. See Note 13 for additional information about this transaction.
Other Intangible Assets
The following tables providetable provides information regarding other intangible assets, which were included in the accompanying Condensed Consolidated Balance Sheets:
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| | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
At September 30, 2022: | | | | | | |
Other intangible assets with finite useful lives: | | | | | | |
Capitalized software costs | | $ | 1,764 | | | $ | (1,203) | | | $ | 561 | |
Contracts | | 294 | | | (141) | | | 153 | |
Other | | 94 | | | (78) | | | 16 | |
Total other intangible assets with finite lives | | 2,152 | | | (1,422) | | | 730 | |
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Other intangible assets with indefinite useful lives: | | | | | | |
Trade names | | 102 | | | — | | | 102 | |
Contracts | | 603 | | | — | | | 603 | |
Other | | 6 | | | — | | | 6 | |
Total other intangible assets with indefinite lives | | 711 | | | — | | | 711 | |
Total other intangible assets | | $ | 2,863 | | | $ | (1,422) | | | $ | 1,441 | |
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| | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
At December 31, 2021: | | | | | | |
Other intangible assets with finite useful lives: | | | | | | |
Capitalized software costs | | $ | 1,770 | | | $ | (1,165) | | | $ | 605 | |
Contracts | | 295 | | | (128) | | | 167 | |
Other | | 95 | | | (81) | | | 14 | |
Total other intangible assets with finite lives | | 2,160 | | | (1,374) | | | 786 | |
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Other intangible assets with indefinite useful lives: | | | | | | |
Trade names | | 102 | | | — | | | 102 | |
Contracts | | 602 | | | — | | | 602 | |
Other | | 7 | | | — | | | 7 | |
Total other intangible assets with indefinite lives | | 711 | | | — | | | 711 | |
Total other intangible assets | | $ | 2,871 | | | $ | (1,374) | | | $ | 1,497 | |
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| | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
At September 30, 2023: | | | | | | |
Other intangible assets with finite useful lives: | | | | | | |
Capitalized software costs | | $ | 1,760 | | | $ | (1,227) | | | $ | 533 | |
Contracts | | 295 | | | (159) | | | 136 | |
Other | | 90 | | | (77) | | | 13 | |
Total other intangible assets with finite lives | | 2,145 | | | (1,463) | | | 682 | |
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Other intangible assets with indefinite useful lives: | | | | | | |
Trade names | | 105 | | | — | | | 105 | |
Contracts | | 609 | | | — | | | 609 | |
Other | | 4 | | | — | | | 4 | |
Total other intangible assets with indefinite lives | | 718 | | | — | | | 718 | |
Total other intangible assets | | $ | 2,863 | | | $ | (1,463) | | | $ | 1,400 | |
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At December 31, 2022: | | | | | | |
Other intangible assets with finite useful lives: | | | | | | |
Capitalized software costs | | $ | 1,751 | | | $ | (1,206) | | | $ | 545 | |
Contracts | | 295 | | | (146) | | | 149 | |
Other | | 92 | | | (76) | | | 16 | |
Total other intangible assets with finite lives | | 2,138 | | | (1,428) | | | 710 | |
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Other intangible assets with indefinite useful lives: | | | | | | |
Trade names | | 105 | | | — | | | 105 | |
Contracts | | 603 | | | — | | | 603 | |
Other | | 6 | | | — | | | 6 | |
Total other intangible assets with indefinite lives | | 714 | | | — | | | 714 | |
Total other intangible assets | | $ | 2,852 | | | $ | (1,428) | | | $ | 1,424 | |
Estimated future amortization of intangiblesintangible assets with finite useful lives at September 30, 20222023 was as follows:
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| | | | Three Months Ending | | Years Ending | | Later Years |
| | | | | | December 31, | |
| | Total | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | |
Amortization of intangible assets | | $ | 730 | | | $ | 47 | | | $ | 127 | | | $ | 124 | | | $ | 102 | | | $ | 82 | | | $ | 248 | |
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| | | | Three Months Ending | | Years Ending | | Later Years |
| | | | | | December 31, | |
| | Total | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | |
Amortization of intangible assets | | $ | 682 | | | $ | 49 | | | $ | 133 | | | $ | 111 | | | $ | 98 | | | $ | 81 | | | $ | 210 | |
We recognized amortization expense of $132$128 million and $139$132 million in the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 20222023 and 2021,2022, respectively.
Other Current Assets
The principal components of other current assets in the accompanying Condensed Consolidated Balance Sheets were as follows:
| | | | September 30, 2022 | | December 31, 2021 | | | September 30, 2023 | | December 31, 2022 |
Prepaid expenses | Prepaid expenses | | $ | 358 | | | $ | 252 | | Prepaid expenses | | $ | 392 | | | $ | 400 | |
Contract assets | Contract assets | | 198 | | | 199 | | Contract assets | | 190 | | | 200 |
Receivables from government programs | | 434 | | | 627 | | |
California provider fee program receivables | | California provider fee program receivables | | 350 | | | 367 |
Receivables from other government programs | | Receivables from other government programs | | 220 | | | 187 |
Guarantees | Guarantees | | 138 | | | 104 | | Guarantees | | 302 | | | 143 |
Non-patient receivables | Non-patient receivables | | 356 | | | 321 | | Non-patient receivables | | 314 | | | 390 |
Other | Other | | 82 | | | 54 | | Other | | 87 | | | 88 |
Total other current assets | Total other current assets | | $ | 1,566 | | | $ | 1,557 | | Total other current assets | | $ | 1,855 | | | $ | 1,775 | |
Investments in Unconsolidated Affiliates
We control 300As of September 30, 2023, we controlled 324 of the facilities withinin our Ambulatory Care segment and, therefore, consolidate their results. We account for many of the facilities in which our Ambulatory Care segment holds ownership interests in (164(157 of 464481 at September 30, 2022)2023), 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 Statementsour condensed consolidated statements of Operations. No grant income was recognized during the three and nine months ended September 30, 2022 by our unconsolidated affiliates. Equity in earnings of unconsolidated affiliates included $1 million and $12 million of grant income for the three and nine months ended September 30, 2021, respectively.
operations. Summarized financial information for these equity method investees is included in the following table. For investments acquired during the reported periods, amounts belowin the table include 100% of the investee’s results beginning on the date of our acquisition of the investment.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net operating revenues | | $ | 788 | | | $ | 720 | | | $ | 2,351 | | | $ | 2,065 | |
Net income | | $ | 192 | | | $ | 178 | | | $ | 554 | | | $ | 540 | |
Net income available to the investees | | $ | 109 | | | $ | 108 | | | $ | 316 | | | $ | 325 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Net operating revenues | | $ | 818 | | | $ | 788 | | | $ | 2,431 | | | $ | 2,351 | |
Net income | | $ | 198 | | | $ | 192 | | | $ | 586 | | | $ | 554 | |
Net income available to the investees | | $ | 114 | | | $ | 109 | | | $ | 342 | | | $ | 316 | |
NOTE 2. ACCOUNTS RECEIVABLE
The principal components of accounts receivable are presented in the table below:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | | | |
Patient accounts receivable | | $ | 2,638 | | | $ | 2,600 | |
Estimated future recoveries | | 144 | | | 137 | |
Net cost report settlements receivable and valuation allowances | | 44 | | | 33 | |
| | $ | 2,826 | | | $ | 2,770 | |
| | | | |
| | | | |
| | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
| | | | |
Patient accounts receivable | | $ | 2,670 | | | $ | 2,746 | |
Estimated future recoveries | | 157 | | | 149 | |
Cost report settlements receivable, net of payables and valuation allowances | | 70 | | | 48 | |
Accounts receivable, net | | $ | 2,897 | | | $ | 2,943 | |
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We participate in various provider fee programs, which help reduce the amount of uncompensated care from indigent patients and those covered by Medicaid. The following table summarizes the amount and classification of assets and liabilities in the accompanying Condensed Consolidated Balance Sheets related to California’s provider fee program:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Assets: | | | |
Other current assets | $ | 287 | | | $ | 370 | |
Investments and other assets | $ | 301 | | | $ | 213 | |
| | | |
Liabilities: | | | |
Other current liabilities | $ | 150 | | | $ | 123 | |
Other long-term liabilities | $ | 62 | | | $ | 60 | |
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Assets: | | | |
Other current assets | $ | 350 | | | $ | 367 | |
Investments and other assets | $ | 291 | | | $ | 197 | |
| | | |
Liabilities: | | | |
Other current liabilities | $ | 145 | | | $ | 145 | |
Other long-term liabilities | $ | 69 | | | $ | 63 | |
Uninsured and Charity Patient Costs
The following table presents 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:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 |
Estimated costs for: | Estimated costs for: | | | | | | | | | Estimated costs for: | | | | | | | | |
Uninsured patients | Uninsured patients | | $ | 131 | | | $ | 181 | | | $ | 389 | | | $ | 507 | | Uninsured patients | | $ | 122 | | | $ | 131 | | | $ | 361 | | | $ | 389 | |
Charity care patients | Charity care patients | | 22 | | | 25 | | | 62 | | | 74 | | Charity care patients | | 31 | | | 22 | | | 83 | | | 62 | |
Total | Total | | $ | 153 | | | $ | 206 | | | $ | 451 | | | $ | 581 | | Total | | $ | 153 | | | $ | 153 | | | $ | 444 | | | $ | 451 | |
|
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 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 were included in other current assets in the accompanying Condensed Consolidated Balance Sheets at September 30, 20222023 and December 31, 2021.2022. Approximately 91%89% 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.
As discussed in Note 1, our Hospital Operations segment received advance payments from the MAPP following its expansion under the COVID Acts in 2020; however, no additional advances were received during the nine months ended September 30, 20222023 or 2021.2022. All remaining MAPP advances received by our Hospital Operations segment were either repaid or recouped during the nine months ended September 30, 2022 and 2021, which resulted in no outstanding liability at September 30, 2022. The remaining advance payments at2023 and December 31, 2021 were recorded as contract liabilities in the accompanying Condensed Consolidated Balance Sheets.
2022.
The opening and closing balances of contract assets and contract liabilities, as well as their classification in our condensed consolidated balance sheets, for our Hospital Operations segment were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Contract Assets | | Contract Liabilities – Current Advances from Medicare | | Contract Liabilities – Long-Term Advances from Medicare |
December 31, 2021 | | $ | 181 | | | $ | 876 | | | $ | — | |
September 30, 2022 | | 181 | | | — | | | — | |
Decrease | | $ | — | | | $ | (876) | | | $ | — | |
| | | | | | |
December 31, 2020 | | $ | 208 | | | $ | 510 | | | $ | 819 | |
September 30, 2021 | | 190 | | | 1,031 | | | — | |
Increase (decrease) | | $ | (18) | | | $ | 521 | | | $ | (819) | |
| | | | | | | | | | | | | | | | |
| | Contract Assets | | Contract Liabilities – Current Advances from Medicare | | |
December 31, 2022 | | $ | 185 | | | $ | — | | | |
September 30, 2023 | | 177 | | | — | | | |
Decrease | | $ | (8) | | | $ | — | | | |
| | | | | | |
December 31, 2021 | | $ | 181 | | | $ | 876 | | | |
September 30, 2022 | | 181 | | | — | | | |
Decrease | | $ | — | | | $ | (876) | | | |
During the nine months ended September 30, 2022, and 2021, $876 million and $302 million, respectively, of Medicare advance payments included in the opening contract liabilities balance for our Hospital Operations segment were either repaid or recouped through a reduction of our Medicare claims payments.
Ambulatory Care Segment
Our Ambulatory Care segment also received advance payments from the expanded MAPP during the year ended December 31,following its expansion in 2020; however, no additional advances were received during the nine months ended September 30, 20222023 or 2021.2022. All remaining MAPP advances received by our Ambulatory Care segment were either repaid or recouped during the nine months ended September 30, 2022 and 2021, which resulted in no outstanding liability at September 30, 2022. The remaining advance payments at2023 and December 31, 2021 were recorded as contract liabilities in the accompanying Condensed Consolidated Balance Sheets.
The opening and closing balances of contract liabilities for our Ambulatory Care segment were as follows:
| | | | | | | | | | | | | | |
| | Contract Liabilities – Current Advances from Medicare | | Contract Liabilities – Long-Term Advances from Medicare |
December 31, 2021 | | $ | 4 | | | $ | — | |
September 30, 2022 | | — | | | — | |
Decrease | | $ | (4) | | | $ | — | |
| | | | |
December 31, 2020 | | $ | 93 | | | $ | 83 | |
September 30, 2021 | | 113 | | | — | |
Increase (decrease) | | $ | 20 | | | $ | (83) | |
During the nine months ended September 30, 2022 and 2021, $4 million and $24 million, respectively, of Medicare advance payments included in the opening contract liabilities balance for our Ambulatory Care segment were either repaid or recouped through a reduction of Medicare claims payments. Additionally, $26 million of Medicare advance payments received by our Cash‑Managed Affiliates and included in the opening contract liabilities balance were either repaid or recouped in the same manner during the nine months ended September 30, 2021. No amounts were repaid or recouped from our Cash‑Managed Affiliates during the nine months ended September 30, 2022.
Conifer Segment
Conifer enters into contracts with clients to provide revenue cycle management and other services, such as value‑based care, consulting and engagement solutions. The payment terms and conditions in Conifer’s client contracts vary. In some cases, clients 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, 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 its clients, Conifer recognizes either unbilled revenue (performance precedes contractual right to
invoice the client) or deferred revenue (client payment precedes Conifer service performance). In the following table, clients that prepay prior to obtaining control/benefit of services are represented by deferred contract revenue until the performance obligations are satisfied. Unbilled revenue represents arrangements in which Conifer has provided services to a client, and the client has obtained control/benefit of these services prior to the contractual invoice date. Contracts with payment in arrears are recognized as receivables in the month the services are performed.
The opening and closing balances of Conifer’s receivables, contract assets, and current and long‑term contract liabilities were as follows:
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| | Receivables | | Contract Assets – Unbilled Revenue | | Contract Liabilities – Current Deferred Revenue | | Contract Liabilities – Long-Term Deferred Revenue |
December 31, 2021 | | $ | 28 | | | $ | 18 | | | $ | 79 | | | $ | 15 | |
September 30, 2022 | | 22 | | | 16 | | | 111 | | | 14 | |
Increase (decrease) | | $ | (6) | | | $ | (2) | | | $ | 32 | | | $ | (1) | |
| | | | | | | | |
December 31, 2020 | | $ | 56 | | | $ | 20 | | | $ | 56 | | | $ | 16 | |
September 30, 2021 | | 34 | | | 14 | | | 74 | | | 15 | |
Increase (decrease) | | $ | (22) | | | $ | (6) | | | $ | 18 | | | $ | (1) | |
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| | Receivables | | Contract Assets – Unbilled Revenue | | Contract Liabilities – Current Deferred Revenue | | Contract Liabilities – Long-Term Deferred Revenue |
December 31, 2022 | | $ | 37 | | | $ | 15 | | | $ | 110 | | | $ | 13 | |
September 30, 2023 | | 17 | | | 13 | | | 86 | | | 12 | |
Decrease | | $ | (20) | | | $ | (2) | | | $ | (24) | | | $ | (1) | |
| | | | | | | | |
December 31, 2021 | | $ | 28 | | | $ | 18 | | | $ | 79 | | | $ | 15 | |
September 30, 2022 | | 22 | | | 16 | | | 111 | | | 14 | |
Increase (decrease) | | $ | (6) | | | $ | (2) | | | $ | 32 | | | $ | (1) | |
The differences between the opening and closing balances of Conifer’s contract assets and contract liabilities are primarily related to prepayments for those clients 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 at September 30, 2023 and December 31, 2022 were reported as part of other current assets in the accompanying Condensed Consolidated Balance Sheets, and its current and long‑term contract liabilities on those dates were reported as part of contract liabilities and contractother long‑term liabilities, – long‑term, respectively, in the accompanying Condensed Consolidated Balance Sheets.
respectively.
In the nine months ended September 30, 20222023 and 2021,2022, Conifer recognized $55$71 million and $56$55 million, respectively, of revenue that was included in the opening current deferred revenue liability. This revenue consists primarily of prepayments for those clients who are billed in advance, changes in estimates related to metric‑based services, and up‑front integration services that are recognized over the servicesservice period.
Contract Costs
During both of the three‑month periods ended September 30, 2022 and 2021, we recognized amortization expense related toOur unamortized deferred contract setup costs of $1 million. During both of the nine‑month periods endedtotaled $23 million and $24 million at September 30, 2022 and 2021, we recognized amortization expense related to deferred contract setup costs of $3 million. At September 30, 20222023 and December 31, 2021, the unamortized client contract costs were $24 million and $23 million,2022, respectively, and were presented as part ofare included in investments and other assets in the accompanying Condensed Consolidated Balance Sheets.
NOTE 4. ASSETS AND LIABILITIES HELD FOR SALE
We completed the sale of five Miami‑area hospitalsIn January 2023, we entered into a definitive agreement to sell our 51% ownership interest in San Ramon Regional Medical Center and certain related operations (“San Ramon RMC”) to John Muir Health. As a result, the assets and liabilities associated with San Ramon RMC were classified as held by our Hospital Operations segment in August 2021, resulting in our recognition of a pre‑tax gain onfor sale of $409 million in the three months endedaccompanying Condensed Consolidated Balance Sheet and totaled $140 million and $17 million, respectively, at September 30, 2021.2023. We expect the transaction to be completed by early 2024, subject to regulatory review and customary closing conditions.
In the three months ended June 30, 2021, we completed theAssets and liabilities classified as held for sale were comprised of the majorityfollowing:
| | | | | | | | |
| | September 30, 2023 |
Accounts receivable | | $ | 28 | |
Other current assets | | 8 | |
| | |
Property and equipment | | 67 | |
Other intangible assets | | 6 | |
Goodwill | | 31 | |
| | |
Current liabilities | | (16) | |
Long-term liabilities | | (1) | |
Net assets held for sale | | $ | 123 | |
Contents
The table below provides information on significant components of our business that have been recently disposed of:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Significant disposals: | | | | | | | | |
Income from continuing operations, before income taxes: | | | | | | | | |
Miami-area hospitals and certain related operations | | $ | 1 | | | $ | 407 | | | $ | 9 | | | $ | 436 | |
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NOTE 5. IMPAIRMENT AND RESTRUCTURING CHARGES, AND ACQUISITION‑RELATED COSTS
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 negative trends occur that impact our future outlook, future impairments of long‑lived assets and goodwill may occur, and we may incur additional restructuring charges, which could be material.
At September 30, 2022,2023, our continuing operations consisted of three reportable segments – Hospital Operations, Ambulatory Care and Conifer. Our segments are the reporting units used to perform our goodwill impairment analysis.
We periodically incurrecord costs to implementassociated with restructuring efforts for specific operations, which are recorded in our statement of operations as they are incurred. Our restructuring plans typically focus on various aspectsthe alignment of operations, including aligning our operations in the most strategic and cost‑effective structure, such as the establishment of offshore support operations at our GBC.GBC, among other things. Certain restructuring and acquisition‑related costs are based on estimates. Changes in estimates are recognized as they occur.
During the nine months ended September 30, 2023, we recorded impairment and restructuring charges and acquisition‑related costs of $84 million, consisting of $60 million of restructuring charges, $16 million of impairment charges and $8 million of acquisition‑related transaction costs. Restructuring charges consisted of $30 million of legal costs related to the sale of certain businesses, $10 million of employee severance costs, $9 million related to the transition of various administrative functions to our GBC and $11 million of other restructuring costs. Impairment charges for the nine months ended September 30, 2023 primarily arose from the write-down of an investment in an ambulatory surgery center held by our Ambulatory Care segment.
During the nine months ended September 30, 2022, we recorded impairment and restructuring charges and acquisition‑related costs of $97 million, primarily consisting of $78 million of restructuring charges, $9 million of impairment charges and $10 million of acquisition‑related transaction costs. Restructuring charges consisted of $24 million of employee severance costs, $10 million related to the transition of various administrative functions to our GBC, $25 million of contract and lease termination fees, and $19 million of other restructuring costs. Impairment charges for the nine months ended September 30, 2022 were comprised of $5 million from our Hospital Operations segment and $2 million from each our Ambulatory Care and Conifer segments. Acquisition‑related costs consisted of $10 million of transaction costs.
During the nine months ended September 30, 2021, we recorded impairment and restructuring charges and acquisition‑related costs of $55 million, consisting of $48 million of restructuring charges, $1 million of impairment charges and $6 million of acquisition‑related costs. Restructuring charges consisted of $13 million of employee severance costs, $16 million related to the transition of various administrative functions to our GBC and $19 million of other restructuring costs. Impairment charges for the nine months ended September 30, 2021 were comprised of $1 million from our Ambulatory Care segment. Acquisition‑related costs consisted of $6 million of transaction costs.
NOTE 6. LONG-TERM DEBT
The table below presents our long‑term debt included in the accompanying Condensed Consolidated Balance Sheets:
| | | | September 30, 2022 | | December 31, 2021 | | | September 30, 2023 | | December 31, 2022 |
Senior unsecured notes: | Senior unsecured notes: | | | | | Senior unsecured notes: | | | | |
| 6.750% due 2023 | | $ | — | | | $ | 1,872 | | |
| 6.125% due 2028 | 6.125% due 2028 | | 2,500 | | | 2,500 | | 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 | | 770 | | | 770 | | |
4.625% due 2024 | | 600 | | | 600 | | |
7.500% due 2025 | | — | | | 700 | | |
4.625% due July 2024 | | 4.625% due July 2024 | | — | | | 756 | |
4.625% due September 2024 | | 4.625% due September 2024 | | — | | | 589 | |
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 | | | 600 | | 4.625% due 2028 | | 600 | | | 600 | |
4.250% due 2029 | 4.250% due 2029 | | 1,400 | | | 1,400 | | 4.250% due 2029 | | 1,400 | | | 1,400 | |
4.375% due 2030 | 4.375% due 2030 | | 1,450 | | | 1,450 | | 4.375% due 2030 | | 1,450 | | | 1,450 | |
6.125% due 2030 | 6.125% due 2030 | | 2,000 | | | — | | 6.125% due 2030 | | 2,000 | | | 2,000 | |
6.750% due 2031 | | 6.750% due 2031 | | 1,350 | | | — | |
Senior secured second lien notes: | Senior secured second lien notes: | | Senior secured second lien notes: | |
| 6.250% due 2027 | 6.250% due 2027 | | 1,500 | | | 1,500 | | 6.250% due 2027 | | 1,500 | | | 1,500 | |
| Finance leases, mortgages and other notes | Finance leases, mortgages and other notes | | 448 | | | 443 | | Finance leases, mortgages and other notes | | 405 | | | 453 | |
Unamortized issue costs and note discounts | Unamortized issue costs and note discounts | | (137) | | | (151) | | Unamortized issue costs and note discounts | | (125) | | | (131) | |
Total long-term debt | Total long-term debt | | 15,093 | | | 15,646 | | Total long-term debt | | 15,042 | | | 15,079 | |
Less current portion | | 131 | | | 135 | | |
Less: Current portion | | Less: Current portion | | 141 | | | 145 | |
Long-term debt, net of current portion | Long-term debt, net of current portion | | $ | 14,962 | | | $ | 15,511 | | Long-term debt, net of current portion | | $ | 14,901 | | | $ | 14,934 | |
Senior Unsecured Notes and Senior Secured Notes
On June 15, 2022,At September 30, 2023, we had outstanding senior unsecured notes and senior secured notes with aggregate principal amounts outstanding of $14.762 billion. These notes have fixed interest rates ranging from 4.250% to 6.875% and require semi‑annual interest payments in arrears. The principal and any accrued but unpaid interest is due upon the maturity date of the respective notes, which dates are staggered from January 2026 through November 2031. We completed the following transactions related to our senior secured notes during the nine months ended September 30, 2023:
•In May 2023, we issued $2.000$1.350 billion aggregate principal amount of 6.125%6.750% senior secured first lien notes, which will mature on JuneMay 15, 20302031 (the “2030“2031 Senior Secured First Lien Notes”). We will pay interest on the 20302031 Senior Secured First Lien Notes semi‑annuallysemi-annually in arrears on JuneMay 15 and DecemberNovember 15 of each year, commencing on DecemberNovember 15, 2022. As further discussed below, we2023. We used a substantial portion of the issuance proceeds, from the 2030 Senior Secured First Lien Notes, after payment of fees and expenses,together with cash on hand, to finance the redemption of our 6.750%4.625% senior unsecuredsecured first lien notes due 2023September 2024 (the “2023“September 2024 Senior UnsecuredSecured First Lien Notes”). and our 4.625% senior secured first lien notes due July 2024 (the “July 2024 Senior Secured First Lien Notes”), as described below.
•
ThroughAlso in May 2023, we paid $596 million using a seriesportion of open‑market transactions during the six months ended June 30, 2022, we repurchased $124proceeds from the issuance of our 2031 Senior Secured First Lien Notes to redeem all $589 million aggregate principal amount outstanding of our 2023 Senior Unsecured Notes using cash on hand. Following the issuance of our 2030September 2024 Senior Secured First Lien Notes, we used a substantial portion of the proceeds to redeem the then-remaining $1.748 billion aggregate principal outstanding of the 2023 Senior Unsecured Notes in advance of their maturity date.
•In total,June 2023, we paid $1.933 billion duringused the six months ended June 30, 2022remaining proceeds from the issuance of our 2031 Senior Secured First Lien Notes along with cash on hand to retireredeem all $1.872 billion$756 million aggregate principal amount outstanding of our 2023July 2024 Senior UnsecuredSecured First Lien Notes andin advance of their maturity date.
In connection with the aforementioned redemptions, we recorded aggregate losses from early extinguishment of debt of $71$11 million in the nine months ended September 30, 2023, primarily related to the differencedifferences between the purchaseredemption prices and the par valuevalues of the notes, as well as the write‑offwrite-off of associated unamortized issuance costs.
On February 23, 2022, we redeemed all $700 million aggregate principal amount outstanding of our 7.500% senior secured first lien notes due 2025 in advance of their maturity date. We paid $730 million from cash on hand to redeem the notes. In connection with the redemption, we recorded a loss from early extinguishment of debt of $38 million in the three months ended March 31, 2022, primarily related to the difference between the purchase price and the par value of the notes, as well as the write‑off of 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 $1.500 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 2020March 2022 to, among other things, (i) increase(1) decrease the aggregate revolving credit commitments from the previous limit of $1.500 billion to $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. In April 2021, we 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. In March 2022, we further amended our Credit Agreement to, among other things, (i) decrease the aggregate revolving credit
commitments from the previous Increased Commitments to aggregate revolving credit commitments not to exceed $1.500 billion, subject to borrowing availability, (ii)(2) extend the scheduled maturity date to March 16, 2027, and (iii)(3) replace the London Interbank Offered Rate (LIBOR)(“LIBOR”) with the Term Secured Overnight Financing Rate (“SOFR”) and Daily Simple SOFR (each, as defined in the Credit Agreement) as the reference interest rate. At September 30, 2022, we had no 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, $1.500 billion was available for borrowing under the revolving credit facility at September 30, 2022.
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.
Outstanding revolving loans accrue interest depending on the type of loan at either (a) a base rate plus an applicable margin ranging from 0.25% to 0.75% per annum or (b) Term SOFR, Daily Simple SOFR or the Euro Interbank Offered Rate (EURIBOR) (each, as defined in the Credit Agreement) plus an applicable margin ranging from 1.25% to 1.75% per annum and (in the case of Term SOFR and Daily Simple SOFR only) a credit spread adjustment of 0.10%, 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.
At September 30, 2023, we had no 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, $1.500 billion was available for borrowing under the Credit Agreement at September 30, 2023.
Letter of Credit Facility
We have a letter of credit facility (as amended to date, the “LC Facility”) that provides for the issuance, from time to time, of standby and documentary letters of credit in an aggregate principal amount of up to $200 million. TheWe amended the LC Facility in September 2023 to, among other things, (1) extend the scheduled maturity date of the LC Facility isfrom September 12, 2024. Obligations under2024 to March 16, 2027, and (2) replace LIBOR with Term SOFR as the LC Facility are guaranteed and secured by a 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.
reference interest rate. Drawings under any letter of credit issued under the LC Facility that we have not reimbursed within three business days after notice thereof accrue interest at a base rate, as defined in the LC Facility, plus a margin 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. The LC Facility is subject to an effective maximum secured debt covenant of 4.25 to 1.00. At September 30, 2022,2023, we had $116$111 million of standby letters of credit outstanding under the LC Facility.
NOTE 7. GUARANTEES
At September 30, 2022,2023, 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 $165$354 million. We had a total liability of $138$302 million recorded for these guarantees included in other current liabilities in the accompanying Condensed Consolidated Balance Sheet at September 30, 2022.
2023.
At September 30, 2022,2023, 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 $102$88 million. Of the total, $26$21 million relates to the obligations of consolidated subsidiaries, which obligations were recorded in other current liabilities in the accompanying Condensed Consolidated Balance Sheet at September 30, 2022.
2023.
NOTE 8. EMPLOYEE BENEFIT PLANS
Share-Based Compensation Plans
The accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2023 and 2022 and 2021 include $47$48 million and $43$47 million, respectively, of pre-tax compensation costs related to our stock‑based compensation arrangements.
Stock Options
The following table summarizes stock option activity during the nine months ended September 30, 2022:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Options | | Weighted Average Exercise Price Per Share | | Aggregate Intrinsic Value | | Weighted Average Remaining Life |
| | | | | | (In Millions) | | |
Outstanding at December 31, 2021 | | 520,998 | | | $ | 23.90 | | | | | |
| | | | | | | | |
Exercised | | (60,051) | | | $ | 28.26 | | | | | |
| | | | | | | | |
Outstanding at September 30, 2022 | | 460,947 | | | $ | 23.33 | | | $ | 13 | | | 5.4 years |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Options | | Weighted Average Exercise Price Per Share | | Aggregate Intrinsic Value | | Weighted Average Remaining Life |
| | | | | | (In Millions) | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Outstanding at December 31, 2022 | | 460,947 | | | $ | 23.33 | | | | | |
| | | | | | | | |
Exercised | | (76,507) | | | $ | 26.07 | | | | | |
| | | | | | | | |
Outstanding at September 30, 2023 | | 384,440 | | | $ | 22.79 | | | $ | 17 | | | 4.3 years |
| | | | | | | | |
| | | | | | | | |
There were 60,05176,507 and 334,90760,051 stock options exercised during the nine months ended September 30, 20222023 and 2021,2022, respectively, with aggregate intrinsic values of $4 million and $12 million, respectively.for both periods. All outstanding options were vested and exercisable at September 30, 2022. We did not grant any2023. No stock options were granted during either of the nine monthsnine-month periods ended September 30, 20222023 or 2021.
2022.
The following table summarizes information about our outstanding stock options at September 30, 2022:2023:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding and Exercisable | | |
Range of Exercise Prices | | Number of Options | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price Per Share | | | | |
$18.99 to $20.609 | | 293,796 | | | 4.9 years | | $ | 19.75 | | | | | |
$20.61 to $35.430 | | 167,151 | | | 6.3 years | | $ | 29.62 | | | | | |
| | 460,947 | | | 5.4 years | | $ | 23.33 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding and Exercisable | | |
Range of Exercise Prices | | Number of Options | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price Per Share | | | | |
$18.99 to $20.609 | | 255,845 | | | 3.8 years | | $ | 19.62 | | | | | |
$20.61 to $35.430 | | 128,595 | | | 5.3 years | | $ | 29.07 | | | | | |
| | 384,440 | | | 4.3 years | | $ | 22.79 | | | | | |
Restricted Stock Units
The following table summarizes activity with respect to restricted stock units (“RSUs”) during the nine months ended September 30, 2022:2023:
| | | Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value Per Unit | | Number of RSUs | | Weighted Average Grant Date Fair Value Per RSU |
Unvested at December 31, 2021 | | 2,171,202 | | | $ | 40.51 | | |
Unvested at December 31, 2022 | | Unvested at December 31, 2022 | | 1,520,418 | | | $ | 66.36 | |
Granted | Granted | | 633,880 | | | $ | 81.25 | | Granted | | 758,028 | | | $ | 60.89 | |
Performance-based adjustment | | Performance-based adjustment | | 185,901 | | | $ | 48.97 | |
Vested | Vested | | (940,883) | | | $ | 32.36 | | Vested | | (905,105) | | | $ | 48.31 | |
Forfeited | Forfeited | | (94,728) | | | $ | 53.02 | | Forfeited | | (72,311) | | | $ | 65.47 | |
Unvested at September 30, 2022 | | 1,769,471 | | | $ | 64.97 | | |
Unvested at September 30, 2023 | | Unvested at September 30, 2023 | | 1,486,931 | | | $ | 65.35 | |
In the nine months ended September 30, 2023, we granted an aggregate of 943,929 RSUs. Of these:
•309,282 performance‑based RSUs will vest and be settled as described in the paragraph below;
•301,562 RSUs will vest and be settled ratably over a three‑year period from the grant date;
•185,901 RSUs vested and settled immediately as a result of our level of achievement with respect to performance‑based RSUs granted in 2020;
•42,626 RSUs will vest and be settled on the fifth anniversary of the grant date;
•40,538 RSUs granted to our non-employee directors for the 2023-2024 board service year vested immediately and will be settled on the third anniversary of the grant date;
•33,586 RSUs will vest and be settled on December 31, 2023;
•20,707 RSUs will vest upon the relocation of one of our executive officers; and
•9,727 RSUs will vest and be settled on the third anniversary of the grant date.
The vesting of the performance-based RSUs granted in the nine months ended September 30, 2023 is contingent on our achievement of specified performance goals for the years 2023 to 2025. Provided the goals are achieved, these performance-based RSUs will vest and be settled on the third anniversary of the grant date. For 301,562 of the performance-based RSUs granted during the nine months ended September 30, 2023, the actual number of RSUs that could vest ranges from 0% to 225%, depending on our level of achievement with respect to the performance goals; between 0% and 200% of the remaining 7,720 performance-based RSUs granted during this period could ultimately vest.
In the nine months ended September 30, 2022, we granted an aggregate of 633,880 RSUs. Of these, these:
•287,308 performance-based RSUs will vest and be settled as described in the paragraph below;
•237,381 RSUs will vest and be settled ratably over a three‑year period from the grant date, 9,215 will vest and be settled ratably over a four‑year period from the grant date, 4,608 will vest on the second anniversary of the grant date, and 6,170 will vest evenly on the third and fourth anniversaries of the grant date. Also included in the aforementioned aggregate number of RSUs were date;
•53,716 RSUs granted to our former Executive Chairman that were scheduled to vest and be settled ratably over 11 quarterly periods from the grant date, but the unvested portion of this grant vested and settled in October 2022 in accordance with the terms of the stock incentive plan. We also granted date;
•35,482 RSUs granted to our non‑employeenon-employee directors for the 2022-2023 board service year which units vested immediately and will settlebe settled on the third anniversary of the grant date.date;
•9,215 RSUs will vest and be settled ratably over a four‑year period from the grant date;
In addition, we•6,170 RSUs will vest and be settled evenly on the third and fourth anniversaries of the grant date; and
•4,608 RSUs will vest and be settled on the second anniversary of the grant date.
Other than as described below, the vesting of the performance-based RSUs granted 287,308 performance‑based RSUs in the nine months ended September 30, 2022; the vesting of these RSUs2022 is contingent on our achievement of specified performance goals for the years 2022 to 2024. Provided the goals are achieved, thethese performance‑based RSUs will vest and settlebe settled on the third anniversary of the grant date. The actual number of performance‑based RSUs that could vest will rangeranges from 0% to 200% of 233,592 of the 287,308 units granted, depending on our level of achievement with respect to the performance goals. Included in the aforementionedThe aggregate number of performance-based RSUs weregranted in 2022 included 53,716 RSUs granted to our former Executive Chairman that vested and settled at 100% in October 2022 in accordance with the terms of the stock incentive plan.
In the nine months ended September 30, 2021, we granted an aggregate of 884,468 RSUs, consisting of 547,421 RSUs that vest based on the passage of time, 297,309 RSUs that vest on a contingent basis, and 39,738 RSUs that were granted to our non‑employee directors and vested immediately. Of the 547,421 time‑Chairman. These performance‑based RSUs, 261,997 will vestwhich vested at 100%, and be settled ratably over a three‑year period from the grant date, 28,676 will vest and be settled on the third anniversary of the grant date, 53,341 will
vest and be settled on the fourth anniversary of the grant date, and 14,192 vested and were settled on December 31, 2021. Also included in the aforementioned aggregate number of RSUs were 189,215 RSUs granted to our former Executive Chairman that were scheduled to vest and be settled ratably over eight quarterly periods from the grant date, but the unvested portion of this grantthe 53,716 time‑based RSUs granted during the same period vested and settled in October 2022 in accordance with the termsdisability provisions of theour stock incentive plan. The 39,738 RSUs granted to our non‑employee directors included 36,681 RSUs for the 2021‑2022 board service year, 1,372 RSUs for an initial grant to a then‑new member of our board of directors and 1,685 RSUs for a pro‑rata annual grant to the same board member. 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.
The vesting of 243,076 of the performance‑based RSUs granted the nine months ended September 30, 2021 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 243,076 units granted, depending on our level of achievement with respect to the performance goals. In addition, we granted 53,341 performance‑based RSUs to a senior officer in September 2021. The vesting of this grant is contingent on our achievement of specified performance goals for the years 2021 to 2025 and is subject to the same vesting range as the performance‑based grants described above. Provided the goals are achieved, the performance‑based RSUs issued in September 2021 will vest and settle on the fourth anniversary of the grant date. During the nine months ended September 30, 2021, we also granted 892 RSUs that vested and settled immediately as a result of our level of achievement with respect to certain performance‑based RSUs granted in 2018.
The fair value of an RSU is based on our share price on the grant date. For certain of the performance‑performance‑based RSU grants, the number of units that will ultimately vest is subject to adjustment based on the achievement of a market‑based condition. The fair value of these RSUs is estimated through the use ofusing a Monte Carlo simulation. Significant inputs used in our valuation of these RSUs included the following:
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
Expected volatility | | 39.6% - 68.1% | | 65.2% - 79.3% |
| | | | |
Risk-free interest rate | | 1.0% - 1.7% | | 0.1% - 0.6% |
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2023 | | 2022 |
Expected volatility | | 53.6% - 65.6% | | 39.6% - 68.1% |
| | | | |
Risk-free interest rate | | 4.2% - 4.8% | | 1.0% - 1.7% |
At September 30, 2022,2023, there were $51$47 million of total unrecognized compensation costs related to RSUs. These costs are expected to be recognized over a weighted average period of 1.82.0 years.
USPI Management Equity Plan
USPI maintains a separate management equityrestricted stock plan (the “USPI Management Equity Plan”) under which it grants RSUs representing a contractual right to receive one share of USPI’s non‑voting common stock in the future. The vesting of RSUs granted under the plan varies based on the terms of the underlying award agreement. 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 the USPI Management Equity Plan during the nine months ended September 30, 2022:2023:
| | | Number of Restricted Stock Units | | Weighted Average Grant Date Fair Value Per Unit | | Number of RSUs | | Weighted Average Grant Date Fair Value Per RSU |
Unvested at December 31, 2021 | | 1,494,882 | | | $ | 34.13 | | |
Unvested at December 31, 2022 | | Unvested at December 31, 2022 | | 922,840 | | | $ | 34.13 | |
| Vested | Vested | | (369,691) | | | $ | 34.13 | | Vested | | (303,171) | | | $ | 34.13 | |
Forfeited | Forfeited | | (144,614) | | | $ | 34.13 | | Forfeited | | (10,763) | | | $ | 34.13 | |
Unvested at September 30, 2022 | | 980,577 | | | $ | 34.13 | | |
Unvested at September 30, 2023 | | Unvested at September 30, 2023 | | 608,906 | | | $ | 34.13 | |
NoUSPI did not make any new grants were made under the USPI Management Equity Plan during the nine months ended September 30, 2023 or 2022. During the nine months ended September 30, 2021, we granted 76,990 RSUs under the USPI Management Equity Plan. Twenty percent of these RSUs vested on the first anniversary of the grant date, 20% vests on the second anniversary, and the remaining 60% vests on the third anniversary of the grant date.
During the nine months ended September 30, 2022 and 2021, USPI paid $8$12 million and $5$8 million in cash respectively, to repurchase a portion of the non‑votingnon-voting common stock previously issued under the USPI Management Equity Plan.Plan during the nine‑month periods ended September 30, 2023 and 2022, respectively. At September 30, 2022,2023, there were 175,03665 thousand outstanding vested shares of non‑voting common stock eligible to be sold to USPI.
NOTE 9. EQUITY
The following tables present the changes in consolidated equity (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, 2021 | | 107,189 | | | $ | 8 | | | $ | 4,877 | | | $ | (233) | | | $ | (1,214) | | | $ | (2,410) | | | $ | 1,026 | | | $ | 2,054 | |
Net income | | — | | | — | | | — | | | — | | | 140 | | | — | | | 46 | | | 186 | |
Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (71) | | | (71) | |
| | | | | | | | | | | | | | | | |
Accretion of redeemable noncontrolling interests | | — | | | — | | | (95) | | | — | | | — | | | — | | | — | | | (95) | |
Sales of businesses and noncontrolling interests, net | | — | | | — | | | (7) | | | — | | | — | | | — | | | (1) | | | (8) | |
| | | | | | | | | | | | | | | | |
Stock-based compensation expense and issuance of common stock | | 499 | | | — | | | (10) | | | — | | | — | | | — | | | — | | | (10) | |
Balances at March 31, 2022 | | 107,688 | | | $ | 8 | | | $ | 4,765 | | | $ | (233) | | | $ | (1,074) | | | $ | (2,410) | | | $ | 1,000 | | | $ | 2,056 | |
Net income | | — | | | — | | | — | | | — | | | 38 | | | — | | | 58 | | | 96 | |
Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (38) | | | (38) | |
Other comprehensive income | | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | |
Accretion of redeemable noncontrolling interests | | — | | | — | | | (9) | | | — | | | — | | | — | | | — | | | (9) | |
Purchases (sales) of businesses and noncontrolling interests, net | | — | | | — | | | (23) | | | — | | | — | | | — | | | 7 | | | (16) | |
| | | | | | | | | | | | | | | | |
Stock-based compensation expense and issuance of common stock | | 142 | | | — | | | 23 | | | — | | | — | | | — | | | — | | | 23 | |
Balances at June 30, 2022 | | 107,830 | | | $ | 8 | | | $ | 4,756 | | | $ | (231) | | | $ | (1,036) | | | $ | (2,410) | | | $ | 1,027 | | | $ | 2,114 | |
Net income | | — | | | — | | | — | | | — | | | 131 | | | — | | | 63 | | | 194 | |
Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (58) | | | (58) | |
Other comprehensive income | | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | |
| | | | | | | | | | | | | | | | |
Purchases of businesses and noncontrolling interests, net | | — | | | — | | | 2 | | | — | | | — | | | — | | | 240 | | | 242 | |
| | | | | | | | | | | | | | | | |
Stock-based compensation expense and issuance of common stock | | 119 | | | — | | | 13 | | | — | | | — | | | — | | | — | | | 13 | |
Balances at September 30, 2022 | | 107,949 | | | $ | 8 | | | $ | 4,771 | | | $ | (229) | | | $ | (905) | | | $ | (2,410) | | | $ | 1,272 | | | $ | 2,507 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2022 | | 102,247 | | | $ | 8 | | | $ | 4,778 | | | $ | (181) | | | $ | (803) | | | $ | (2,660) | | | $ | 1,317 | | | $ | 2,459 | |
Net income | | — | | | — | | | — | | | — | | | 143 | | | — | | | 74 | | | 217 | |
Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (61) | | | (61) | |
Other comprehensive income | | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | |
| | | | | | | | | | | | | | | | |
Purchases of businesses and noncontrolling interests, net | | — | | | — | | | 2 | | | — | | | — | | | — | | | 17 | | | 19 | |
| | | | | | | | | | | | | | | | |
Repurchases of common stock | | (906) | | | — | | | — | | | — | | | — | | | (50) | | | — | | | (50) | |
Stock-based compensation expense and issuance of common stock | | 571 | | | — | | | (6) | | | — | | | — | | | — | | | — | | | (6) | |
Balances at March 31, 2023 | | 101,912 | | | $ | 8 | | | $ | 4,774 | | | $ | (179) | | | $ | (660) | | | $ | (2,710) | | | $ | 1,347 | | | $ | 2,580 | |
Net income | | — | | | — | | | — | | | — | | | 123 | | | — | | | 82 | | | 205 | |
Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (66) | | | (66) | |
Other comprehensive income | | — | | | — | | | — | | | 1 | | | — | | | — | | | — | | | 1 | |
| | | | | | | | | | | | | | | | |
Purchases of businesses and noncontrolling interests, net | | — | | | — | | | 4 | | | — | | | — | | | — | | | 18 | | | 22 | |
Repurchases of common stock | | (580) | | | — | | | — | | | — | | | — | | | (40) | | | — | | | (40) | |
| | | | | | | | | | | | | | | | |
Stock-based compensation expense and issuance of common stock | | 177 | | | — | | | 22 | | | — | | | — | | | — | | | — | | | 22 | |
Balances at June 30, 2023 | | 101,509 | | | $ | 8 | | | $ | 4,800 | | | $ | (178) | | | $ | (537) | | | $ | (2,750) | | | $ | 1,381 | | | $ | 2,724 | |
Net income | | — | | | — | | | — | | | — | | | 101 | | | — | | | 75 | | | 176 | |
Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (74) | | | (74) | |
Other comprehensive income | | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | |
| | | | | | | | | | | | | | | | |
Purchases of businesses and noncontrolling interests, net | | — | | | — | | | 3 | | | — | | | — | | | — | | | 32 | | | 35 | |
| | | | | | | | | | | | | | | | |
Stock-based compensation expense and issuance of common stock | | 42 | | | — | | | 15 | | | — | | | — | | | — | | | — | | | 15 | |
Balances at September 30, 2023 | | 101,551 | | | $ | 8 | | | $ | 4,818 | | | $ | (176) | | | $ | (436) | | | $ | (2,750) | | | $ | 1,414 | | | $ | 2,878 | |
| | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Treasury Stock | | Noncontrolling Interests | | Total Equity | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Treasury Stock | | Noncontrolling Interests | | Total Equity |
| | Shares Outstanding | | Issued Par Amount | | | Shares Outstanding | | Issued Par Amount | |
Balances at December 31, 2020 | | 106,070 | | | $ | 7 | | | $ | 4,844 | | | $ | (281) | | | $ | (2,128) | | | $ | (2,414) | | | $ | 909 | | | $ | 937 | | |
Balances at December 31, 2021 | | Balances at December 31, 2021 | | 107,189 | | | $ | 8 | | | $ | 4,877 | | | $ | (233) | | | $ | (1,214) | | | $ | (2,410) | | | $ | 1,026 | | | $ | 2,054 | |
Net income | Net income | | — | | | — | | | — | | | — | | | 97 | | | — | | | 44 | | | 141 | | Net income | | — | | | — | | | — | | | — | | | 140 | | | — | | | 46 | | | 186 | |
Distributions paid to noncontrolling interests | Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (61) | | | (61) | | Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (71) | | | (71) | |
Other comprehensive loss | | — | | | — | | | — | | | (1) | | | — | | | — | | | — | | | (1) | | |
| Accretion of redeemable noncontrolling interests | | Accretion of redeemable noncontrolling interests | | — | | | — | | | (95) | | | — | | | — | | | — | | | — | | | (95) | |
Sales of businesses and noncontrolling interests, net | | Sales of businesses and noncontrolling interests, net | | — | | | — | | | (7) | | | — | | | — | | | — | | | (1) | | | (8) | |
| Stock-based compensation expense and issuance of common stock | | Stock-based compensation expense and issuance of common stock | | 499 | | | — | | | (10) | | | — | | | — | | | — | | | — | | | (10) | |
Balances at March 31, 2022 | | Balances at March 31, 2022 | | 107,688 | | | $ | 8 | | | $ | 4,765 | | | $ | (233) | | | $ | (1,074) | | | $ | (2,410) | | | $ | 1,000 | | | $ | 2,056 | |
Net income | | Net income | | — | | | — | | | — | | | — | | | 38 | | | — | | | 58 | | | 96 | |
Distributions paid to noncontrolling interests | | Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (38) | | | (38) | |
Other comprehensive income | | Other comprehensive income | | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | |
Accretion of redeemable noncontrolling interests | Accretion of redeemable noncontrolling interests | | — | | | — | | | (3) | | | — | | | — | | | — | | | — | | | (3) | | Accretion of redeemable noncontrolling interests | | — | | | — | | | (9) | | | — | | | — | | | — | | | — | | | (9) | |
Purchases (sales) of businesses and noncontrolling interests, net | Purchases (sales) of businesses and noncontrolling interests, net | | — | | | — | | | (10) | | | — | | | — | | | — | | | 1 | | | (9) | | Purchases (sales) of businesses and noncontrolling interests, net | | — | | | — | | | (23) | | | — | | | — | | | — | | | 7 | | | (16) | |
| Stock-based compensation expense and issuance of common stock | Stock-based compensation expense and issuance of common stock | | 617 | | | 1 | | | 10 | | | — | | | — | | | 1 | | | — | | | 12 | | Stock-based compensation expense and issuance of common stock | | 142 | | | — | | | 23 | | | — | | | — | | | — | | | — | | | 23 | |
Balances at March 31, 2021 | | 106,687 | | | $ | 8 | | | $ | 4,841 | | | $ | (282) | | | $ | (2,031) | | | $ | (2,413) | | | $ | 893 | | | $ | 1,016 | | |
Balances at June 30, 2022 | | Balances at June 30, 2022 | | 107,830 | | | $ | 8 | | | $ | 4,756 | | | $ | (231) | | | $ | (1,036) | | | $ | (2,410) | | | $ | 1,027 | | | $ | 2,114 | |
Net income | Net income | | — | | | — | | | — | | | — | | | 119 | | | — | | | 58 | | | 177 | | Net income | | — | | | — | | | — | | | — | | | 131 | | | — | | | 63 | | | 194 | |
Distributions paid to noncontrolling interests | Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (43) | | | (43) | | Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (58) | | | (58) | |
Other comprehensive income | Other comprehensive income | | — | | | — | | | — | | | 5 | | | — | | | — | | | — | | | 5 | | Other comprehensive income | | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | |
Accretion of redeemable noncontrolling interests | | — | | | — | | | (4) | | | — | | | — | | | — | | | — | | | (4) | | |
| Purchases of businesses and noncontrolling interests, net | Purchases of businesses and noncontrolling interests, net | | — | | | — | | | 3 | | | — | | | — | | | — | | | — | | | 3 | | Purchases of businesses and noncontrolling interests, net | | — | | | — | | | 2 | | | — | | | — | | | — | | | 240 | | | 242 | |
| Stock-based compensation expense and issuance of common stock | Stock-based compensation expense and issuance of common stock | | 180 | | | — | | | 14 | | | — | | | — | | | 1 | | | — | | | 15 | | Stock-based compensation expense and issuance of common stock | | 119 | | | — | | | 13 | | | — | | | — | | | — | | | — | | | 13 | |
Balances at June 30, 2021 | | 106,867 | | | $ | 8 | | | $ | 4,854 | | | $ | (277) | | | $ | (1,912) | | | $ | (2,412) | | | $ | 908 | | | $ | 1,169 | | |
Net income | | — | | | — | | | — | | | — | | | 449 | | | — | | | 56 | | | 505 | | |
Distributions paid to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (51) | | | (51) | | |
Other comprehensive income | | — | | | — | | | — | | | 3 | | | — | | | — | | | — | | | 3 | | |
Accretion of redeemable noncontrolling interests | | — | | | — | | | (4) | | | — | | | — | | | — | | | — | | | (4) | | |
Purchases of businesses and noncontrolling interests, net | | — | | | — | | | 3 | | | — | | | — | | | — | | | — | | | 3 | | |
| Stock-based compensation expense and issuance of common stock | | 202 | | | — | | | 9 | | | — | | | — | | | 1 | | | — | | | 10 | | |
Balances at September 30, 2021 | | 107,069 | | | $ | 8 | | | $ | 4,862 | | | $ | (274) | | | $ | (1,463) | | | $ | (2,411) | | | $ | 913 | | | $ | 1,635 | | |
Balances at September 30, 2022 | | Balances at September 30, 2022 | | 107,949 | | | $ | 8 | | | $ | 4,771 | | | $ | (229) | | | $ | (905) | | | $ | (2,410) | | | $ | 1,272 | | | $ | 2,507 | |
Noncontrolling Interests
Our noncontrolling interests balances at September 30, 20222023 and December 31, 20212022 were comprised of $132$133 million and $128$132 million, respectively, from our Hospital Operations segment, and $1.140$1.281 billion and $898 million,$1.185 billion, respectively, from our Ambulatory Care segment. Our net income available to noncontrolling interests for the nine months ended September 30, 20222023 and 20212022 in the tables above were comprised of $15$22 million and $16$15 million, respectively, from our Hospital Operations segment and $152$209 million and $142$152 million, respectively, from our Ambulatory Care segment.
Share Repurchase Program
In October 2022, we announced that our board of directors had authorized the repurchase of up to $1 billion of our common stock through a share repurchase program that expires on December 31, 2024. Under the program, shares can be purchased in the open market or through privately negotiated transactions in a manner consistent with applicable securities laws and regulations, including pursuant to a Rule 10b5-1 plan if established by the Company, at times and in amounts based on market conditions and other factors.
The table below summarizes transactions completed under the repurchase program during the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Maximum Dollar Value of Shares That May Yet be Purchased Under the Program |
| | (In Thousands) | | | | (In Thousands) | | (In Millions) |
January 1 through January 31, 2023 | | — | | $ | — | | | — | | $ | 750 | |
February 1 through February 28, 2023 | | — | | $ | — | | | — | | $ | 750 | |
March 1 through March 31, 2023 | | 906 | | $ | 55.03 | | | 906 | | $ | 700 | |
April 1 through April 30, 2023 | | — | | $ | — | | | — | | $ | 700 | |
May 1 through May 31, 2023 | | 580 | | $ | 69.17 | | | 580 | | $ | 660 | |
June 1 through June 30, 2023 | | — | | $ | — | | | — | | $ | 660 | |
July 1 through July 31, 2023 | | — | | $ | — | | | — | | $ | 660 | |
August 1 through August 31, 2023 | | — | | $ | — | | | — | | $ | 660 | |
September 1 through September 30, 2023 | | — | | $ | — | | | — | | $ | 660 | |
January 1 through September 30, 2023 | | 1,486 | | $ | 60.55 | | | 1,486 | | |
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 health systems, individual hospitals and physician practices, and other services revenues consist of revenues from value‑based care, consulting and engagement solutions.practices.
The table below presents our sources of net operating revenues less implicit price concessions from continuing operations:revenues:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
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 | | $ | 575 | | | $ | 616 | | | $ | 1,773 | | | $ | 2,001 | | Medicare | | $ | 583 | | | $ | 575 | | | $ | 1,795 | | | $ | 1,773 | |
Medicaid | Medicaid | | 255 | | | 336 | | | 695 | | | 883 | | Medicaid | | 309 | | | 279 | | | 853 | | | 796 | |
Managed care(1) | Managed care(1) | | 2,408 | | | 2,567 | | | 7,227 | | | 7,592 | | Managed care(1) | | 2,532 | | | 2,384 | | | 7,600 | | | 7,126 | |
Uninsured | Uninsured | | 36 | | | 33 | | | 110 | | | 140 | | Uninsured | | 22 | | | 36 | | | 82 | | | 110 | |
Indemnity and other | Indemnity and other | | 183 | | | 159 | | | 508 | | | 527 | | Indemnity and other | | 155 | | | 183 | | | 451 | | | 508 | |
Total | Total | | 3,457 | | | 3,711 | | | 10,313 | | | 11,143 | | Total | | 3,601 | | | 3,457 | | | 10,781 | | | 10,313 | |
Other revenues(1)(2) | Other revenues(1)(2) | | 321 | | | 319 | | | 908 | | | 929 | | Other revenues(1)(2) | | 318 | | | 321 | | | 959 | | | 908 | |
Hospital Operations total prior to inter-segment eliminations | Hospital Operations total prior to inter-segment eliminations | | 3,778 | | | 4,030 | | | 11,221 | | | 12,072 | | Hospital Operations total prior to inter-segment eliminations | | 3,919 | | | 3,778 | | | 11,740 | | | 11,221 | |
Ambulatory Care | Ambulatory Care | | 806 | | | 666 | | | 2,315 | | | 1,976 | | Ambulatory Care | | 941 | | | 806 | | | 2,788 | | | 2,315 | |
Conifer | Conifer | | 333 | | | 314 | | | 990 | | | 943 | | Conifer | | 315 | | | 333 | | | 962 | | | 990 | |
Inter-segment eliminations | Inter-segment eliminations | | (116) | | | (116) | | | (342) | | | (362) | | Inter-segment eliminations | | (109) | | | (116) | | | (321) | | | (342) | |
Net operating revenues | Net operating revenues | | $ | 4,801 | | | $ | 4,894 | | | $ | 14,184 | | | $ | 14,629 | | Net operating revenues | | $ | 5,066 | | | $ | 4,801 | | | $ | 15,169 | | | $ | 14,184 | |
| | | | | | | | |
| | |
(1) | Includes Medicare and Medicaid managed care programs. |
(2) | Primarily physician practices revenues. |
Revenues related to the Texas Comprehensive Hospital Increase Reimbursement Program (“CHIRP”) are presented in managed care net patient service revenues in the table above. Amounts we were assessed to support CHIRP following its approval in 2022 were presented in Medicaid revenues in prior periods, but have been reclassified to managed care revenues to conform to the current‑year presentation in the same payer group as the revenues to more clearly reflect the results of our participation in this program. Assessments to support CHIRP totaled $27 million and $24 million during the three months ended September 30, 2023 and 2022, respectively, and $77 million and $101 million during the nine months ended September 30, 2023 and 2022, respectively.
Adjustments for prior‑year cost report settlements and related valuation allowances, principally related to Medicare and Medicaid, increased revenues in the nine months ended September 30, 2023 and 2022 and 2021 by $10$24 million and $21$10 million, respectively. Estimated cost report settlements and related valuation allowances were included in accounts receivable in the accompanying Condensed Consolidated Balance Sheets (see Note 2). We believe that we have made adequate provision for any adjustments that may result from the final determination of amounts earned under all the above arrangements with Medicare and Medicaid.
The table below presentsfollowing tables present the composition of net operating revenues for our Ambulatory Care segment:and Conifer segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net patient service revenues | | $ | 772 | | | $ | 633 | | | $ | 2,217 | | | $ | 1,890 | |
Management fees | | 28 | | | 21 | | | 81 | | | 64 | |
Revenue from other sources | | 6 | | | 12 | | | 17 | | | 22 | |
Net operating revenues | | $ | 806 | | | $ | 666 | | | $ | 2,315 | | | $ | 1,976 | |
The table below presents the composition of net operating revenues for our Conifer segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Revenue cycle services – Tenet | | $ | 113 | | | $ | 112 | | | $ | 333 | | | $ | 350 | |
Revenue cycle services – other clients | | 198 | | | 178 | | | 589 | | | 522 | |
Other services – Tenet | | 3 | | | 4 | | | 9 | | | 12 | |
Other services – other clients | | 19 | | | 20 | | | 59 | | | 59 | |
Net operating revenues | | $ | 333 | | | $ | 314 | | | $ | 990 | | | $ | 943 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Ambulatory Care: | | | | | | | | |
Net patient service revenues | | $ | 904 | | | $ | 772 | | | $ | 2,677 | | | $ | 2,217 | |
Management fees | | 30 | | | 28 | | | 90 | | | 81 | |
Revenue from other sources | | 7 | | | 6 | | | 21 | | | 17 | |
Ambulatory Care net operating revenues | | $ | 941 | | | $ | 806 | | | $ | 2,788 | | | $ | 2,315 | |
| | | | | | | | |
Conifer: | | | | | | | | |
Revenue cycle services – Tenet | | $ | 106 | | | $ | 113 | | | $ | 313 | | | $ | 333 | |
Revenue cycle services – other clients | | 188 | | | 198 | | | 587 | | | 589 | |
Other services – Tenet | | 3 | | | 3 | | | 8 | | | 9 | |
Other services – other clients | | 18 | | | 19 | | | 54 | | | 59 | |
Conifer net operating revenues | | $ | 315 | | | $ | 333 | | | $ | 962 | | | $ | 990 | |
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. period:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ending | | Years Ending | | Later Years |
| | | | | | December 31, | |
| | Total | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | |
Performance obligations | | $ | 5,564 | | | $ | 318 | | | $ | 600 | | | $ | 600 | | | $ | 600 | | | $ | 600 | | | $ | 2,846 | |
The amounts in the table above 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 contracts, variable‑based rate escalators, performance incentives, penalties or other variable consideration that is considered constrained. Conifer’s contract with Catholic Health Initiatives (“CHI”), a 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ending | | Years Ending | | Later Years |
| | | | | | December 31, | |
| | Total | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | |
Performance obligations | | $ | 6,163 | | | $ | 181 | | | $ | 663 | | | $ | 591 | | | $ | 591 | | | $ | 591 | | | $ | 3,546 | |
NOTE 11. 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 issued on an occurrence basis. For both the policy periodperiods of April 1, 2022 through March 31, 2023 and April 1, 2023 through March 31, 2024, 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 in California, $200 million for all other earthquakes and a per‑occurrence sub‑limit of $200 million forper named windstormswindstorm 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 $25 million for California earthquakes $25 million for floodsin California and named windstorms, and 2% of insured values for earthquakes in the New Madrid fault earthquakes,zone, each with a maximum deductible per claim deductible of $25 million. Floods and certainAll other covered losses including fires and other perils, haveare subject to a minimum deductible of $5 million.million per occurrence.
We also purchase cyber liability insurance from third parties. In April 2022, we experienced a cybersecurity incident that temporarily disrupted a subset of our acute care operations and involved the exfiltration of certain confidential company and patient information (the “Cybersecurity Incident”). We estimate thatreceived $41 million and $13 million of insurance recoveries related to the Cybersecurity Incident had an adverse pre‑tax impact of approximately $100 million during the nine months ended September 30, 2022. This estimate includes the costs to remediate the issues, lost revenues from the associated business interruption2023 and other related expenses. We have filed a claim within our policy limits. Insurance recoveries2022, respectively; of $13these amounts, we recorded $34 million related to this claim were received during the nine months ended September 30, 2022,and $6 million of which were recorded as net operating revenues.revenues during the same nine-month periods of 2023 and 2022, respectively.
Professional and General Liability Reserves
We are self‑insured for the majority of our professional and general liability claims, and we purchase insurance from third‑parties to cover catastrophic claims. At September 30, 20222023 and December 31, 2021,2022, the aggregate current and long‑term professional and general liability reserves in the accompanying Condensed Consolidated Balance Sheets were $1.083$1.051 billion and $1.045 billion, respectively. These reserves include the reserves recorded by our captive insurance subsidiaries and our 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. Malpractice expense of $197$271 million and $269$197 million was included in other operating expenses, net, in the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 20222023 and 2021,2022, respectively.
All commercial insurance we purchase is subject to per‑claim and policy period aggregate limits. If the policy period aggregate limit of any of our 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.
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 arising in the ordinary course of business.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 and privacy laws, tax audits and other matters. 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.us; however, we believe that the ultimate resolution of our existing 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. 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. 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 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 haveWe do not discloseddisclose an estimate when we have concluded that thea loss is either not reasonably possible or thea loss, or a range of loss, is not reasonably estimable, based on available information. Given the inherent uncertainties associated with thesematerial legal matters, especially those involving governmental agencies, and the indeterminate damages sought in some cases, we are unable to predict the ultimate liability we may incur from thesesuch 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.
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”) 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, and the federal False Claims Act 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. The DOJ issued a civil investigative demand to DMC for documents and interrogatories in September 2021. We are cooperating with the investigation.
Other Matters
In July 2019, certain of the entities that purchased the operations of Hahnemann University Hospital and St. Christopher’s Hospital for Children in Philadelphia from us commenced Chapter 11 bankruptcy proceedings. In the three months ended December 31, 2021, we established a reserve of $23 million for certain obligations related to the sale of the hospitals and the subsequent bankruptcy proceedings of the buyers. In the six months ended June 30, 2022, we made advance payments of approximately $1 million. In the three months ended September 30, 2022, the bankruptcy court approved a final settlement among the parties, and we made the remaining $22 million in payments to fully resolve this matter.
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 and privacy 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 (i) 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, (ii) cause us to incur substantial expenses, (iii) require significant time and attention from our management, and (iv) 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:costs:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balances at Beginning of Period | | Litigation and Investigation Costs | | Cash Payments | | Other | | Balances at End of Period |
Nine Months Ended September 30, 2022 | | $ | 78 | | | $ | 50 | | | $ | (88) | | | $ | 3 | | | $ | 43 | |
Nine Months Ended September 30, 2021 | | $ | 26 | | | $ | 64 | | | $ | (44) | | | $ | (5) | | | $ | 41 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balances at Beginning of Period | | Litigation and Investigation Costs | | Cash Payments | | Other | | Balances at End of Period |
Nine Months Ended September 30, 2023 | | $ | 51 | | | $ | 28 | | | $ | (52) | | | $ | 1 | | | $ | 28 | |
Nine Months Ended September 30, 2022 | | $ | 78 | | | $ | 50 | | | $ | (88) | | | $ | 3 | | | $ | 43 | |
NOTE 13. REDEEMABLE NONCONTROLLING INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES
OurWe had a put/call agreement (the “Baylor Put/Call Agreement”) with Baylor that contained put and call options with respect to the 5% ownership interest Baylor previously held in USPI until June 30, 2022. The Baylor Put/Call Agreement gave Baylor the option to annually put up to one-third of its total shares in USPI (the “Baylor Shares”) over a period of three years beginning in 2021. We had the right to call the difference between the number of shares Baylor put each year and the maximum number of shares it could have put.. 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 Sheet at December 31, 2021. During the nine months ended September 30, 2022 and 2021, we recognized accretion totaling $102 million and $7 million, respectively, and a corresponding decrease in additional paid-in capital related to Baylor’s minority interest in USPI.
In each of 2021 and 2022, we notified Baylor of our intention to exercise our call option to purchase 33.3% of the Baylor Shares for that year (66.6% in total).consolidated balance sheet. In June 2022, we entered into an agreement with Baylor (the “Share Purchase Agreement”) to complete the purchase all of the Baylor Shares we called in 2021 and 2022 and to accelerate the acquisition of the remaining Baylor Shares eligible to be put/called in 2023.Shares. Under the terms of the Share Purchase Agreement, we agreed to pay Baylor $406 million to buy its entire 5% voting ownership interest in USPI. We paid $11 million upon execution of the Share Purchase Agreement and willare obligated to make a total of 35 additional non-interest bearingnon-interest-bearing monthly payments of approximately $11 million, which payments commenced in August 2022. WeIn June 2022, we recorded the present value of the purchase price as a liability on our balance sheet, with an offset to redeemable noncontrolling interest of $365 million for the carrying amount of the shares and $23 million to additional paid‑in capital for the difference between the carrying value and present value of the purchase price for the shares. At both September 30, 2023 and December 31, 2022, we had liabilitiesa liability of $135 million recorded in other current liabilities in the accompanying Condensed Consolidated Balance Sheets for the purchase of these shares. The long-term portion of our obligation related to the share repurchase was $95 million and $222$190 million at September 30, 2023 and December 31, 2022, respectively, which amounts were included in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet for the purchase of these shares.
Sheets.
The following table presents the changes in redeemable noncontrolling interests in equity of consolidated subsidiaries:
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| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
Balances at beginning of period | | $ | 2,203 | | | $ | 1,952 | |
Net income | | 251 | | | 234 | |
Distributions paid to noncontrolling interests | | (265) | | | (161) | |
Accretion of redeemable noncontrolling interests | | 104 | | | 11 | |
Purchases and sales of businesses and noncontrolling interests, net | | (225) | | | 12 | |
Balances at end of period | | $ | 2,068 | | | $ | 2,048 | |
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| | Nine Months Ended September 30, |
| | 2023 | | 2022 |
Balances at beginning of period | | $ | 2,149 | | | $ | 2,203 | |
Net income | | 257 | | | 251 | |
Distributions paid to noncontrolling interests | | (224) | | | (265) | |
Accretion of redeemable noncontrolling interests | | — | | | 104 | |
Purchases and sales of businesses and noncontrolling interests, net | | 121 | | | (225) | |
Balances at end of period | | $ | 2,303 | | | $ | 2,068 | |
Distributions paid to noncontrolling interests during the nine months ended September 30, 2022 included $61 million of proceeds related to the sale of several medical office buildings previously owned by our Hospital Operations segment.
The following table presentstables present the composition by segment of our redeemable noncontrolling interests balances:
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| | September 30, 2022 | | December 31, 2021 |
Hospital Operations | | $ | 235 | | | $ | 297 | |
Ambulatory Care | | 1,296 | | | 1,425 | |
Conifer | | 537 | | | 481 | |
Redeemable noncontrolling interests | | $ | 2,068 | | | $ | 2,203 | |
The following table presentsbalances, as well as our net income available (loss attributable) to redeemable noncontrolling interests by segment:interests:
| | | | Nine Months Ended September 30, | | | | | | | | | | | | |
| | | 2022 | | 2021 | | | September 30, 2023 | | December 31, 2022 |
Hospital Operations | Hospital Operations | | $ | 23 | | | $ | 18 | | Hospital Operations | | $ | 219 | | | $ | 233 | |
Ambulatory Care | Ambulatory Care | | 172 | | | 164 | | Ambulatory Care | | 1,458 | | | 1,357 | |
Conifer | Conifer | | 56 | | | 52 | | Conifer | | 626 | | | 559 | |
Net income available to redeemable noncontrolling interests | | $ | 251 | | | $ | 234 | | |
Redeemable noncontrolling interests | | Redeemable noncontrolling interests | | $ | 2,303 | | | $ | 2,149 | |
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| | Nine Months Ended September 30, |
| | 2023 | | 2022 |
Hospital Operations | | $ | (3) | | | $ | 23 | |
Ambulatory Care | | 193 | | | 172 | |
Conifer | | 67 | | | 56 | |
Net income available to redeemable noncontrolling interests | | $ | 257 | | | $ | 251 | |
NOTE 14. INCOME TAXES
During the three months ended September 30, 2023 and 2022, we recorded income tax expense of $112$79 million in continuing operations on pre-tax income of $380 million compared to $197and $112 million on pre-tax income of $774$345 million during the three months ended September 30, 2021. During the nine months ended September 30, 2022, weand $380 million, respectively, and recorded income tax expense of $297$243 million in continuing operations on pre-tax income of $1.023 billion compared to $303and $297 million on pre-tax income of $1.360$1.098 billion and $1.023 billion during the nine months ended September 30, 2021.2023 and 2022, respectively. Our provision for income taxes during interim reporting periods is calculated by applying an estimate of the annual effective tax rate 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 attributableavailable to noncontrolling interests was deducted from pre-tax income.
A reconciliation between the amount of reported income tax expense and the amount computed by multiplying income from continuing operations before income taxes by the statutory federal tax rate is presented below:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Tax expense at statutory federal rate of 21% | Tax expense at statutory federal rate of 21% | | $ | 80 | | | $ | 163 | | | $ | 215 | | | $ | 286 | | Tax expense at statutory federal rate of 21% | | $ | 73 | | | $ | 80 | | | $ | 231 | | | $ | 215 | |
State income taxes, net of federal income tax benefit | State income taxes, net of federal income tax benefit | | 15 | | | 29 | | | 40 | | | 56 | | State income taxes, net of federal income tax benefit | | 11 | | | 15 | | | 39 | | | 40 | |
Tax benefit attributable to noncontrolling interests | Tax benefit attributable to noncontrolling interests | | (29) | | | (26) | | | (86) | | | (79) | | Tax benefit attributable to noncontrolling interests | | (35) | | | (29) | | | (102) | | | (86) | |
Nondeductible goodwill | Nondeductible goodwill | | — | | | 28 | | | 1 | | | 35 | | Nondeductible goodwill | | — | | | — | | | — | | | 1 | |
| Stock-based compensation tax benefit | Stock-based compensation tax benefit | | (1) | | | (1) | | | (4) | | | (4) | | Stock-based compensation tax benefit | | — | | | (1) | | | (4) | | | (4) | |
Changes in valuation allowance | Changes in valuation allowance | | 36 | | | — | | | 113 | | | — | | Changes in valuation allowance | | 24 | | | 36 | | | 66 | | | 113 | |
| Other items | Other items | | 11 | | | 4 | | | 18 | | | 9 | | Other items | | 6 | | | 11 | | | 13 | | | 18 | |
Income tax expense | Income tax expense | | $ | 112 | | | $ | 197 | | | $ | 297 | | | $ | 303 | | Income tax expense | | $ | 79 | | | $ | 112 | | | $ | 243 | | | $ | 297 | |
During the nine months ended September 30, 2023 and 2022, we recorded income tax expense of $66 million and $113 million, respectively, to increase the valuation allowance for interest expense carryforwards as a result of the limitation on business interest expense.
The Inflation Reduction Act of 2022 implemented a corporate alternative minimum tax (“CAMT”) of 15% on book income of certain large corporations effective for tax years beginning after December 31, 2022. We didexpect to be subject to the CAMT, however, we currently do not haveexpect any interest expense limited during 2021.material impact on our consolidated statement of operations.
We increasedThere were no adjustments to our estimated liabilities for uncertain tax positions during the nine months ended September 30, 2022 by $1 million.2023. The total amount of unrecognized tax benefits as of September 30, 20222023 was $35$34 million, of which $33$32 million, if recognized, would affect our effective tax rate and income tax expense from continuing operations.
Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our condensed consolidated statements of operations. We did not have anyApproximately $1 million of interest orand penalties related to accrued liabilities for uncertain tax positions are included for the nine months ended September 30, 2023. Total accrued interest and penalties on unrecognized tax benefits accrued at September 30, 2022.
2023 were $2 million.
As of September 30, 2022,2023, no significant changes in unrecognized federal and state tax benefits 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 tables reconciletable provides a reconciliation of the numerators and denominators of our basic and diluted earnings per common share calculations for our continuing operations. Net income available to our common shareholders is expressed in millions and weighted average shares are expressed in thousands.
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| | Net Income Available to Common Shareholders (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount |
Three Months Ended September 30, 2022 | | | | | | |
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share | | $ | 131 | | | 107,923 | | | $ | 1.21 | |
Effect of dilutive stock options, restricted stock units, deferred compensation units, convertible instruments and dividends on preferred stock | | (4) | | | 1,965 | | | (0.05) | |
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share | | $ | 127 | | | 109,888 | | | $ | 1.16 | |
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| | Net Income Available to Common Shareholders (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount |
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Three Months Ended September 30, 2021 | | | | | | |
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share | | $ | 448 | | | 107,050 | | | $ | 4.18 | |
Effect of dilutive stock options, restricted stock units and deferred compensation units | | — | | | 1,711 | | | (0.06) | |
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share | | $ | 448 | | | 108,761 | | | $ | 4.12 | |
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Nine Months Ended September 30, 2022 | | | | | | |
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share | | $ | 308 | | | 107,732 | | | $ | 2.86 | |
Effect of dilutive stock options, restricted stock units, deferred compensation units, convertible instruments and dividends on preferred stock | | 8 | | | 4,556 | | | (0.05) | |
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share | | $ | 316 | | | 112,288 | | | $ | 2.81 | |
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Nine Months Ended September 30, 2021 | | | | | | |
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share | | $ | 665 | | | 106,727 | | | $ | 6.23 | |
Effect of dilutive stock options, restricted stock units and deferred compensation units | | — | | | 1,738 | | | (0.10) | |
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share | | $ | 665 | | | 108,465 | | | $ | 6.13 | |
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| | Net Income Available to Common Shareholders (Numerator) | | Weighted Average Shares (Denominator) | | Per-Share Amount |
Three Months Ended September 30, 2023 | | | | | | |
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share | | $ | 101 | | | 101,544 | | | $ | 0.99 | |
Effect of dilutive stock options, restricted stock units, deferred compensation units, convertible instruments and dividends on preferred stock | | (3) | | | 2,881 | | | (0.05) | |
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share | | $ | 98 | | | 104,425 | | | $ | 0.94 | |
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Three Months Ended September 30, 2022 | | | | | | |
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share | | $ | 131 | | | 107,923 | | | $ | 1.21 | |
Effect of dilutive stock options, restricted stock units, deferred compensation units, convertible instruments and dividends on preferred stock | | (4) | | | 1,965 | | | (0.05) | |
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share | | $ | 127 | | | 109,888 | | | $ | 1.16 | |
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Nine Months Ended September 30, 2023 | | | | | | |
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share | | $ | 367 | | | 101,869 | | | $ | 3.60 | |
Effect of dilutive stock options, restricted stock units, deferred compensation units, convertible instruments and dividends on preferred stock | | (9) | | | 3,152 | | | (0.19) | |
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share | | $ | 358 | | | 105,021 | | | $ | 3.41 | |
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Nine Months Ended September 30, 2022 | | | | | | |
Net income available to Tenet Healthcare Corporation common shareholders for basic earnings per share | | $ | 308 | | | 107,732 | | | $ | 2.86 | |
Effect of dilutive stock options, restricted stock units, deferred compensation units, convertible instruments and dividends on preferred stock | | 8 | | | 4,556 | | | (0.05) | |
Net income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share | | $ | 316 | | | 112,288 | | | $ | 2.81 | |
During the three and nine months ended September 30, 2023 and 2022, our convertible instruments consisted of an agreement related to the ownership interest in a Hospital Operations segment joint venture and RSUs issued under the USPI Management Equity Plan. Prior toPlan; however, during the first six months of 2022, our purchase of all of the shares underlyingconvertible instruments also included the Baylor Put/Call Agreement in June 2022, that agreement was also included in our convertible instruments.Agreement. Additional information about the RSUs issued under the USPI Management Equity Plan and our purchase of the shares underlying the Baylor Put/Call Agreement is included in Notes 8 and 13, respectively.
NOTE 16. FAIR VALUE MEASUREMENTS
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. 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‑financialNon-Recurring Fair Value Measurements
The following table presents information about assets and liabilities not permitted or required to be measured at fair value on a recurringnon-recurring basis typically relate to long‑lived assets held and used, long‑lived assets held for sale and goodwill. There were no such assets or liabilities requiringindicates the fair value measurement at September 30, 2022.hierarchy of the valuation techniques we utilized to determine such fair values:
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| | Total | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
At September 30, 2023 | | | | | | | | |
Long-lived assets held for sale | | $ | 140 | | | $ | — | | | $ | 140 | | | $ | — | |
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At December 31, 2022 | | | | | | | | |
Long-lived assets held and used | | $ | 167 | | | $ | — | | | $ | 167 | | | $ | — | |
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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.inputs. At September 30, 20222023 and December 31, 2021,2022, the estimated fair value of our long‑term debt was approximately 92.2%91.3% and 103.3%92.8%, 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 nine months ended September 30, 20222023 and 20212022 are as follows:
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| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
Current assets | | $ | 32 | | | $ | 20 | |
Property and equipment | | 45 | | | 26 | |
Other intangible assets | | 2 | | | 1 | |
Goodwill | | 707 | | | 65 | |
Other long-term assets | | 84 | | | 8 | |
Previously held investments in unconsolidated affiliates | | (134) | | | — | |
Current liabilities | | (30) | | | (15) | |
Long-term liabilities | | (100) | | | (10) | |
Redeemable noncontrolling interests in equity of consolidated subsidiaries | | (134) | | | (28) | |
Noncontrolling interests | | (248) | | | (2) | |
Cash paid, net of cash acquired | | (224) | | | (64) | |
Gains on consolidations | | $ | — | | | $ | 1 | |
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| | 2023 | | 2022 |
Current assets | | $ | 24 | | | $ | 32 | |
Property and equipment | | 12 | | | 45 | |
Other intangible assets | | 8 | | | 2 | |
Goodwill | | 342 | | | 707 | |
Other long-term assets | | 16 | | | 84 | |
Previously held investments in unconsolidated affiliates | | (59) | | | (134) | |
Current liabilities | | (17) | | | (30) | |
Long-term liabilities | | (19) | | | (100) | |
Redeemable noncontrolling interests in equity of consolidated subsidiaries | | (126) | | | (134) | |
Noncontrolling interests | | (59) | | | (248) | |
Cash paid, net of cash acquired | | (110) | | | (224) | |
Gains on consolidations | | $ | 12 | | | $ | — | |
The goodwill generated from these transactions, the majority of which we believe will not 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 $707$342 million from acquisitions completed during the nine months ended September 30, 20222023 was recorded in our Ambulatory Care segment. Approximately $10$8 million and $6$10 million in transaction costs related to prospective and closed acquisitions were expensed during the nine‑month periods ended September 30, 20222023 and 2021,2022, respectively, and 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 allocated over those fair values is recorded as goodwill. The purchase price allocations for certain acquisitions completed in 20222023 and 20212022 are preliminary. We are in the process of 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. Therefore, those purchase price allocations, including goodwill, recorded in the accompanying Condensed Consolidated Financial Statements are subject to adjustment once the assessments and valuation work are completed and evaluated. Such adjustments will be recorded as soon as practical and within the measurement period as defined by the accounting literature.
During the nine months ended September 30, 2022,2023, we adjusted the initialpreliminary purchase allocationallocations of certain acquisitions completed in 20212022 based on the results of completed valuations. These adjustments resulted in a net increasedecrease in goodwill of $15$19 million.
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.
Our Hospital Operations segment is comprised of our acute care and specialty hospitals, imaging centers,a network of employed physicians and ancillary outpatient facilities, micro‑hospitals and physician practices.facilities. At September 30, 2022,2023, our subsidiaries operated 61 hospitals serving primarily urban and suburban communities in nine states, including the new acute care hospital we opened in September 2022 in South Carolina. On April 1, 2021, we transferred 24 imaging centers from our Ambulatory Care segment to our Hospital Operations segment. The total assets associated with the imaging centers transferred toAlso at September 30, 2023, our Hospital Operations segment constituted less than 1% of our consolidated total assets at March 31, 2021. Also in April 2021, we completed the sale of the majority of the urgent careincluded 107 outpatient facilities, primarily imaging centers, then held by our Hospital Operations segment to an unaffiliated urgent care provider. In addition, we completed the sale of five Miami‑area hospitalsancillary emergency facilities and certain related operations in August 2021 and an Arizona micro‑hospital in April 2022, all of which were held by our Hospital Operations segment.
hospitals. Our Ambulatory Care segment is comprised of the operations of USPI. At September 30, 2022,2023, USPI had ownership interests in 440457 ambulatory surgery centers (292(316 consolidated) and 24 surgical hospitals (eight consolidated) in 35 states. In April 2021, we completed the sale of 40 urgent care centers then held by our Ambulatory Care segment to an unaffiliated urgent
care provider and, as noted above, transferred 24 imaging centers from our Ambulatory Care segment to our Hospital Operations segment. Effective June 30, 2022, we purchased all of the shares previouslyin USPI that Baylor held by Baylor in USPIon that date for $406 million, which increased our ownership interest in USPI’s voting shares from 95% to 100%. See (see Note 13 for additional information about this transaction.
transaction). Our Conifer segment provides revenue cycle management and value‑basedvalue-based care services to hospitals, health systems, physician practices, employers and other clients. At September 30, 2022,2023, Conifer provided services to approximately 670 Tenet and non‑Tenet hospitals and other clients nationwide. Conifer provides revenue management, administrative servicessupport and various other services to Tenet hospitals. We believe the pricing terms for these services are commercially reasonable and consistent with estimated third‑party terms. At September 30, 2022,2023, we owned approximately 76% of Conifer Health Solutions, LLC, which is Conifer’s principal subsidiary.
The following tables include amounts for each of our reportable segments and the reconciling items necessary to agreereconcile them to the amounts reported in the accompanying Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations, as applicable:
| | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
Assets: | Assets: | | | | | Assets: | | | | |
Hospital Operations | Hospital Operations | | $ | 15,731 | | | $ | 17,173 | | Hospital Operations | | $ | 15,795 | | | $ | 15,682 | |
Ambulatory Care | Ambulatory Care | | 10,443 | | | 9,473 | | Ambulatory Care | | 10,919 | | | 10,557 | |
Conifer | Conifer | | 902 | | | 933 | | Conifer | | 876 | | | 917 | |
Total | Total | | $ | 27,076 | | | $ | 27,579 | | Total | | $ | 27,590 | | | $ | 27,156 | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
Capital expenditures: | Capital expenditures: | | | | | | | | | Capital expenditures: | | | | | | | | |
Hospital Operations | Hospital Operations | | $ | 143 | | | $ | 95 | | | $ | 405 | | | $ | 295 | | Hospital Operations | | $ | 153 | | | $ | 143 | | | $ | 477 | | | $ | 405 | |
Ambulatory Care | Ambulatory Care | | 18 | | | 14 | | | 58 | | | 49 | | Ambulatory Care | | 20 | | | 18 | | | 58 | | | 58 | |
Conifer | Conifer | | 4 | | | 2 | | | 9 | | | 10 | | Conifer | | 3 | | | 4 | | | 8 | | | 9 | |
Total | Total | | $ | 165 | | | $ | 111 | | | $ | 472 | | | $ | 354 | | Total | | $ | 176 | | | $ | 165 | | | $ | 543 | | | $ | 472 | |
| Net operating revenues: | Net operating revenues: | | Net operating revenues: | |
Hospital Operations total prior to inter-segment eliminations | Hospital Operations total prior to inter-segment eliminations | | $ | 3,778 | | | $ | 4,030 | | | $ | 11,221 | | | $ | 12,072 | | Hospital Operations total prior to inter-segment eliminations | | $ | 3,919 | | | $ | 3,778 | | | $ | 11,740 | | | $ | 11,221 | |
Ambulatory Care | Ambulatory Care | | 806 | | | 666 | | | 2,315 | | | 1,976 | | Ambulatory Care | | 941 | | | 806 | | | 2,788 | | | 2,315 | |
Conifer | Conifer | | Conifer | |
Tenet | Tenet | | 116 | | | 116 | | | 342 | | | 362 | | Tenet | | 109 | | | 116 | | | 321 | | | 342 | |
Other clients | Other clients | | 217 | | | 198 | | | 648 | | | 581 | | Other clients | | 206 | | | 217 | | | 641 | | | 648 | |
Total Conifer revenues | Total Conifer revenues | | 333 | | | 314 | | | 990 | | | 943 | | Total Conifer revenues | | 315 | | | 333 | | | 962 | | | 990 | |
Inter-segment eliminations | Inter-segment eliminations | | (116) | | | (116) | | | (342) | | | (362) | | Inter-segment eliminations | | (109) | | | (116) | | | (321) | | | (342) | |
Total | Total | | $ | 4,801 | | | $ | 4,894 | | | $ | 14,184 | | | $ | 14,629 | | Total | | $ | 5,066 | | | $ | 4,801 | | | $ | 15,169 | | | $ | 14,184 | |
| Equity in earnings of unconsolidated affiliates: | | |
Hospital Operations | | $ | 2 | | | $ | 2 | | | $ | 8 | | | $ | 11 | | |
Ambulatory Care | | 49 | | | 43 | | | 143 | | | 130 | | |
Total | | $ | 51 | | | $ | 45 | | | $ | 151 | | | $ | 141 | | |
| Adjusted EBITDA: | | | | | | | | | |
Hospital Operations | | $ | 432 | | | $ | 496 | | | $ | 1,377 | | | $ | 1,379 | | |
Ambulatory Care | | 319 | | | 274 | | | 920 | | | 826 | | |
Conifer | | 90 | | | 85 | | | 275 | | | 261 | | |
Total | | $ | 841 | | | $ | 855 | | | $ | 2,572 | | | $ | 2,466 | | |
| Depreciation and amortization: | | | | | | | | | |
Hospital Operations | | $ | 172 | | | $ | 177 | | | $ | 518 | | | $ | 555 | | |
Ambulatory Care | | 28 | | | 23 | | | 83 | | | 71 | | |
Conifer | | 9 | | | 9 | | | 27 | | | 28 | | |
Total | | $ | 209 | | | $ | 209 | | | $ | 628 | | | $ | 654 | | |
| |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Equity in earnings of unconsolidated affiliates: | | Equity in earnings of unconsolidated affiliates: | | | | | | | | |
Hospital Operations | | Hospital Operations | | $ | 1 | | | $ | 2 | | | $ | 6 | | | $ | 8 | |
Ambulatory Care | | Ambulatory Care | | 50 | | | 49 | | | 149 | | | 143 | |
Total | | Total | | $ | 51 | | | $ | 51 | | | $ | 155 | | | $ | 151 | |
| Adjusted EBITDA: | | Adjusted EBITDA: | |
Hospital Operations | | Hospital Operations | | $ | 401 | | | $ | 432 | | | $ | 1,194 | | | $ | 1,377 | |
Ambulatory Care | | Ambulatory Care | | 370 | | | 319 | | | 1,080 | | | 920 | |
Conifer | | Conifer | | 83 | | | 90 | | | 255 | | | 275 | |
Total | | Total | | $ | 854 | | | $ | 841 | | | $ | 2,529 | | | $ | 2,572 | |
| Depreciation and amortization: | | Depreciation and amortization: | |
Hospital Operations | | Hospital Operations | | $ | 183 | | | $ | 172 | | | $ | 540 | | | $ | 518 | |
Ambulatory Care | | Ambulatory Care | | 32 | | | 28 | | | 86 | | | 83 | |
Conifer | | Conifer | | 9 | | | 9 | | | 28 | | | 27 | |
Total | | Total | | $ | 224 | | | $ | 209 | | | $ | 654 | | | $ | 628 | |
| Adjusted EBITDA | Adjusted EBITDA | | $ | 841 | | | $ | 855 | | | $ | 2,572 | | | $ | 2,466 | | Adjusted EBITDA | | $ | 854 | | | $ | 841 | | | $ | 2,529 | | | $ | 2,572 | |
| Depreciation and amortization | Depreciation and amortization | | (209) | | | (209) | | | (628) | | | (654) | | Depreciation and amortization | | (224) | | | (209) | | | (654) | | | (628) | |
Impairment and restructuring charges, and acquisition-related costs | Impairment and restructuring charges, and acquisition-related costs | | (24) | | | (15) | | | (97) | | | (55) | | Impairment and restructuring charges, and acquisition-related costs | | (47) | | | (24) | | | (84) | | | (97) | |
Litigation and investigation costs | Litigation and investigation costs | | (12) | | | (29) | | | (50) | | | (64) | | Litigation and investigation costs | | (14) | | | (12) | | | (28) | | | (50) | |
Interest expense | Interest expense | | (222) | | | (227) | | | (671) | | | (702) | | Interest expense | | (227) | | | (222) | | | (674) | | | (671) | |
Loss from early extinguishment of debt | Loss from early extinguishment of debt | | — | | | (20) | | | (109) | | | (74) | | Loss from early extinguishment of debt | | — | | | — | | | (11) | | | (109) | |
Other non-operating income, net | Other non-operating income, net | | 6 | | | 7 | | | 6 | | | 16 | | Other non-operating income, net | | 4 | | | 6 | | | 8 | | | 6 | |
Net gains on sales, consolidation and deconsolidation of facilities | | — | | | 412 | | | — | | | 427 | | |
Net gains (losses) on sales, consolidation and deconsolidation of facilities | | Net gains (losses) on sales, consolidation and deconsolidation of facilities | | (1) | | | — | | | 12 | | | — | |
Income from continuing operations, before income taxes | Income from continuing operations, before income taxes | | $ | 380 | | | $ | 774 | | | $ | 1,023 | | | $ | 1,360 | | Income from continuing operations, before income taxes | | $ | 345 | | | $ | 380 | | | $ | 1,098 | | | $ | 1,023 | |
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 providegive context to the context within whichanalysis of 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. 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
•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 our acute care and specialty hospitals, imaging centers,a network of employed physicians and ancillary outpatient facilities, micro‑hospitals and physician practices.facilities. At September 30, 2022,2023, our subsidiaries operated 61 hospitals serving primarily urban and suburban communities in nine states, including the new acute care hospital we opened in September 2022 in South Carolina. In April 2021, we completed the sale of the majority of the urgent care centers then held by ourstates. Our Hospital Operations segment to an unaffiliated urgent care provider. In addition, we completed the sale of five Miami‑area hospitalsalso included 107 outpatient facilities at September 30, 2023, including imaging centers, ancillary emergency facilities and certain related operations (the “Miami Hospitals”) in August 2021 and a micro-hospital located in Arizona in April 2022, all of which were held in our Hospital Operations segment.
micro‑hospitals.
Our Ambulatory Care segment, is comprised of the operations ofthrough our USPI Holding Company, Inc. subsidiary (“USPI”). USPI had, held ownership interests in 440457 ambulatory surgery centers (each, an “ASC”) (292(316 consolidated) and 24 surgical hospitals (eight consolidated) in 35 states at September 30, 2022. In April 2021, we completed the sale2023. USPI’s facilities offer a range of 40 urgent care centers then held by our Ambulatory Care segment to an unaffiliated urgent care providerprocedures and transferred 24 imaging centers from our Ambulatory Care segment to our Hospital Operations segment.service lines, including, among other specialties: orthopedics, total joint replacement, and spinal and other musculoskeletal procedures; gastroenterology; and urology. Effective June 30, 2022, we purchased all of the shares previously held byin USPI that Baylor University Medical Center (“Baylor”) in USPIheld on that date for $406 million, which increased our ownership interest in USPI’s voting shares from 95% to 100%. See Note 13 to the accompanying Condensed Consolidated Financial Statements and the “Liquidity and Capital Resources” section of MD&A for additional information about this transaction.
Our Conifer segment provides revenue cycle management and value‑basedvalue-based care services to hospitals, health systems, physician practices, employers and other clients through our Conifer Holdings, Inc. subsidiary (“Conifer”). At September 30, 2022,2023, Conifer provided services to approximately 670 Tenet and non‑Tenet hospitals and other clients nationwide. Almost all of the services comprising the operations of our Conifer segment are provided by Conifer Health Solutions, LLC, in which we own an interest of approximately 76%, or by one of its direct or indirect wholly owned subsidiaries.
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‑per adjusted admission and per‑adjusted‑patient‑per adjusted patient day amounts). Continuing operations information includes, with respect to our Hospital Operations segment, the results of our same 60 hospitals operated throughout the nine months ended September 30, 20222023 and 2021,2022, as well as the Miami Hospitals sold in August 2021, the Arizona micro‑hospital sold in April 2022 andresults of Piedmont Medical Center Fort Mill (“PMC Fort Mill Hospital”), the new South Carolinaacute care hospital we opened in South Carolina in September 2022. Continuing operations information excludes the results of our hospitals and other businesses that have been classified as discontinued operations for accounting purposes. We believe this informationpresentation is useful to investors because it includes the operations of all facilities in continuing operations for the period ofentire time that we owned and operated them and itduring the relevant period. In addition, continuing operations information reflects the recent trends we are experiencing with respect toimpact of the addition or disposition of individual hospitals and other operations on our volumes, revenues and expenses. We present certain metrics as a percentage of net operating revenues because a significant portion of our operating expenses are variable. In addition,variable, and we present certain metrics on a per‑adjusted‑per adjusted admission and per‑adjusted‑patient‑per adjusted patient day basis to show trends other than volume.
In certain cases, information presented in MD&A for our Hospital Operations segment is described as presented on a same‑hospital basis, which includes the results of our same 60 hospitals operated throughout the nine months ended September 30, 20222023 and 2021,2022, and excludes the results of the Miami Hospitals we sold in August 2021, the Arizona micro‑hospital sold in April 2022, the new South Carolina hospital opened in September 2022 and the results of our
PMC Fort Mill Hospital, as well as our discontinued operations. We present same‑hospital data because we believe it provides investors with useful information regarding the performance of our current portfolio of hospitals and other operations that are comparable for the periods presented, as well as reflectspresented. Furthermore, same‑hospital
data may more clearly reflect recent trends we are experiencing with respect to volumes, revenues and expenses.expenses exclusive of variations caused by the addition or disposition of individual hospitals and other operations.
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, including Adjusted EBITDA (as defined below), in this report and 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. 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 EBITDA” is a non‑GAAP measure 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 loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax, (4) income tax benefit (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., health plan businesses). Litigation and investigation costs do not include ordinary course of business malpractice and other litigation and related expense.
We also present certain operational metrics and statistics in order to provide additional insight into our operational performance efficiency and to help investors better understand management’s view and strategic focus. We define these operational metrics and statistics as follows:
Adjusted admissions—represents actual admissions in the period adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual admissions by the sum of gross inpatient revenues and outpatient revenues and dividing the result by gross inpatient revenues;
Adjusted patient days—represents actual patient days in the period adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual patient days by the sum of gross inpatient revenues and outpatient revenues and dividing the result by gross inpatient revenues; and
Utilization of licensed beds—represents patient days divided by the number of days in the period divided by average licensed beds.
MANAGEMENT OVERVIEW
RECENT DEVELOPMENTS
In October 2022, our board of directors authorized a $1 billion share repurchase program. Repurchases will be made in accordance with applicable securities laws and may be made at management's discretion from time to time in open-market or privately negotiated transactions, subject to market conditions and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time before its scheduled expiration date of December 31, 2024.OPERATING ENVIRONMENT AND TRENDS
IMPACT OF THEOngoing Impact of the COVID-19 PANDEMIC
The COVID‑19 pandemic continued to adversely impact all threePandemic—We believe the strong patient volume growth in our Ambulatory Care and Hospital Operations segments of our business, as well as our patients, communities and employees, in the nine months ended September 30, 2022. Broad economic factors resulting from the pandemic affected our patient volumes, service mix and revenue mix. In addition, the pandemic continued to have an adverse impact on certain of our operating expenses during the nine months ended September 30, 2022.
2023 are attributable in part to patient care deferred in prior years due to the COVID‑19 pandemic. Regional changes in the prevalence of COVID‑19 infections and related patient acuity continued to adversely impact our patient volumes, service mix, revenue mix, operating expenses and net operating revenues, but to a much lesser extent that previously experienced. We have taken a number of actions over the past several years to increase our liquidity and mitigate the impact of fluctuations in our patient volumes and in our service and revenue mix.
VariousMoreover, various federal legislative actions, including additional funding for the Public Health and Social Services Emergency Fund (“PRF”(collectively, the “COVID Acts”), haveduring the public health emergency that began in January 2020 mitigated some of the economic disruption caused byadverse financial impacts of the COVID‑19 pandemic on our business. InDuring the nine months ended September 30, 20222023 and 2021,September 30, 2022, we received cash payments from the PRF and state and local grantCOVID‑19 relief programs totaling $9 million and $155 million, respectively. We recognized grant income of $3 million and $65$54 million respectively, including $27 million received during the nine-month period in 2021 by our unconsolidated affiliates for whom we provide cash management services. We recognizedthree months ended September 30, 2023 and 2022, respectively, and $14 million and $154 million and $53 million from these funds as grant income during the nine-month periods in 2022 and 2021, respectively. In addition, we recognized $12 million in equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statement of Operations during the nine months ended September 30, 2021.
Throughout MD&A, we have provided additional information on the impact of2023 and 2022, respectively. The public health emergency for the COVID‑19 pandemic ended 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 and its future impact on our business remain unknown. For information about risks and uncertainties related to COVID‑19 that could affect our results of operations, financial condition and cash flows, see the Risk Factors section in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 (“Annual Report”) and in Part II of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (“Q1’22 Report”).May 11, 2023.
CYBERSECURITY INCIDENT
In April 2022, we experienced a cybersecurity incident that temporarily disrupted a subset of our acute care operationsStaffing and involved the exfiltration of certain confidential company and patient information (the “Cybersecurity Incident”). During this time, our hospitals remained operational and continued to deliver patient care safely and effectively, utilizing well‑established back‑up processes. Labor Trends—We immediately suspended user access to impacted information technology applications, executed extensive cybersecurity protection protocols, and took steps to restrict further unauthorized activity. We have restored impacted information technology operations, and we have taken additional measures to protect patient, employee and other data, as appropriate, in response to the Cybersecurity Incident.
Disruption from the Cybersecurity Incident placed pressure on our Hospital Operations segment’s volumes and earnings, particularly in April and May 2022. We currently estimate that the Cybersecurity Incident has had an adverse pre-tax impact of approximately $100 million. This estimate includes the costs to remediate the issues, lost revenues from the associated business interruption and other related expenses. We have insurance coverage and have filed a claim within our policy limits for these losses. We are unable to predict or control the timing or amount of insurance recoveries.
TRENDS AND STRATEGIES
As described above and throughout MD&A, we continue to experience negative impacts of the pandemic on our business in varying degrees. Throughout the COVID‑19 pandemic, we have taken, and we continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and changes in our service mix and revenue mix. We issued new senior unsecured notes and senior secured first lien notes, redeemed existing senior unsecured notes and senior secured first lien notes, including those with the highest interest rates of all of our long‑term debt, and amended our senior secured revolving credit facility (as amended to date, the “Credit Agreement”). We also decreased our employee
headcount throughout the organization at the outset of the COVID-19 pandemic, and we deferred certain operating expenses that were not expected to impact our response to the pandemic. In addition, we reduced certain variable costs across the enterprise. Together with government relief packages, we believe these actions supported our ability to provide essential patient services during the initial uncertainty caused by the COVID-19 pandemic and continue to do so. For further information on our liquidity, see “Liquidity and Capital Resources” below.
We have experienced, and continue to experience, increased competitioncompete with other healthcare providers in recruiting and retaining qualified personnel responsible for the operation of our facilities. There is a limited availability of experienced medical support personnel nationwide, which drives up the wages and benefits required to recruit and retain employees. In particular, like others in the healthcare industry, we continue to experience a shortage of advanced practice providers and critical‑care nurses in certain disciplines and geographic areas. This shortage has been exacerbated by theThe COVID‑19 pandemic exacerbated this shortage as more nurses chooseemployees chose to retire early,
leave the workforce or take travel assignments. In some areas, the increased demand for care of COVID‑19 patients in our hospitals, as well as the direct impact of COVID‑19 on physicians, employees and their families, have put a strain on our resources and staff. Over the past twoseveral years, we have had to rely more on higher-cost temporary contract labor, which we compete with other healthcare providers to secure, and pay premiums above standard compensation for essential workers. In addition,Although we continue to incur a higher level of contract labor expense than we have experienced significant pricehistorically, our recruitment and retention efforts drove a reduction in this expense during the nine months ended September 30, 2023 as compared to the same period in 2022.
We also depend on the available labor pool of semi‑skilled and unskilled workers in the areas where we operate. In some of our communities, employers across various industries have increased their minimum wage, which has created more competition and, in some cases, higher labor costs for this sector of employees. Furthermore, we expect legislative efforts to increase the minimum wage in California will result in an increase in compensation costs for certain of our employees and vendors beginning in 2024.
Inflation and Other General Economic Conditions—Our business has been impacted by the rise in inflation and its effects on salaries, wages and benefits, as well as other costs. Additional economic factors, including unemployment rates and consumer spending, affect our patient volumes, service mix and revenue mix. Business closings and layoffs in the areas we operate may lead to increases in medical supplies, particularlythe uninsured and underinsured populations and adversely affect demand for personal protective equipment (“PPE”),our services, as well as the ability of patients to pay for services. Any significant deterioration in the collectability of patient accounts receivable could adversely affect our cash flows and we have encountered supply‑chain disruptions, including shortagesresults of operations.
Medical supply prices remain high due to current economic conditions and delays.other factors. In recent months,addition, our Ambulatory Care segment has beencontinues to be impacted by shipment delays in connectionconstruction materials and capital equipment with respect to its de novo facility development efforts, which are a key part of our portfolio expansion strategy. In general, supply chain operational challenges may continue or worsen in the future, whether due to geopolitical conflicts, inflationary pressures and the recessionary environment, climate change, weather events or other issues yet to emerge.
Industry Trends
—We believe that several key trends are also continuing to shape the demand for healthcare services: (i)(1) consumers, employers and insurers are actively seeking lower‑cost solutions and better value as they focus more on healthcare spending; (ii)(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; (iii)(3) the growing aging population requires greater chronic disease management and higher‑acuity treatment; and (iv)(4) consolidation continues across the entire healthcare sector. In addition,Furthermore, the healthcare industry, in general, and the acute care hospital business, in particular, have experiencedcontinue to be subject to significant regulatory uncertainty based,uncertainty. Changes in large part, on administrative, legislative and judicial effortsfederal or state healthcare laws, regulations, funding policies or reimbursement practices, especially those involving reductions to limit, alter or repeal the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act”). It is difficult to predict the fullgovernment payment rates, could have a significant impact of regulatory uncertainty on our future revenues and operations.
STRATEGIES
Expansion ofExpanding Our Ambulatory Care Segment—In response to these trends, weWe continue to focus on opportunities to expand our Ambulatory Care segment through acquisitions, organic growth, construction of new outpatient centers and strategic partnerships. During the years ended December 31, 2021 and 2020, we invested $1.315 billion and $1.200 billion, respectively, to acquire ownership interests in new ASCs, increase our ownership interests in existing facilities and invest in de novo facilities. This activity included the acquisition of ownership interests in 86 ASCs and related ambulatory support services (collectively, the “SCD Centers”) from Surgical Center Development #3 LLC and Surgical Center Development #4, LLC (“SCD”) in December 2021. USPI and SCD’s principals have also entered into a joint venture and development agreement under which USPI will have the exclusive option to partner with affiliates of SCD on the future development of a minimum target of 50 de novo ASCs over a period of five years. In addition, USPI formed a joint venture with United Urology Group and acquired ownership interests in 20 new and established ASCs and two still in development in July 2022. The ASCs, which are now managed and consolidated by USPI, are located in Arizona, Colorado and Maryland.
Also during the nine months ended September 30, 2022, we acquired controlling interests in 11 ASCs, four of which are located in Florida, two in Tennessee and one in each of five other states, and we acquired noncontrolling interests in an ASC in each of New Jersey and Texas. During the same period, we acquired controlling ownership interests in 14 previously unconsolidated ASCs in ten geographically diverse states. In addition, we opened 12 ASCs in various states during the nine months ended September 30, 2022. We believe USPI’s ASCs and surgical hospitals offer many advantages to patients and physicians, including greater affordability, predictability, flexibility and convenience. Moreover, due in part to advancements in surgical techniques, medical technology and due toanesthesia, as well as 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.increase over time. Historically, our outpatient services have generated significantly higher margins for us than inpatient services.
During the years ended December 31, 2022 and 2021, we invested $264 million and $1.315 billion, respectively, to acquire ownership interests in new ASCs, increase our ownership interests in existing facilities and invest in de novo facilities. During the nine months ended September 30, 2023, we acquired controlling ownership interests in 14 ASCs in which we did not have a previous investment, and we opened eight de novo ASCs. We also continue to prioritize increasing our investment in our unconsolidated facilities. During the nine months ended September 30, 2023, we acquired controlling ownership interests in eight of our then‑unconsolidated ASCs, allowing us to consolidate their financial results.
Driving Growth in Our Hospital Systems—We remain 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‑efficiency measures, and we continue to transition certain support
operations offshore to our Global Business Center (“GBC”) in the Philippines. We incurred restructuring charges in conjunction with these initiatives in the nine months ended September 30, 2022,2023, and we could incur additional suchrestructuring charges in the future.
We regularly review the marginal costs of providing certain services, and we use analytics to manage our operations and make staffing decisions based on those analyses.decisions. We also continue to exit service lines, businesses and marketsgeographic areas that we believe are no longer a core part of our long‑term growth strategy.and synergy strategies. In April 2021,January 2023, we divestedentered into a definitive agreement to sell our 51% ownership interest in San Ramon Regional Medical Center and certain related operations to our joint venture partner. We expect the majority of our urgent care centers operated under the MedPosttransaction to be completed by early 2024, subject to regulatory review and CareSpot brands by our Hospital Operations and Ambulatory Care segments. In addition, we completed the sale of the Miami Hospitals in August 2021 and the sale of an Arizona micro-hospital in April 2022.customary closing conditions. We intend 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 EBITDA.
We also seek advantageous opportunities to grow our portfolio of hospitals and other healthcare facilities. In September 2022, we opened PMC Fort Mill Hospital, a new acute care hospital Piedmont Medical Center – Fort Mill,located in South Carolina. This 100‑bed100-bed facility includes an emergency department, multi‑specialtymulti-specialty operating rooms, an intensive care unit, and labor and delivery rooms.
In addition, we broke ground on a new medical campus located in the Westover Hills area of San Antonio, Texas, in 2022. The campus is expected to include a 104‑bed acute care hospital, an ambulatory surgery center and medical office buildings. The project is currently on schedule for completion in mid-2024.
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: (i)(1) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (ii)(2) expanding service lines aligned with growing community demand, including a focus on aging and chronic disease patients; (iii)(3) offering greater affordability and predictability, including simplified registration and discharge procedures, particularly in our outpatient centers; (iv)(4) improving our culture of service; and (v)(5) creating health and benefit programs, patient education and health literacy materials that are 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.
Driving Conifer’s Growth—Conifer serves approximately 670 Tenet and non‑Tenet hospitals and other clients nationwide. In addition to providing revenue cycle management services to health systems and physicians, Conifer provides support to both providers and self‑insured employers seeking assistance with clinical integration, financial risk management and population health management. We believe that our success in growing Conifer and increasing its profitability depends in part on our success in executing the following strategies: (i)(1) attracting hospitals and other healthcare providers that currently handle their revenue cycle management processes internally as new clients; (ii)(2) generating new client relationships through opportunities from USPI and Tenet’s acute care hospital acquisition and divestiture activities; (iii)(3) expanding revenue cycle management and value‑based care service offerings through organic development and small acquisitions; (iv)(4) leveraging data from tens of millions of patient interactions for continued enhancement of the value‑based care environment to drive competitive differentiation; and (v)(5) maximizing opportunities through automation and offshoring to improve the effectiveness and efficiency of Conifer’s services.
Improving Profitability—We continue to focus on growing patient volumes and effective cost management as a means to improve profitability. Our inpatient admissions have been constrained in recent years by the COVID‑19 pandemic, 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.areas where we operate. Our business has also been impacted by the rise in inflation and its effects on elective procedures, wages and costs. 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, and contracting strategies that create shared value with payers should help us grow our patient volumes over time. We are also continuing to explorepursue new opportunities to enhance efficiency, including further integration of enterprise‑wide centralized support functions, outsourcing additional functions unrelated to direct patient care, and reducing clinical and vendor contract variation.
Reducing Our Leverage Over Time—Time—All of our long‑term debt has a fixed rate of interest, except for outstanding borrowings if any, under our Credit Agreement, andsenior secured revolving credit facility (as amended to date, the “Credit Agreement”), of which we currently have none. In addition, the maturity dates of our notes are staggered from 20242026 through 2031. We believe that our capital structure minimizeshelps to minimize the near‑term impact of increased interest rates, and the staggered maturities of our debt
allow us to retire or refinance our debt over time. It remains our 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 May 2023, we issued $1.350 billion aggregate principal amount of 6.750% senior secured first lien notes, which will mature in May 2031 (the “2031 Senior Secured First Lien Notes”). We used the proceeds from this issuance, together with cash on hand, to finance the redemption of all $589 million aggregate principal amount then-outstanding of our 4.625% senior secured first lien notes due September 2024 (the “September 2024 Senior Secured First Lien Notes”) and all $756 million aggregate principal amount then-outstanding of our 4.625% senior secured first line notes due July 2024 (the “July 2024 Senior Secured First Lien Notes”) in May and June 2023, respectively.
Repurchasing Stock
Duringdirectors authorized the repurchase of up to $1 billion of our common stock through a share repurchase program. Repurchases will be made in accordance with applicable securities laws and may be made at management’s discretion from time to time in open-market or privately negotiated transactions, subject to market conditions and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time before its scheduled expiration date of December 31, 2024. We paid approximately $90 million to repurchase a total of 1,486 thousand shares during the nine months ended September 30, 2022, we redeemed2023, or repurchased $2.572 billion aggregate principal amountan average of our senior secured first lien and senior unsecured notes in advance of their maturity dates. We financed these transactions using a substantial portion of the proceeds from our issuance of $2.000 billion aggregate principal amount of 6.125% senior secured first lien notes due 2030 (the “2030 Senior Secured First Lien Notes”) and cash on hand.
$60.55 per share.
Our ability to execute on our strategies and respond to the aforementioned trends in the current operating environment is subject to the extent and scope of the impact on our operations of the COVID‑19 pandemic, as well as a number of othernumerous 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 operations, see the Risk Factors section in Part II of our Q1’22 Report and the Forward‑Looking Statements and Risk Factors sections in Part I of our Annual Report.
Report on Form 10‑K for the year ended December 31, 2022 (our “Annual Report”).
RECENT RESULTS OF OPERATIONS—OVERVIEWOPERATIONS
The following table presents selected operating statistics for our Hospital Operations and Ambulatory Care segments on a continuing operations basis:
| | | Three Months Ended September 30, | | Increase (Decrease) | | Three Months Ended September 30, | | Increase (Decrease) |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
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) | | 61 | | | 60 | | | 1 | | (1) | Number of hospitals (at end of period) | | 61 | | | 61 | | | — | | (1) |
Total admissions | Total admissions | | 133,125 | | | 145,412 | | | (8.4) | % | | Total admissions | | 134,754 | | | 133,125 | | | 1.2 | % | |
Adjusted admissions(2) | | 247,394 | | | 256,250 | | | (3.5) | % | | |
Adjusted admissions | | Adjusted admissions | | 250,008 | | | 247,394 | | | 1.1 | % | |
Paying admissions (excludes charity and uninsured) | Paying admissions (excludes charity and uninsured) | | 126,603 | | | 136,932 | | | (7.5) | % | | Paying admissions (excludes charity and uninsured) | | 128,703 | | | 126,603 | | | 1.7 | % | |
Charity and uninsured admissions | Charity and uninsured admissions | | 6,522 | | | 8,480 | | | (23.1) | % | | Charity and uninsured admissions | | 6,051 | | | 6,522 | | | (7.2) | % | |
Admissions through emergency department | Admissions through emergency department | | 100,181 | | | 110,675 | | | (9.5) | % | | Admissions through emergency department | | 101,017 | | | 100,181 | | | 0.8 | % | |
Emergency department visits, outpatient | Emergency department visits, outpatient | | 546,474 | | | 578,734 | | | (5.6) | % | | Emergency department visits, outpatient | | 544,905 | | | 546,474 | | | (0.3) | % | |
Total emergency department visits | Total emergency department visits | | 646,655 | | | 689,409 | | | (6.2) | % | | Total emergency department visits | | 645,922 | | | 646,655 | | | (0.1) | % | |
Total surgeries | Total surgeries | | 86,502 | | | 91,707 | | | (5.7) | % | | Total surgeries | | 85,812 | | | 86,502 | | | (0.8) | % | |
Patient days — total | Patient days — total | | 681,964 | | | 770,175 | | | (11.5) | % | | Patient days — total | | 675,576 | | | 681,964 | | | (0.9) | % | |
Adjusted patient days(2) | | 1,221,812 | | | 1,335,610 | | | (8.5) | % | | |
Adjusted patient days | | Adjusted patient days | | 1,203,501 | | | 1,221,812 | | | (1.5) | % | |
Average length of stay (days) | Average length of stay (days) | | 5.12 | | | 5.30 | | | (3.4) | % | | Average length of stay (days) | | 5.01 | | | 5.12 | | | (2.1) | % | |
Average licensed beds | Average licensed beds | | 15,443 | | | 15,987 | | | (3.4) | % | | Average licensed beds | | 15,472 | | | 15,443 | | | 0.2 | % | |
Utilization of licensed beds(3) | Utilization of licensed beds(3) | | 48.0 | % | | 52.4 | % | | (4.4) | % | (1) | Utilization of licensed beds(3) | | 47.5 | % | | 48.0 | % | | (0.5) | % | (1) |
Total visits | Total visits | | 1,398,610 | | | 1,523,726 | | | (8.2) | % | | Total visits | | 1,376,707 | | | 1,398,610 | | | (1.6) | % | |
Paying visits (excludes charity and uninsured) | Paying visits (excludes charity and uninsured) | | 1,317,103 | | | 1,423,068 | | | (7.4) | % | | Paying visits (excludes charity and uninsured) | | 1,300,040 | | | 1,317,103 | | | (1.3) | % | |
Charity and uninsured visits | Charity and uninsured visits | | 81,507 | | | 100,658 | | | (19.0) | % | | Charity and uninsured visits | | 76,667 | | | 81,507 | | | (5.9) | % | |
Ambulatory Care: | Ambulatory Care: | | Ambulatory Care: | |
Total consolidated facilities (at end of period) | Total consolidated facilities (at end of period) | | 300 | | | 232 | | | 68 | | (1) | Total consolidated facilities (at end of period) | | 324 | | | 300 | | | 24 | | (1) |
Total consolidated cases | Total consolidated cases | | 332,507 | | | 295,026 | | | 12.7 | % | | Total consolidated cases | | 389,203 | | | 332,507 | | | 17.1 | % | |
| | | | | | | | |
| | |
(1) | The change is the difference between the 2023 and 2022 and 2021 amounts shown.presented. |
(2) | Adjusted admissions/patient days represents actual admissions/patient days adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual admissions/patient 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 the number of days in the period divided by average licensed beds. |
Total admissions decreasedincreased by 12,287,1,629, or 8.4%1.2%, and total surgeries decreased by 5,205,690, or 5.7%0.8%, in the three months ended September 30, 20222023 compared to the three months ended September 30, 2021.2022. Total emergency department visits decreased by 6.2% during the three‑month period in 2022 compared to2023 were comparable with the same period in 2021. These decreases2022, decreasing by 0.1% between the periods. The
increase in our patient volumes were primarily attributable to the saleAmbulatory Care segment’s total consolidated cases of the Miami Hospitals17.1% in August 2021 and lower COVID‑related volumes during the three months ended September 30, 20222023, as compared to the same period in the prior year. The increase in Ambulatory Care total consolidated cases of 12.7% in the three months ended September 30, 2022, as compared to the same period in 2021, iswas primarily attributable to incremental case volume from our recently acquired facilities and same‑facility case growth, partially offset by the closure of two ASCs, the impact of the COVID‑19 pandemic,closure and the adverse impactdeconsolidation of Hurricane Ian on certain of our facilities located in Florida and South Carolina.
The following table presents net operating revenues by segment on a continuing operations basis:
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | |
Revenues | | 2022 | | 2021 | | |
Net operating revenues: | | | | | | | |
Hospital Operations prior to inter-segment eliminations | | $ | 3,778 | | | $ | 4,030 | | | (6.3) | % | |
Ambulatory Care | | 806 | | | 666 | | | 21.0 | % | |
Conifer | | 333 | | | 314 | | | 6.1 | % | |
Inter-segment eliminations | | (116) | | | (116) | | | — | % | |
Total | | $ | 4,801 | | | $ | 4,894 | | | (1.9) | % | |
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | |
Revenues | | 2023 | | 2022 | | |
| | | | | | | |
Hospital Operations prior to inter-segment eliminations | | $ | 3,919 | | | $ | 3,778 | | | 3.7 | % | |
Ambulatory Care | | 941 | | | 806 | | | 16.7 | % | |
Conifer | | 315 | | | 333 | | | (5.4) | % | |
Inter-segment eliminations | | (109) | | | (116) | | | (6.0) | % | |
Total | | $ | 5,066 | | | $ | 4,801 | | | 5.5 | % | |
Consolidated net operating revenues decreasedincreased by $93$265 million, or 1.9%5.5%, in the three months ended September 30, 20222023 compared to the same period in 2021.2022. The decreaseincrease of $252$141 million, or 6.3%3.7%, in our Hospital Operations segment’s net operating revenues prior to inter‑segment eliminations for the three‑month period in 20222023 compared to the same period in 20212022 was primarily due to the saleopening of the Miami Hospitalsour PMC Fort Mill Hospital in August 2021, lower overallSeptember 2022, a more favorable payer mix, higher patient volumesvolume and decreased COVID‑related patient acuity, partially offset byand negotiated commercial rate increases. Net operating revenues in our Ambulatory Care segment increased $140by $135 million, or 21.0%16.7%, in the three months ended September 30, 20222023 compared to the three months ended September 30, 2021.same period in 2022. This increasechange was mainlyprimarily driven by our recently acquired ASCs, an increase in case volume and negotiated commercial rate increases,higher net revenue per case, partially offset by the closure of two ASCs and the adverse impactsimpact of the COVID-19 pandemicclosure and Hurricane Ian on case volumes.deconsolidation of certain facilities. Conifer’s revenues, net ofprior to inter‑segment eliminations, increased $19decreased by $18 million, or 9.6%5.4%, during the three months ended September 30, 20222023 compared to the same period in 2021,2022, primarily due to contractual rate increasesdriven by previously announced contract changes with Tenet hospitals and new business expansion.client divestitures. During the three months ended September 30, 20222023 and 2021,2022, we recognized net grant income of $54$3 million and $3$54 million, respectively, which amounts are not included in net operating revenues.
Our accounts receivable days outstanding (“AR Days”) from continuing operations were 58.056.8 days at September 30, 20222023 and 57.058.3 days at December 31, 2021.2022. Our AR Days target is less than 55 days. AR Days 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 number of days in the quarter. ThisThe AR Days calculation includes our Hospital Operations segment’s contract assets. The AR Days calculationassets and excludes (i) urgent care centers operated under the MedPost and CareSpot brands, which we divested in April 2021, (ii) the Miami Hospitals, which we sold in August 2021, and (iii) our California provider fee revenues.
The following table provides information about selected operating expenses by segment on a continuing operations basis:
| | | | Three Months Ended September 30, | | Increase (Decrease) | | | Three Months Ended September 30, | | Increase (Decrease) |
| | 2022 | | 2021 | | | 2023 | | 2022 | |
Hospital Operations: | Hospital Operations: | | | | | | | Hospital Operations: | | | | | | |
Salaries, wages and benefits | Salaries, wages and benefits | | $ | 1,847 | | | $ | 1,872 | | | (1.3) | % | Salaries, wages and benefits | | $ | 1,883 | | | $ | 1,847 | | | 1.9 | % |
Supplies | Supplies | | 598 | | | 656 | | | (8.8) | % | Supplies | | 624 | | | 598 | | | 4.3 | % |
Other operating expenses | Other operating expenses | | 841 | | | 894 | | | (5.9) | % | Other operating expenses | | 906 | | | 841 | | | 7.7 | % |
Total | Total | | $ | 3,286 | | | $ | 3,422 | | | (4.0) | % | Total | | $ | 3,413 | | | $ | 3,286 | | | 3.9 | % |
Ambulatory Care: | Ambulatory Care: | | | | | | | Ambulatory Care: | | | | | | |
Salaries, wages and benefits | Salaries, wages and benefits | | $ | 208 | | | $ | 169 | | | 23.1 | % | Salaries, wages and benefits | | $ | 234 | | | $ | 208 | | | 12.5 | % |
Supplies | Supplies | | 218 | | | 170 | | | 28.2 | % | Supplies | | 252 | | | 218 | | | 15.6 | % |
Other operating expenses | Other operating expenses | | 110 | | | 97 | | | 13.4 | % | Other operating expenses | | 135 | | | 110 | | | 22.7 | % |
Total | Total | | $ | 536 | | | $ | 436 | | | 22.9 | % | Total | | $ | 621 | | | $ | 536 | | | 15.9 | % |
Conifer: | Conifer: | | | | | | | Conifer: | | | | | | |
Salaries, wages and benefits | Salaries, wages and benefits | | $ | 175 | | | $ | 168 | | | 4.2 | % | Salaries, wages and benefits | | $ | 171 | | | $ | 175 | | | (2.3) | % |
Supplies | Supplies | | 1 | | | 1 | | | — | % | Supplies | | 1 | | | 1 | | | — | % |
Other operating expenses | Other operating expenses | | 67 | | | 60 | | | 11.7 | % | Other operating expenses | | 60 | | | 67 | | | (10.4) | % |
Total | Total | | $ | 243 | | | $ | 229 | | | 6.1 | % | Total | | $ | 232 | | | $ | 243 | | | (4.5) | % |
Total: | Total: | | | | | | | Total: | | | | | | |
Salaries, wages and benefits | Salaries, wages and benefits | | $ | 2,230 | | | $ | 2,209 | | | 1.0 | % | Salaries, wages and benefits | | $ | 2,288 | | | $ | 2,230 | | | 2.6 | % |
Supplies | Supplies | | 817 | | | 827 | | | (1.2) | % | Supplies | | 877 | | | 817 | | | 7.3 | % |
Other operating expenses | Other operating expenses | | 1,018 | | | 1,051 | | | (3.1) | % | Other operating expenses | | 1,101 | | | 1,018 | | | 8.2 | % |
Total | Total | | $ | 4,065 | | | $ | 4,087 | | | (0.5) | % | Total | | $ | 4,266 | | | $ | 4,065 | | | 4.9 | % |
Rent/lease expense(1): | Rent/lease expense(1): | | | | | | | Rent/lease expense(1): | | | | | | |
Hospital Operations | Hospital Operations | | $ | 73 | | | $ | 73 | | | — | % | Hospital Operations | | $ | 67 | | | $ | 73 | | | (8.2) | % |
Ambulatory Care | Ambulatory Care | | 29 | | | 24 | | | 20.8 | % | Ambulatory Care | | 33 | | | 29 | | | 13.8 | % |
Conifer | Conifer | | 2 | | | 2 | | | — | % | Conifer | | 4 | | | 2 | | | 100.0 | % |
Total | Total | | $ | 104 | | | $ | 99 | | | 5.1 | % | Total | | $ | 104 | | | $ | 104 | | | — | % |
| | | | | | | | |
| | |
(1) | Included in other operating expenses. |
The following table provides information about our Hospital Operations segment’s selected operating expenses per adjusted admission on a continuing operations basis:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) |
| | 2022 | | 2021 | |
Hospital Operations: | | | | | | |
Salaries, wages and benefits per adjusted admission(1) | | $ | 7,464 | | | $ | 7,308 | | | 2.1 | % |
Supplies per adjusted admission(1) | | 2,418 | | | 2,563 | | | (5.7) | % |
Other operating expenses per adjusted admission(1) | | 3,396 | | | 3,488 | | | (2.6) | % |
Total per adjusted admission | | $ | 13,278 | | | $ | 13,359 | | | (0.6) | % |
| | | | | | | | |
| | |
(1)
| Adjusted admissions represents actual admissions adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual admissions by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues. |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) |
| | 2023 | | 2022 | |
Hospital Operations: | | | | | | |
Salaries, wages and benefits per adjusted admission | | $ | 7,530 | | | $ | 7,464 | | | 0.9 | % |
Supplies per adjusted admission | | 2,499 | | | 2,418 | | | 3.3 | % |
Other operating expenses per adjusted admission | | 3,624 | | | 3,396 | | | 6.7 | % |
Total per adjusted admission | | $ | 13,653 | | | $ | 13,278 | | | 2.8 | % |
Salaries, wages and benefits expense for our Hospital Operations segment decreased $25increased by $36 million, or 1.3%1.9%, in the three months ended September 30, 20222023 compared to the same period in 2021.2022. This change was primarily attributable to the sale of the Miami Hospitals in August 2021, lower employee benefits costs, and our continued focus on cost-efficiency measures, partially offset by increased contract labor expense and annual merit increases for certain of our employees. Onemployees and increased employee benefits, recruiting and retention costs in the 2023 period, as well as higher incentive compensation expense. These factors were partially offset by a per‑adjusted‑admission basis, salaries, wages and benefits increased 2.1%decrease in contract labor expense in the three months ended September 30, 20222023. On a per adjusted admission basis, salaries, wages and benefits expense increased by 0.9% in the three months ended September 30, 2023 compared to the three months ended September 30, 2021.
2022.
Supplies expense for our Hospital Operations segment decreased $58increased by $26 million, or 8.8%4.3%, during the three months ended September 30, 20222023 compared to the three months ended September 30, 2021.2022. This decreaseincrease was primarily attributable to the sale of the Miami Hospitals, lower patient volumes and COVID-related patient acuity during the 2022 period, and our cost‑efficiency measures. These factors were partially offsetdriven by increased costs for certain supplies due to COVID-19, the impact of general market conditions, as well as higher patient volume and inflation.acuity. On a per‑adjusted‑per adjusted admission basis, supplies expense decreasedincreased by 5.7%3.3% in the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily due to the factors described above.
Other operating expenses for our Hospital Operations segment increased by $65 million, or 7.7%, in the three months ended September 30, 2023 compared to the same period in 2022. This change was primarily attributable to a gain of
the three months ended September 30, 2022 compared to the three months ended September 30, 2021 due to the aforementioned factors.
Other operating expenses for our Hospital Operations segment decreased $53$45 million or 5.9%, in the three months ended September 30, 2022 compared to the same period in 2021. The decrease was primarily attributable to the sale of the Miami Hospitals in August 2021, a gain recognized on the sale of a portion of an interest in certain assets of $45 million during the 2022 period and our continued focus on cost-efficiency measures.higher malpractice expense and medical fees during the three months ended September 30, 2023. These factors were partially offset by a decrease in indigent care expense during the three months ended September 30, 2023. On a per‑adjusted‑per adjusted admission basis, other operating expenses in the three months ended September 30, 2022 decreased2023 increased by 2.6%6.7% compared to the same period in 2021.
2022, primarily due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES OVERVIEW
Cash and cash equivalents were $1.208$1.054 billion at September 30, 20222023 compared to $1.351 billion$934 million at June 30, 2022.
2023. Significant cash flow items in the three months ended September 30, 20222023 included:
•Net cash provided by operating activities before interest, taxes, discontinued operations, and restructuring charges, acquisition‑related costs, and litigation costs and settlements of $568$728 million, (including $51 million from federal and state grants);
•Proceeds from sales of marketable securities, long-term investments and other assets of $52 million;
•Purchases of marketable securities and equity investments of $27 million;
•Interest payments of $185 million;
partially offset by
•Capital expenditures of $165$176 million;
•$122155 million of distributions paid to noncontrolling interests;
•Interest payments of $144 million;
•Income tax payments of $54 million;
•Payments totaling $59of $48 million for restructuring charges, acquisition‑related costs,the purchase of noncontrolling interests; and litigation costs and settlements; and
•$158 millionDebt payments of payments for purchases of businesses or joint venture interests.
$41 million.
Net cash provided by operating activities was $1.550 billion in the nine months ended September 30, 2023 compared to $662 million in the nine months ended September 30, 2022 compared to $1.211 billion in the nine months ended September 30, 2021.2022. Key factors contributing to the change between the 2023 and 2022 and 2021 periods includeincluded the following:
•$880 million ofNo Medicare advances recouped or repaid in the nine months ended September 30, 20222023 compared to $326$880 million recouped or repaid during the same period in 2021;2022;
•Lower payments of $52 million related to restructuring charges, acquisition‑related costs, and litigation costs and settlements in the 2023 period;
•$1559 million of cash received from grants induring the nine months ended September 30, 20222023 compared to $38$155 million received induring the nine months ended September 30, 2021;
•Lower interest payments of $63 million in the 2022 period;
2022;
•Higher income tax payments of $94$64 million in the 20222023 period;
•Decreased net cash receipts of $94 million related to supplemental Medicaid programs in California and Texas; and
•The timing of other working capital items.
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) disclosuredisclosures regarding (i)(1) the impact of the
COVID-19 pandemic, (ii)(2) our future earnings, financial position, and operational and strategic initiatives, and (iii)(3) 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 Forward‑Looking Statements and Risk Factors sections in Part I of our Annual Report and the Risk Factors section in Part II of our Q1’22 Report.
When considering forward‑looking statements, you should keep in mind the risk factors and other cautionary statements in our Annual Report 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 information.
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 presents 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:sources on a continuing operations basis:
| | | | Three Months Ended September 30, | | Increase (Decrease)(1) | | Nine Months Ended September 30, | | Increase (Decrease)(1) | | | Three Months Ended September 30, | | Increase (Decrease)(1) | | Nine Months Ended September 30, | | Increase (Decrease)(1) |
| 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 | | 2023 | | 2022 | |
Medicare | Medicare | | 16.6 | % | | 16.6 | % | | — | % | | 17.2 | % | | 18.0 | % | | (0.8) | % | Medicare | | 16.2 | % | | 16.6 | % | | (0.4) | % | | 16.6 | % | | 17.2 | % | | (0.6) | % |
Medicaid | Medicaid | | 7.4 | % | | 9.0 | % | | (1.6) | % | | 6.7 | % | | 7.9 | % | | (1.2) | % | Medicaid | | 8.6 | % | | 8.1 | % | | 0.5 | % | | 7.9 | % | | 7.7 | % | | 0.2 | % |
Managed care(2) | Managed care(2) | | 69.7 | % | | 69.2 | % | | 0.5 | % | | 70.1 | % | | 68.1 | % | | 2.0 | % | Managed care(2) | | 70.3 | % | | 69.0 | % | | 1.3 | % | | 70.5 | % | | 69.1 | % | | 1.4 | % |
Uninsured | Uninsured | | 1.0 | % | | 0.9 | % | | 0.1 | % | | 1.1 | % | | 1.3 | % | | (0.2) | % | Uninsured | | 0.6 | % | | 1.0 | % | | (0.4) | % | | 0.8 | % | | 1.1 | % | | (0.3) | % |
Indemnity and other | Indemnity and other | | 5.3 | % | | 4.3 | % | | 1.0 | % | | 4.9 | % | | 4.7 | % | | 0.2 | % | Indemnity and other | | 4.3 | % | | 5.3 | % | | (1.0) | % | | 4.2 | % | | 4.9 | % | | (0.7) | % |
| | | | | | | | |
| | |
(1) | The change is the difference between the 20222023 and 20212022 percentages presented. |
(2) | Includes Medicare and Medicaid managed care programs. |
Revenues related to the Texas Comprehensive Hospital Increase Reimbursement Program (“CHIRP”) are presented in managed care net patient service revenues in the table above. Amounts we were assessed to support CHIRP following its approval in 2022 were presented in Medicaid revenues in prior periods, but have been reclassified to managed care revenues to conform to the current‑year presentation in the same payer group as the revenues to more clearly reflect the results of our participation in this program. Assessments to support CHIRP totaled $27 million and $24 million during the three months ended September 30, 2023 and 2022, respectively, and $77 million and $101 million during the nine months ended September 30, 2023 and 2022, respectively.
Our payer mix on an admissions basis for our hospitals, expressed as a percentage of total admissions from all sources on a continuing operations basis, is presented below:
| | | | Three Months Ended September 30, | | Increase (Decrease)(1) | | Nine Months Ended September 30, | | Increase (Decrease)(1) | | | Three Months Ended September 30, | | Increase (Decrease)(1) | | Nine Months Ended September 30, | | Increase (Decrease)(1) |
Admissions from: | Admissions from: | | 2022 | | 2021 | | 2022 | | 2021 | | Admissions from: | | 2023 | | 2022 | | 2023 | | 2022 | |
Admissions from: | | | | | | | | | | | | | |
| Medicare | Medicare | | 20.2 | % | | 19.6 | % | | 0.6 | % | | 20.8 | % | | 20.6 | % | | 0.2 | % | Medicare | | 19.1 | % | | 20.2 | % | | (1.1) | % | | 19.9 | % | | 20.8 | % | | (0.9) | % |
Medicaid | Medicaid | | 5.5 | % | | 6.1 | % | | (0.6) | % | | 5.6 | % | | 5.8 | % | | (0.2) | % | Medicaid | | 5.1 | % | | 5.5 | % | | (0.4) | % | | 5.0 | % | | 5.6 | % | | (0.6) | % |
Managed care(2) | Managed care(2) | | 66.4 | % | | 65.2 | % | | 1.2 | % | | 65.7 | % | | 64.4 | % | | 1.3 | % | Managed care(2) | | 67.8 | % | | 66.4 | % | | 1.4 | % | | 67.3 | % | | 65.7 | % | | 1.6 | % |
Charity and uninsured | Charity and uninsured | | 4.9 | % | | 5.8 | % | | (0.9) | % | | 4.8 | % | | 6.0 | % | | (1.2) | % | Charity and uninsured | | 4.5 | % | | 4.9 | % | | (0.4) | % | | 4.4 | % | | 4.8 | % | | (0.4) | % |
Indemnity and other | Indemnity and other | | 3.0 | % | | 3.3 | % | | (0.3) | % | | 3.1 | % | | 3.2 | % | | (0.1) | % | Indemnity and other | | 3.5 | % | | 3.0 | % | | 0.5 | % | | 3.4 | % | | 3.1 | % | | 0.3 | % |
| | | | | | | | |
| | |
(1) | The change is the difference between the 20222023 and 20212022 percentages presented. |
(2) | Includes Medicare and Medicaid managed care programs. |
GOVERNMENT PROGRAMS
The Centers for Medicare & Medicaid Services (“CMS”) is an agency of the U.S. Department of Health and Human Services (“HHS”) that administers a number of government programs authorized by federal law; it is the single largest payer of healthcare services in the United States. 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 Children’s Health Insurance Program (“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. Funding for the CHIP has been reauthorized through federal fiscal year (“FFY”) 2027.
2029.
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 FFS Medicare special needs plans and Medicare medical savings account plans. Our total net patient service revenues from continuing operations of the hospitals and related outpatient facilities in our Hospital Operations segment for services provided to patients enrolled in the Original Medicare Plan were $575$583 million and $616$575 million for the three months ended September 30, 20222023 and 2021,2022, respectively, and $1.773$1.795 billion and $2.001$1.773 billion for the nine months ended September 30, 2023 and 2022, and 2021, respectively.
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 and from year‑to‑year. Estimated revenues under various state Medicaid programs, including state‑funded Medicaid managed care programs, constituted approximately 18.7% and 19.4% of the total net patient service revenues of our acute care hospitals and related outpatient facilities during the nine months ended September 30, 2023 and 2022, respectively. We also receive disproportionate share hospital (“DSH”) and other supplemental revenues under various state Medicaid programs. Our total Medicaid revenues attributable to DSH and other supplemental revenues were approximately $240 million and $199 million for the three months ended September 30, 2023 and 2022, respectively, and $635 million and $568 million for the nine months ended September 30, 2023 and 2022, respectively.
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, including legislative and regulatory changes, could result in future reductions to Medicaid payments, payment delays or changes to Medicaid supplemental payment programs. Federal government denials or delayed approvals of waiver applications or extension requests by the states in whichwhere we operate could materially impact our Medicaid funding levels.
Estimated revenues under various stateTotal Medicaid programs, including state‑fundedand Medicaid managed care programs, constituted approximately 19.4% and 18.2% of total net patient service revenues less implicit price concessions of our acute care hospitals and related outpatient facilities for the nine months ended September 30, 2022 and 2021, respectively. We also receive disproportionate share hospital (“DSH”) and other supplemental revenues under various state Medicaid programs. For the nine months ended September 30, 2022 and 2021, our total Medicaid revenues attributable to DSH and other supplemental revenues were approximately $467 million and $631 million, respectively. The decrease between the two nine‑month periods was primarily attributable to $101 million of assessments we recognized related to the Texas Comprehensive Hospital Increase Reimbursement Program (“CHIRP”) following its approval in 2022. During the nine months ended September 30, 2022, we also recognized $203 million of revenue related to CHIRP that is included in Managed Medicaid revenue rather than the DSH and other supplemental revenues classification due to the structure of the program.
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 were $708 million and $681 million for the three months ended September 30, 2023 and 2022, respectively, and $2.020 billion and $1.996 billion for the nine months ended September 30, 20222023 and 2021 were $1.996 billion and $2.023 billion,2022, respectively. During the nine months ended September 30, 2022,2023, Medicaid and Managed Medicaid managed care revenues comprised 35%42% and 65%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. All Medicaid and Managed Medicaid managed care patient service revenues are presented net of provider taxes or assessments paid by our hospitals, which are reported as an offset reduction to FFS Medicaid revenue.
hospitals.
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, Medicaid eligibility redeterminations by the states, 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.
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.
Payment and Policy Changes to the Medicare Inpatient Prospective Payment Systems—Section 1886(d) of the Social Security Act requires CMS to update Medicare inpatient FFS payment rates for hospitals reimbursed under the inpatient prospective payment systems (“IPPS”) annually. The updates generally become effective October 1, the beginning of the FFY. In August 2022,2023, CMS issued final changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and Fiscal Year 20232024 Rates (“Final IPPS Rule”). The Final IPPS Rule includes the following payment and policy changes:
changes, among others:
•A market basket increase of 4.1%3.3% 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 finalized a 0.3%0.2% multifactor productivity reduction required by the Patient Protection and Affordable Care Act, and a 0.5% increase requiredas amended by the Medicare AccessHealth Care and CHIP ReauthorizationEducation Reconciliation Act of 2010 (the “Affordable Care Act”), that together resultresults in a net operating payment update of 4.3%3.1% before budget neutrality adjustments;
•Changes to the hospital Value‑Based Purchasing (“VBP”) and Hospital-Acquired Condition (“HAC”) programs for FFY 2023 due to the impact of the COVID-19 Public Health Emergency, including the implementation of a special scoring methodology for the VBP program that results in each hospital receiving a value‑based incentive payment amount equal to its 2% reduction to the operating standardized amount; and suppression of all measures in the HAC reduction program resulting in no hospitals being penalized for FFY 2023;
•An increase in the cost outlier threshold from $30,988$38,859 to $38,859;
$42,750;
•A 2.36%4.14% net increase in the capital federal MS‑DRG rate; and
•Updates to the three factors used to determine the amount and distribution of Medicare uncompensated care disproportionate share hospital payments (“UC‑DSH”DSH Amounts”) payments.; and
•The inclusion of certain rural reclassified hospitals with geographically rural hospitals in the calculation of the rural wage index and the calculation of the wage index floor for urban hospitals in the same state.
According to CMS, the combined impact of the payment and policy changes in the Final IPPS Rule for operating costs will yield an average 2.6%3.1% increase in Medicare operating MS‑DRG FFS payments for hospitals in urban areas and an average 3.3%3.8% increase in such payments for proprietary hospitals in FFY 2023.2024. We estimate that all of the final payment and policy changes affecting operating MS‑DRG and UC‑DSH paymentsAmounts will result in an estimated 3.7%approximate 4.0% increase in our annual Medicare FFS IPPS payments, which yields an estimated increase of approximately $55$64 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, we cannot provide any assurances regarding our estimate of the impact of the payment and policy changes.
The statutes and regulations that govern Medicare DSH payments have been the subject of various administrative appeals and lawsuits, and our hospitals have been participating in such appeals, including challenges to the inclusion of the Medicare Advantage (Part C) days used in the DSH calculation as set forth in the Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates. In June 2023, CMS issued a Final Action on the Treatment of Medicare Part C Days in the Calculation of a Hospital’s Medicare Disproportionate Patient Percentage for discharges occurring prior to October 1, 2013. This action finalized CMS’ August 2020 proposed rule to include Medicare Advantage days in the Medicare fraction for all periods prior to October 1, 2013, and CMS expects no effect on payments as payments previously made already reflect this policy. We are not able to predict whether CMS’s final action will be the subject of further or new legal challenges nor are we able to predict the outcome of those challenges, if any.
Proposed Payment and Policy Changes to the Medicare Outpatient Prospective Payment and Ambulatory Surgery Center Payment Systems—Systems—In July 2022,2023, CMS released proposed policy changes and payment rates for the Hospital Outpatient Prospective Payment System (“OPPS”) and Ambulatory Surgical Center Payment System for calendar year (“CY”) 20232024 (“Proposed OPPS/ASC Rule”). The Proposed OPPS/ASC Rule includes the following proposed payment and policy changes:
•An estimated net increase of 2.7%2.8% for the OPPS rates based on an estimated market basket increase of 3.1%3.0%, reduced by a multifactor productivity adjustment required by the Affordable Care Act of 0.4%0.2%;
•Removal of 10 services from the Inpatient Only List (which is the list of procedures that must be performed on an inpatient basis) after determining such services meet established criteria for removal;
•Establishment of an exemption for rural Sole Community Hospitals from the site-neutral Medicare reduced payment rate for clinic visits furnished in exempt off-campus, provider-based departments and payment for such visits at the full OPPS rate; and
•A 2.7%2.8% increase to the Ambulatory Surgical Center payment rates.
In addition,CMS projects that the combined impact of the proposed payment and policy changes in the Proposed OPPS/ASC Rule acknowledgeswill yield an average 2.8% increase in Medicare FFS OPPS payments for hospitals in urban areas and an average 3.4% increase in Medicare FFS OPPS payments for proprietary hospitals. The projected annual impact of the payment and policy changes in the Proposed OPPS/ASC Rule is an increase to Medicare FFS outpatient revenues of approximately $23 million, or 4.2%, for our acute care hospitals and $17 million, or 2.6%, for USPI’s ASCs and surgical hospitals. Because of the uncertainty
associated with various factors that additionalmay influence our future OPPS payments, including legislative or legal actions, volumes and case mix, as well as potential changes would be forthcoming with respect to the proposed rule, we cannot provide any assurances regarding our estimate of the impact of the proposed payment and policy changes.
Proposed Rule on the Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022—CMS’ 340B program which allows certain hospitals (i.e., only nonprofit organizations with specific federal designations and/or funding) (“340B Hospitals”) to purchase drugs at discounted rates from drug manufacturers (“340B Drugs”). In the CY 2018
final rule regarding OPPS payment and policy changes, CMS reduced the payment for 340B Drugs from the average sales price (“ASP”) plus 6% to the ASP minus 22.5% and made a corresponding budget‑neutralbudget-neutral increase to payments to all hospitals for other drugs and services reimbursed under the OPPS (the “340B Payment Adjustment”). CMS retained the same 340B Payment Adjustment in the final rules regarding OPPS payment and policy changes for CYs 2019 through 2022. Certain hospital associations and hospitals commenced litigation challenging CMS’ authority to impose the 340B Payment Adjustment for CYs 2018, 2019 and 2020. Following the initial court decisions and a series of appeals, the U.S. Supreme Court (the “Supreme Court”) unanimously ruled in June 2022 that the decision to impose the 340B Payment Adjustment in CYs 2018 and 2019 was unlawful. Theunlawful, and the case was remanded to the lower courts to determine the appropriate remedy, and it is expected that 340B Hospitals will be permittedremedy. In response to reclaim at least some portion of the 340B payments that were previously withheld. The Proposed OPPS/ASC Rule states that CMS did not have sufficient time to account for the Supreme CourtCourt’s decision, in the CY 2023 proposed rates and budget neutrality calculations; however, CMS has indicated that it does anticipate applying the ASP plus 6% for 340B Drugs in the CY 2023 final rule, in lieu of the current payment policy of ASP minus 22.5%. CMS is still evaluating how to apply the Supreme Court ruling to the prior cost years.
CMS projects that the combined impact of the proposedrules regarding OPPS payment and policy changes infor CY 2023 affirmed that CMS was now applying the Proposed OPPS/ASC Rule under the current 340B payment policy (of ASP minus 22.5%) will yield an average 2.9% increase in Medicare FFS OPPS payments for hospitals in urban areas and an average 3.5% increase in Medicare FFS OPPS payments for proprietary hospitals. Based on CMS’ estimates under the current 340B payment policy, the projected annual impact of the payment and policy changes in the Proposed OPPS/ASC Rule on our hospitals is an increase to Medicare FFS hospital outpatient revenues of approximately $21 million, which represents an increase of approximately 3.7%.
However, CMS projects that the combined impact of the proposed payment and policy changes in the Proposed OPPS/ASC Rule under the anticipated final 340B payment policy (ofdefault rate, generally ASP plus 6%) will yield an average 4% increase in Medicare FFS OPPS payments for hospitals in urban areas, to 340B Drugs and an average 0.5% increase in Medicare FFS OPPS payments for proprietary hospitals. Based on CMS’ estimates under the anticipated final 340B payment policy, the projected annual impact of the paymentbiologicals, and policy changes in the Proposed OPPS/ASC Rule on our hospitals is an increase to Medicare FFS hospital outpatient revenues of approximately $3 million, which represents an increase of approximately 0.5%.
Because of the uncertainty associated with various factors that may influence our future OPPS payments, including legislative or legal actions, volumes and case mix, as well as potential changes to the proposed rule, we cannot provide any assurances regarding our estimate of the impact of the proposed payment and policy changes. In addition, it remains unclear at this time how CMS will finance any retroactive payments for 340B payments that were previously withheld given that the original policy was budget‑neutral and HHS already redistributed the savings. We cannot predict the remedy that will be imposed, the timing thereof, or what further actions CMS or Congress might take with respect to the 340B program; however, it is possible that reversal ofhad removed the 340B Payment Adjustments could haveAdjustment made in 2018. In January 2023, the U.S. District Court for the District of Columbia issued an adverse effect onopinion remanding the case to HHS to determine the remediation for the prior years’ underpayments. In response, CMS released the Prospective Payment System: Remedy for 340B-Acquired Drugs Purchased in Cost Years 2018-2022 Proposed Rule in July 2023. The proposed rule provides for a one-time lump sum remedy payment to each 340B Hospital that received a cut in 340B Drug payments from 2018 through 2022 (to which CMS will not apply interest). Due to budget neutrality requirements, CMS also proposed a reduction to future non-drug item and service payments through an adjustment to the OPPS conversion factor by minus 0.5% starting in CY 2025 until the full amount is offset (which CMS estimates will take 16 years). We estimate this adjustment will result in a reduction of less than $10 million annually to our future net operating revenuesacute care and cash flows.
surgical hospital revenue.
Proposed Payment and Policy Changes to the Medicare Physician Fee Schedule—Schedule—In July 2022,2023, CMS released the CY 20232024 Medicare Physician Fee Schedule (“MPFS”) Proposed Rule (“MPFS Proposed Rule”). The MPFS Proposed Rule includes updates to payment policies, payment rates and other provisions for services reimbursed under the MPFS from January 1 through December 31, 2023.2024. Under the MPFS Proposed Rule, the CY 20232024 conversion factor, which is the base rate that is used to convert relative units into payment rates, would be reduced from $34.61$33.89 to $33.08,$32.75, a decrease of 3.36%, due in part to budget neutrality rules and the expiration of the one-time 3% payment increaseadjustment provided for in the Consolidated Appropriations Act, 2023 (“CAA, 2023”). The CAA, 2023 provided for a 2.5% positive adjustment to the MPFS CY 2022 by2023 conversion factor and a 1.25% positive adjustment to the Protecting Medicare and American FarmersCY 2024 conversion factor, resulting in a 1.25% decrease in the proposed CY 2024 conversion from Sequester Cuts Act (the “Sequester Cuts Act”), as well as budget neutrality rules. This change wouldthe CY 2023 conversion factor. We estimate the impact of the MPFS Proposed Rule should result in an annuala reduction of approximately $8less than $6 million to our 2024 FFS MPFS revenues. Because of the uncertainty associated with various factors that may influence our future MPFS payments, including legislative, regulatory or legal actions, volumes and case mix, as well as potential changes to the MPFS Proposed Rule, we cannot provide any assurances regarding our estimate of the impact of the proposed payment and policy changes.
Public Health and Social Services Emergency Fund—During the nine months ended September 30, 2022 and 2021, ourOur Hospital Operations and Ambulatory Care segments together recognized a total of $138 million and $40 million, respectively, of PRF grant income from federal and state programs associated with lost revenues and COVID‑related costs. Our Hospital Operations segment also recognized $16costs of $3 million and $13$54 million of grant income from state and local grant programs during the same nine‑month periods inthree months ended September 30, 2023 and 2022, respectively, and 2021, respectively. In addition, we recognized $12$14 million of grant income through our unconsolidated affiliatesand $154 million during the nine months ended September 30, 2021.2023 and 2022, respectively. Grant income recognized by our 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 each case in our condensed consolidated statements of operations. We cannot predict whether additional distributionsWith the termination of grant fundsthe public health emergency on May 11, 2023, there is no assurance or expectation that we will be authorized, and we cannot provide assurances regardingcontinue to receive or remain eligible for significant funding or assistance under the amount of grant income, if any, to be recognizedCOVID Acts or similar measures in the future.
Medicare and Medicaid Payment Policy Changes—The federally mandated 2% sequestration reduction on Medicare FFS and Medicare Advantage payments to hospitals, physicians and other providers was suspended effective May 1, 2020 through December 31, 2021. The Sequester Cuts Act, which was signed into law in December 2021, extended the 2% Medicare sequestration moratorium through March��31, 2022, and adjusted the sequestration to 1% for the period April 1, 2022 through June 30, 2022. Because further legislation was not passed, the full 2% reduction was restored effective July 1, 2022. The impact of the Sequester Cuts Act on our operations was an increase of approximately $39 million of revenues in the six months ended June 30, 2022, after which the sequestration was fully reinstated. 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 actual payments received under, or the ultimate impact of, these programs will differ materially from our expectations.
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.
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 three months ended September 30, 2023 and 2022 was $2.532 billion and $2.384 billion, respectively, and $7.600 billion and $7.126 billion during the nine months ended September 30, 20222023 and 2021 was $7.227 billion and $7.592 billion,2022, respectively. Our top 10 managed care payers generated 62%65% of our managed care net patient service revenues for the nine months ended September 30, 2022.2023. During the same period, national payers generated 43%46% of our managed care net patient service revenues; the remainder came from regional or local payers. At both September 30, 20222023 and December 31, 2021, 67%2022, 65% and 66%, respectively, of our net accounts receivable for our Hospital Operations segmentsegment’s net accounts receivable 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 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 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 September 30, 2022,2023, a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately $19$22 million. Some of the factors that can contribute to changes in the contractual allowance estimates include: (i)(1) changes in reimbursement levels for procedures, supplies and drugs when threshold levels are triggered; (ii)(2) changes in reimbursement levels when stop‑loss or outlier limits are reached; (iii)(3) changes in the admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (iv)(4) final coding of in‑house and discharged‑not‑final‑billed patients that change reimbursement levels; (v)(5) secondary benefits determined after primary insurance payments; and (vi)(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 not believe there were any adjustments to estimates of patient bills that were material to our revenues.revenues during the nine months ended September 30, 2023. 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 some time, we have seen these improvements moderate in recent years, and we believe this moderation could continue into the future.future, subject to incremental pricing improvements to address inflationary pressures. In the nine months ended September 30, 2022,2023, our commercial managed care net inpatient revenue per admission from the hospitals in our Hospital Operations segment was approximately 81%90% 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.
Legislative Changes
As more fully described in Item 1, Business — Healthcare Regulation and Licensing, of Part I of our Annual Report, the No Surprises Act (“NSA”) and the rules promulgated thereunder went into effect on January 1, 2022. The NSA is intended to address unexpected gaps in insurance coverage that result in “surprise medical bills” when patients unknowingly obtain medical services from physicians and other providers outside their health insurance network, including certain emergency services, anesthesiology services and air ambulance transportation. At this time, we are unable to assess the effect that the NSA or regulations relating to the NSA might have on our business, financial position, results of operations or cash flows.
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 September 30, 20222023 and December 31, 2021,2022, 5% and 4%, respectively, 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 in areas including finance, debt collection and credit reporting activities. For additional information, see Item 1, Business — Laws and 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 expenseimplicit price concessions 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 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.
The initial expansion of health insurance coverage under the Affordable Care Act resulted in an increase in the number of patients using our facilities with either health insurance exchangeprivate or governmentpublic program coverage and a decrease in uninsured and charity care admissions, along with reductions in Medicare and Medicaid reimbursement to healthcare insurance program coverage.providers, including us. However, we continue to have to provide uninsured discounts and charity care due to the failure of certain 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.
The COVID Acts included a requirement that state Medicaid programs keep people continuously enrolled during the COVID‑19 public health emergency in exchange for a temporary increase to the Federal Medical Assistance Percentage. This continuous enrollment condition ended on March 31, 2023 and, on April 1, 2023, states were permitted to begin eligibility redeterminations on their Medicaid populations and disenroll individuals no longer eligible. The resulting volume of redeterminations has caused backlogs in the processing of new applications, which has increased the overall certification timeframe. We expect the certification timing will return to normal as these backlogs are resolved. Although we have not been materially adversely affected to date, any increase in the volume of uninsured patients could have an impact on our uncompensated care expense.
The following table presents 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:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Estimated costs for: | | 2022 | | 2021 | | 2022 | | 2021 | |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| Uninsured patients | Uninsured patients | | $ | 131 | | | $ | 181 | | | $ | 389 | | | $ | 507 | | Uninsured patients | | $ | 122 | | | $ | 131 | | | $ | 361 | | | $ | 389 | |
Charity care patients | Charity care patients | | 22 | | | 25 | | | 62 | | | 74 | | Charity care patients | | 31 | | | 22 | | | 83 | | | 62 | |
Total | Total | | $ | 153 | | | $ | 206 | | | $ | 451 | | | $ | 581 | | Total | | $ | 153 | | | $ | 153 | | | $ | 444 | | | $ | 451 | |
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RESULTS OF OPERATIONS
The following tables present our consolidated net operating revenues, operating expenses and operating income, both in dollar amounts and as percentages of net operating revenues, on a continuing operations basis:
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net operating revenues: | | | | | | | |
Hospital Operations | $ | 3,778 | | | $ | 4,030 | | | $ | 11,221 | | | $ | 12,072 | |
Ambulatory Care | 806 | | | 666 | | | 2,315 | | | 1,976 | |
Conifer | 333 | | | 314 | | | 990 | | | 943 | |
Inter-segment eliminations | (116) | | | (116) | | | (342) | | | (362) | |
Net operating revenues | 4,801 | | | 4,894 | | | 14,184 | | | 14,629 | |
Grant income | 54 | | | 3 | | | 154 | | | 53 | |
Equity in earnings of unconsolidated affiliates | 51 | | | 45 | | | 151 | | | 141 | |
Operating expenses: | | | | | | | |
Salaries, wages and benefits | 2,230 | | | 2,209 | | | 6,538 | | | 6,690 | |
Supplies | 817 | | | 827 | | | 2,413 | | | 2,490 | |
Other operating expenses, net | 1,018 | | | 1,051 | | | 2,966 | | | 3,177 | |
Depreciation and amortization | 209 | | | 209 | | | 628 | | | 654 | |
Impairment and restructuring charges, and acquisition-related costs | 24 | | | 15 | | | 97 | | | 55 | |
Litigation and investigation costs | 12 | | | 29 | | | 50 | | | 64 | |
Net gains on sales, consolidation and deconsolidation of facilities | — | | | (412) | | | — | | | (427) | |
Operating income | $ | 596 | | | $ | 1,014 | | | $ | 1,797 | | | $ | 2,120 | |
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| Three Months Ended September 30, | | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net operating revenues: | | | | | | | | |
Hospital Operations | $ | 3,919 | | | $ | 3,778 | | | | $ | 11,740 | | | $ | 11,221 | |
Ambulatory Care | 941 | | | 806 | | | | 2,788 | | | 2,315 | |
Conifer | 315 | | | 333 | | | | 962 | | | 990 | |
Inter-segment eliminations | (109) | | | (116) | | | | (321) | | | (342) | |
Net operating revenues | 5,066 | | | 4,801 | | | | 15,169 | | | 14,184 | |
Grant income | 3 | | | 54 | | | | 14 | | | 154 | |
Equity in earnings of unconsolidated affiliates | 51 | | | 51 | | | | 155 | | | 151 | |
Operating expenses: | | | | | | | | |
Salaries, wages and benefits | 2,288 | | | 2,230 | | | | 6,831 | | | 6,538 | |
Supplies | 877 | | | 817 | | | | 2,659 | | | 2,413 | |
Other operating expenses, net | 1,101 | | | 1,018 | | | | 3,319 | | | 2,966 | |
Depreciation and amortization | 224 | | | 209 | | | | 654 | | | 628 | |
Impairment and restructuring charges, and acquisition-related costs | 47 | | | 24 | | | | 84 | | | 97 | |
Litigation and investigation costs | 14 | | | 12 | | | | 28 | | | 50 | |
Net losses (gains) on sales, consolidation and deconsolidation of facilities | 1 | | | — | | | | (12) | | | — | |
Operating income | $ | 568 | | | $ | 596 | | | | $ | 1,775 | | | $ | 1,797 | |
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Net operating revenues | 100.0 | % | | 100.0 | % | | | 100.0 | % | | 100.0 | % |
Grant income | 0.1 | % | | 1.1 | % | | | 0.1 | % | | 1.1 | % |
Equity in earnings of unconsolidated affiliates | 1.0 | % | | 1.1 | % | | | 1.0 | % | | 1.1 | % |
Operating expenses: | | | | | | | | |
Salaries, wages and benefits | 45.2 | % | | 46.4 | % | | | 45.0 | % | | 46.1 | % |
Supplies | 17.3 | % | | 17.0 | % | | | 17.5 | % | | 17.0 | % |
Other operating expenses, net | 21.7 | % | | 21.3 | % | | | 21.9 | % | | 20.9 | % |
Depreciation and amortization | 4.5 | % | | 4.4 | % | | | 4.3 | % | | 4.4 | % |
Impairment and restructuring charges, and acquisition-related costs | 0.9 | % | | 0.5 | % | | | 0.6 | % | | 0.7 | % |
Litigation and investigation costs | 0.3 | % | | 0.2 | % | | | 0.2 | % | | 0.4 | % |
Net losses (gains) on sales, consolidation and deconsolidation of facilities | — | % | | — | % | | | (0.1) | % | | — | % |
Operating income | 11.2 | % | | 12.4 | % | | | 11.7 | % | | 12.7 | % |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
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Net operating revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Grant income | 1.1 | % | | 0.1 | % | | 1.1 | % | | 0.4 | % |
Equity in earnings of unconsolidated affiliates | 1.1 | % | | 0.9 | % | | 1.1 | % | | 1.0 | % |
Operating expenses: | | | | | | | |
Salaries, wages and benefits | 46.4 | % | | 45.1 | % | | 46.1 | % | | 45.8 | % |
Supplies | 17.0 | % | | 16.9 | % | | 17.0 | % | | 17.0 | % |
Other operating expenses, net | 21.3 | % | | 21.5 | % | | 20.9 | % | | 21.7 | % |
Depreciation and amortization | 4.4 | % | | 4.3 | % | | 4.4 | % | | 4.5 | % |
Impairment and restructuring charges, and acquisition-related costs | 0.5 | % | | 0.3 | % | | 0.7 | % | | 0.4 | % |
Litigation and investigation costs | 0.2 | % | | 0.6 | % | | 0.4 | % | | 0.4 | % |
Net gains on sales, consolidation and deconsolidation of facilities | — | % | | (8.4) | % | | — | % | | (2.9) | % |
Operating income | 12.4 | % | | 20.7 | % | | 12.7 | % | | 14.5 | % |
The following tables present our net operating revenues, operating expenses and operating income, both in dollar amounts and as percentages of net operating revenues, by operating segment on a continuing operations basis:
| | | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 | | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
| | Hospital Operations | | Ambulatory Care | | Conifer | | Hospital Operations | | Ambulatory Care | | Conifer | | Hospital Operations | | Ambulatory Care | | Conifer | | Hospital Operations | | Ambulatory Care | | Conifer |
| Net operating revenues | Net operating revenues | $ | 3,662 | | | $ | 806 | | | $ | 333 | | | $ | 10,879 | | | $ | 2,315 | | | $ | 990 | | Net operating revenues | $ | 3,810 | | | $ | 941 | | | $ | 315 | | | $ | 11,419 | | | $ | 2,788 | | | $ | 962 | |
Grant income | Grant income | 54 | | | — | | | — | | | 150 | | | 4 | | | — | | Grant income | 3 | | | — | | | — | | | 13 | | | 1 | | | — | |
Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | 2 | | | 49 | | | — | | | 8 | | | 143 | | | — | | Equity in earnings of unconsolidated affiliates | 1 | | | 50 | | | — | | | 6 | | | 149 | | | — | |
Operating expenses: | Operating expenses: | | | | | | | Operating expenses: | | | | | | |
Salaries, wages and benefits | Salaries, wages and benefits | 1,847 | | | 208 | | | 175 | | | 5,419 | | | 603 | | | 516 | | Salaries, wages and benefits | 1,883 | | | 234 | | | 171 | | | 5,605 | | | 709 | | | 517 | |
Supplies | Supplies | 598 | | | 218 | | | 1 | | | 1,786 | | | 624 | | | 3 | | Supplies | 624 | | | 252 | | | 1 | | | 1,893 | | | 762 | | | 4 | |
Other operating expenses, net | Other operating expenses, net | 841 | | | 110 | | | 67 | | | 2,455 | | | 315 | | | 196 | | Other operating expenses, net | 906 | | | 135 | | | 60 | | | 2,746 | | | 387 | | | 186 | |
Depreciation and amortization | Depreciation and amortization | 172 | | | 28 | | | 9 | | | 518 | | | 83 | | | 27 | | Depreciation and amortization | 183 | | | 32 | | | 9 | | | 540 | | | 86 | | | 28 | |
Impairment and restructuring charges, and acquisition-related costs | Impairment and restructuring charges, and acquisition-related costs | 14 | | | 5 | | | 5 | | | 68 | | | 13 | | | 16 | | Impairment and restructuring charges, and acquisition-related costs | 25 | | | 18 | | | 4 | | | 48 | | | 23 | | | 13 | |
Litigation and investigation costs | Litigation and investigation costs | 7 | | | 3 | | | 2 | | | 33 | | | 3 | | | 14 | | Litigation and investigation costs | 6 | | | 7 | | | 1 | | | 14 | | | 13 | | | 1 | |
| Net losses (gains) on sales, consolidation and deconsolidation of facilities | | Net losses (gains) on sales, consolidation and deconsolidation of facilities | — | | | 1 | | | — | | | — | | | (12) | | | — | |
Operating income | Operating income | $ | 239 | | | $ | 283 | | | $ | 74 | | | $ | 758 | | | $ | 821 | | | $ | 218 | | Operating income | $ | 187 | | | $ | 312 | | | $ | 69 | | | $ | 592 | | | $ | 970 | | | $ | 213 | |
| Net operating revenues | Net operating revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Net operating revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Grant income | Grant income | 1.5 | % | | — | % | | — | % | | 1.4 | % | | 0.2 | % | | — | % | Grant income | 0.1 | % | | — | % | | — | % | | 0.1 | % | | — | % | | — | % |
Equity in earnings of unconsolidated affiliates | Equity in earnings of unconsolidated affiliates | 0.1 | % | | 6.1 | % | | — | % | | 0.1 | % | | 6.2 | % | | — | % | Equity in earnings of unconsolidated affiliates | — | % | | 5.3 | % | | — | % | | 0.1 | % | | 5.3 | % | | — | % |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Salaries, wages and benefits | Salaries, wages and benefits | 50.4 | % | | 25.8 | % | | 52.6 | % | | 49.8 | % | | 26.0 | % | | 52.1 | % | Salaries, wages and benefits | 49.4 | % | | 24.9 | % | | 54.3 | % | | 49.1 | % | | 25.4 | % | | 53.7 | % |
Supplies | Supplies | 16.3 | % | | 27.0 | % | | 0.3 | % | | 16.4 | % | | 27.0 | % | | 0.3 | % | Supplies | 16.4 | % | | 26.8 | % | | 0.3 | % | | 16.6 | % | | 27.3 | % | | 0.4 | % |
Other operating expenses, net | Other operating expenses, net | 23.1 | % | | 13.7 | % | | 20.1 | % | | 22.6 | % | | 13.6 | % | | 19.9 | % | Other operating expenses, net | 23.8 | % | | 14.3 | % | | 19.0 | % | | 24.1 | % | | 13.9 | % | | 19.3 | % |
Depreciation and amortization | Depreciation and amortization | 4.7 | % | | 3.5 | % | | 2.7 | % | | 4.8 | % | | 3.6 | % | | 2.7 | % | Depreciation and amortization | 4.8 | % | | 3.4 | % | | 2.9 | % | | 4.7 | % | | 3.1 | % | | 2.9 | % |
Impairment and restructuring charges, and acquisition-related costs | Impairment and restructuring charges, and acquisition-related costs | 0.4 | % | | 0.6 | % | | 1.5 | % | | 0.6 | % | | 0.6 | % | | 1.6 | % | Impairment and restructuring charges, and acquisition-related costs | 0.7 | % | | 1.9 | % | | 1.3 | % | | 0.4 | % | | 0.8 | % | | 1.5 | % |
Litigation and investigation costs | Litigation and investigation costs | 0.2 | % | | 0.4 | % | | 0.6 | % | | 0.3 | % | | 0.1 | % | | 1.4 | % | Litigation and investigation costs | 0.1 | % | | 0.7 | % | | 0.3 | % | | 0.1 | % | | 0.4 | % | | 0.1 | % |
| Net losses (gains) on sales, consolidation and deconsolidation of facilities | | Net losses (gains) on sales, consolidation and deconsolidation of facilities | — | % | | 0.1 | % | | — | % | | — | % | | (0.4) | % | | — | % |
Operating income | Operating income | 6.5 | % | | 35.1 | % | | 22.2 | % | | 7.0 | % | | 35.5 | % | | 22.0 | % | Operating income | 4.9 | % | | 33.2 | % | | 21.9 | % | | 5.2 | % | | 34.8 | % | | 22.1 | % |
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| Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 |
| Hospital Operations | | Ambulatory Care | | Conifer | | Hospital Operations | | Ambulatory Care | | Conifer |
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Net operating revenues | $ | 3,914 | | | $ | 666 | | | $ | 314 | | | $ | 11,710 | | | $ | 1,976 | | | $ | 943 | |
Grant income | 2 | | | 1 | | | — | | | 30 | | | 23 | | | — | |
Equity in earnings of unconsolidated affiliates | 2 | | | 43 | | | — | | | 11 | | | 130 | | | — | |
Operating expenses: | | | | | | | | | | | |
Salaries, wages and benefits | 1,872 | | | 169 | | | 168 | | | 5,670 | | | 512 | | | 508 | |
Supplies | 656 | | | 170 | | | 1 | | | 1,991 | | | 496 | | | 3 | |
Other operating expenses, net | 894 | | | 97 | | | 60 | | | 2,711 | | | 295 | | | 171 | |
Depreciation and amortization | 177 | | | 23 | | | 9 | | | 555 | | | 71 | | | 28 | |
Impairment and restructuring charges, and acquisition-related costs | 11 | | | 1 | | | 3 | | | 31 | | | 9 | | | 15 | |
Litigation and investigation costs | 26 | | | 3 | | | — | | | 54 | | | 9 | | | 1 | |
Net losses (gains) on sales, consolidation and deconsolidation of facilities | (413) | | | 1 | | | — | | | (415) | | | (12) | | | — | |
Operating income | $ | 695 | | | $ | 246 | | | $ | 73 | | | $ | 1,154 | | | $ | 749 | | | $ | 217 | |
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Net operating revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Grant income | 0.1 | % | | 0.2 | % | | — | % | | 0.3 | % | | 1.2 | % | | — | % |
Equity in earnings of unconsolidated affiliates | 0.1 | % | | 6.5 | % | | — | % | | 0.1 | % | | 6.6 | % | | — | % |
Operating expenses: | | | | | | | | | | | |
Salaries, wages and benefits | 47.8 | % | | 25.4 | % | | 53.5 | % | | 48.4 | % | | 25.9 | % | | 53.9 | % |
Supplies | 16.8 | % | | 25.5 | % | | 0.3 | % | | 17.0 | % | | 25.1 | % | | 0.3 | % |
Other operating expenses, net | 22.9 | % | | 14.5 | % | | 19.1 | % | | 23.1 | % | | 14.9 | % | | 18.1 | % |
Depreciation and amortization | 4.5 | % | | 3.5 | % | | 2.9 | % | | 4.7 | % | | 3.6 | % | | 3.0 | % |
Impairment and restructuring charges, and acquisition-related costs | 0.3 | % | | 0.2 | % | | 1.0 | % | | 0.3 | % | | 0.5 | % | | 1.6 | % |
Litigation and investigation costs | 0.7 | % | | 0.5 | % | | — | % | | 0.5 | % | | 0.5 | % | | 0.1 | % |
Net losses (gains) on sales, consolidation and deconsolidation of facilities | (10.6) | % | | 0.2 | % | | — | % | | (3.5) | % | | (0.6) | % | | — | % |
Operating income | 17.8 | % | | 36.9 | % | | 23.2 | % | | 9.9 | % | | 37.9 | % | | 23.0 | % |
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| Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| Hospital Operations | | Ambulatory Care | | Conifer | | Hospital Operations | | Ambulatory Care | | Conifer |
Net operating revenues | $ | 3,662 | | | $ | 806 | | | $ | 333 | | | $ | 10,879 | | | $ | 2,315 | | | $ | 990 | |
Grant income | 54 | | | — | | | — | | | 150 | | | 4 | | | — | |
Equity in earnings of unconsolidated affiliates | 2 | | | 49 | | | — | | | 8 | | | 143 | | | — | |
Operating expenses: | | | | | | | | | | | |
Salaries, wages and benefits | 1,847 | | | 208 | | | 175 | | | 5,419 | | | 603 | | | 516 | |
Supplies | 598 | | | 218 | | | 1 | | | 1,786 | | | 624 | | | 3 | |
Other operating expenses, net | 841 | | | 110 | | | 67 | | | 2,455 | | | 315 | | | 196 | |
Depreciation and amortization | 172 | | | 28 | | | 9 | | | 518 | | | 83 | | | 27 | |
Impairment and restructuring charges, and acquisition-related costs | 14 | | | 5 | | | 5 | | | 68 | | | 13 | | | 16 | |
Litigation and investigation costs | 7 | | | 3 | | | 2 | | | 33 | | | 3 | | | 14 | |
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Operating income | $ | 239 | | | $ | 283 | | | $ | 74 | | | $ | 758 | | | $ | 821 | | | $ | 218 | |
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Net operating revenues | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Grant income | 1.5 | % | | — | % | | — | % | | 1.4 | % | | 0.2 | % | | — | % |
Equity in earnings of unconsolidated affiliates | 0.1 | % | | 6.1 | % | | — | % | | 0.1 | % | | 6.2 | % | | — | % |
Operating expenses: | | | | | | | | | | | |
Salaries, wages and benefits | 50.4 | % | | 25.8 | % | | 52.6 | % | | 49.8 | % | | 26.0 | % | | 52.1 | % |
Supplies | 16.3 | % | | 27.0 | % | | 0.3 | % | | 16.4 | % | | 27.0 | % | | 0.3 | % |
Other operating expenses, net | 23.1 | % | | 13.7 | % | | 20.1 | % | | 22.6 | % | | 13.6 | % | | 19.9 | % |
Depreciation and amortization | 4.7 | % | | 3.5 | % | | 2.7 | % | | 4.8 | % | | 3.6 | % | | 2.7 | % |
Impairment and restructuring charges, and acquisition-related costs | 0.4 | % | | 0.6 | % | | 1.5 | % | | 0.6 | % | | 0.6 | % | | 1.6 | % |
Litigation and investigation costs | 0.2 | % | | 0.4 | % | | 0.6 | % | | 0.3 | % | | 0.1 | % | | 1.4 | % |
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Operating income | 6.5 | % | | 35.1 | % | | 22.2 | % | | 7.0 | % | | 35.5 | % | | 22.0 | % |
Consolidated net operating revenues decreasedincreased by $93$265 million and $445$985 million, or 1.9%5.5% and 3.0%6.9%, for the three and nine months ended September 30, 2022,2023, respectively, compared to the three and nine months ended September 30, 2021, respectively.2022. Our Hospital Operations segment’s net operating revenues net of inter‑segment eliminations decreasedincreased by $252$148 million and $831$540 million, or 6.4% and 7.1%, for the three and nine months ended September 30, 2022, respectively, compared to the same three and nine‑month periods in 2021, respectively. These decreases were primarily due to the loss of revenues in our Hospital Operations segment from the Miami Hospitals we sold in August 2021, lower overall patient volumes and decreased COVID‑related patient acuity during the 2022 period, partially offset by negotiated commercial rate increases. Our Hospital Operations segment also recognized grant income from federal and state grants totaling $54 million and $150 million during the three and nine months ended September 30, 2022, respectively, which is not included in net operating revenues.
Ambulatory Care net operating revenues increased by $140 million and $339 million, or 21.0% and 17.2%, for the three and nine months ended September 30, 2022, respectively, compared to the three and nine months ended September 30, 2021, respectively. The change in 2022 revenues for the three‑month period was driven by an increase from acquisitions of $124 million, as well as an increase in same‑facility net operating revenues of $19 million due primarily to higher net revenue per case. These increases were partially offset by a decrease of $3 million due to the closure of two ASCs, as well as the adverse impacts of the COVID-19 pandemic and Hurricane Ian on case volumes. The change in 2022 revenues for the nine‑month period was driven by an increase from acquisitions of $298 million, as well as an increase in same‑facility net operating revenues of $103 million due primarily to higher surgical patient volume and higher net revenue per case. These increases were partially offset by a decrease of $62 million due mainly to the sale of urgent care centers and the transfer of imaging centers to the Hospital Operations segment in April 2021. Our Ambulatory Care segment recognized income from federal grants totaling $4 million during the six months ended June 30, 2022, which is not included in net operating revenues. Our Ambulatory Care segment did not recognize any grant income in the three months ended September 30, 2022.
Conifer’s net operating revenues increased by $19 million and $47 million, or 6.1%4.0% and 5.0%, for the three and nine months ended September 30, 2022,2023, respectively, compared to the same periods in 2022. The increases for both periods in 2023 were primarily driven by the opening of our PMC Fort Mill Hospital in September 2022, a more favorable payer mix, higher patient volume and acuity, and negotiated commercial rate increases. The adverse impact on patient volumes associated with a cybersecurity incident in the 2022 period also contributed to the increase reflected in the nine months ended September 30, 2023. Our Hospital Operations segment also recognized income from state grants totaling $3 million and $13 million during the three and nine months ended September 30, 2021, respectively. Conifer’s revenues from third‑party clients, which revenues are not eliminated in consolidation, increased $192023, respectively, and income totaling $54 million and $67$150 million or 9.6%from combined federal and 11.5%, forstate grants during the three and nine months ended September 30,same periods in 2022, respectively, compared to the same three and nine‑month periodsnone of which is included in 2021, respectively. These increases were primarily due to contractual rate increases and new business expansion.net operating revenues.
The following table presents selected operating expenses
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| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
Selected Operating Expenses | | 2022 | | 2021 | | | 2022 | | 2021 | |
Hospital Operations — Same-Hospital: | | | | | | | | | | | | |
Salaries, wages and benefits | | $ | 1,833 | | | $ | 1,827 | | | 0.3 | % | | $ | 5,386 | | | $ | 5,397 | | | (0.2) | % |
Supplies | | 595 | | | 638 | | | (6.7) | % | | 1,779 | | | 1,885 | | | (5.6) | % |
Other operating expenses | | 824 | | | 850 | | | (3.1) | % | | 2,410 | | | 2,513 | | | (4.1) | % |
Total | | $ | 3,252 | | | $ | 3,315 | | | (1.9) | % | | $ | 9,575 | | | $ | 9,795 | | | (2.2) | % |
Ambulatory Care: | | | | | | | | | | | | |
Salaries, wages and benefits | | $ | 208 | | | $ | 169 | | | 23.1 | % | | $ | 603 | | | $ | 512 | | | 17.8 | % |
Supplies | | 218 | | | 170 | | | 28.2 | % | | 624 | | | 496 | | | 25.8 | % |
Other operating expenses | | 110 | | | 97 | | | 13.4 | % | | 315 | | | 295 | | | 6.8 | % |
Total | | $ | 536 | | | $ | 436 | | | 22.9 | % | | $ | 1,542 | | | $ | 1,303 | | | 18.3 | % |
Conifer: | | | | | | | | | | | | |
Salaries, wages and benefits | | $ | 175 | | | $ | 168 | | | 4.2 | % | | $ | 516 | | | $ | 508 | | | 1.6 | % |
Supplies | | 1 | | | 1 | | | — | % | | 3 | | | 3 | | | — | % |
Other operating expenses | | 67 | | | 60 | | | 11.7 | % | | 196 | | | 171 | | | 14.6 | % |
Total | | $ | 243 | | | $ | 229 | | | 6.1 | % | | $ | 715 | | | $ | 682 | | | 4.8 | % |
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Rent/lease expense(1): | | | | | | | | | | | | |
Hospital Operations | | $ | 71 | | | $ | 69 | | | 2.9 | % | | $ | 205 | | | $ | 210 | | | (2.4) | % |
Ambulatory Care | | 29 | | | 24 | | | 20.8 | % | | 84 | | | 75 | | | 12.0 | % |
Conifer | | 2 | | | 2 | | | — | % | | 8 | | | 8 | | | — | % |
Total | | $ | 102 | | | $ | 95 | | | 7.4 | % | | $ | 297 | | | $ | 293 | | | 1.4 | % |
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(1) | Included in other operating expenses. |
RESULTS OF OPERATIONS BY SEGMENT
Our operations are reported in three segments:
•Hospital Operations, which is comprised of our acute care and specialty hospitals, imaging centers,a network of employed physicians and ancillary outpatient facilities, micro‑hospitals and physician practices;
facilities;
•Ambulatory Care, which is comprised of USPI’s ASCs and surgical hospitals; and
•Conifer, which provides revenue cycle management and value‑basedvalue-based care services to hospitals, health systems, physician practices, employers and other clients.
Hospital Operations Segment
The following tables present operating statistics, revenues and expenses of our hospitals and related outpatient facilities on a same‑hospital basis, unless otherwise indicated:
| | | | Same-Hospital | | Same-Hospital | | | | Same-Hospital | | Same-Hospital | |
| | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) | | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
Admissions, Patient Days and Surgeries | Admissions, Patient Days and Surgeries | | 2022 | | 2021 | | 2022 | | 2021 | | Admissions, Patient Days and Surgeries | | 2023 | | 2022 | | 2023 | | 2022 | |
Number of hospitals (at end of period) | Number of hospitals (at end of period) | | 60 | | | 60 | | | — | | (1) | | 60 | | | 60 | | | — | | (1) | Number of hospitals (at end of period) | | 60 | | | 60 | | | — | | (1) | | 60 | | | 60 | | | — | | (1) |
Total admissions | Total admissions | | 132,975 | | | 140,491 | | | (5.3) | % | | 388,825 | | | 413,942 | | | (6.1) | % | | Total admissions | | 133,781 | | | 132,975 | | | 0.6 | % | | 398,949 | | | 388,825 | | | 2.6 | % | |
Adjusted admissions(2) | Adjusted admissions(2) | | 247,060 | | | 248,798 | | | (0.7) | % | | 714,024 | | | 732,540 | | | (2.5) | % | | Adjusted admissions(2) | | 247,910 | | | 247,036 | | | 0.4 | % | | 737,792 | | | 713,949 | | | 3.3 | % | |
Paying admissions (excludes charity and uninsured) | Paying admissions (excludes charity and uninsured) | | 126,470 | | | 132,614 | | | (4.6) | % | | 370,090 | | | 391,432 | | | (5.5) | % | | Paying admissions (excludes charity and uninsured) | | 127,796 | | | 126,470 | | | 1.0 | % | | 381,321 | | | 370,090 | | | 3.0 | % | |
Charity and uninsured admissions | Charity and uninsured admissions | | 6,505 | | | 7,877 | | | (17.4) | % | | 18,735 | | | 22,510 | | | (16.8) | % | | Charity and uninsured admissions | | 5,985 | | | 6,505 | | | (8.0) | % | | 17,628 | | | 18,735 | | | (5.9) | % | |
Admissions through emergency department | Admissions through emergency department | | 100,024 | | | 106,217 | | | (5.8) | % | | 293,844 | | | 309,681 | | | (5.1) | % | | Admissions through emergency department | | 100,169 | | | 100,024 | | | 0.1 | % | | 299,717 | | | 293,844 | | | 2.0 | % | |
Paying admissions as a percentage of total admissions | Paying admissions as a percentage of total admissions | | 95.1 | % | | 94.4 | % | | 0.7 | % | (1) | | 95.2 | % | | 94.6 | % | | 0.6 | % | (1) | Paying admissions as a percentage of total admissions | | 95.5 | % | | 95.1 | % | | 0.4 | % | (1) | | 95.6 | % | | 95.2 | % | | 0.4 | % | (1) |
Charity and uninsured admissions as a percentage of total admissions | Charity and uninsured admissions as a percentage of total admissions | | 4.9 | % | | 5.6 | % | | (0.7) | % | (1) | | 4.8 | % | | 5.4 | % | | (0.6) | % | (1) | Charity and uninsured admissions as a percentage of total admissions | | 4.5 | % | | 4.9 | % | | (0.4) | % | (1) | | 4.4 | % | | 4.8 | % | | (0.4) | % | (1) |
Emergency department admissions as a percentage of total admissions | Emergency department admissions as a percentage of total admissions | | 75.2 | % | | 75.6 | % | | (0.4) | % | (1) | | 75.6 | % | | 74.8 | % | | 0.8 | % | (1) | Emergency department admissions as a percentage of total admissions | | 74.9 | % | | 75.2 | % | | (0.3) | % | (1) | | 75.1 | % | | 75.6 | % | | (0.5) | % | (1) |
Surgeries — inpatient | Surgeries — inpatient | | 34,180 | | | 35,535 | | | (3.8) | % | | 100,837 | | | 106,994 | | | (5.8) | % | | Surgeries — inpatient | | 34,810 | | | 34,180 | | | 1.8 | % | | 103,029 | | | 100,837 | | | 2.2 | % | |
Surgeries — outpatient | Surgeries — outpatient | | 52,273 | | | 54,119 | | | (3.4) | % | | 157,169 | | | 161,982 | | | (3.0) | % | | Surgeries — outpatient | | 50,413 | | | 51,621 | | | (2.3) | % | | 154,140 | | | 155,142 | | | (0.6) | % | |
Total surgeries | Total surgeries | | 86,453 | | | 89,654 | | | (3.6) | % | | 258,006 | | | 268,976 | | | (4.1) | % | | Total surgeries | | 85,223 | | | 85,801 | | | (0.7) | % | | 257,169 | | | 255,979 | | | 0.5 | % | |
Patient days — total | Patient days — total | | 681,537 | | | 748,012 | | | (8.9) | % | | 2,046,155 | | | 2,174,982 | | | (5.9) | % | | Patient days — total | | 672,201 | | | 681,537 | | | (1.4) | % | | 2,047,786 | | | 2,046,155 | | | 0.1 | % | |
Adjusted patient days(2) | Adjusted patient days(2) | | 1,220,864 | | | 1,301,989 | | | (6.2) | % | | 3,638,687 | | | 3,762,149 | | | (3.3) | % | | Adjusted patient days(2) | | 1,196,240 | | | 1,220,715 | | | (2.0) | % | | 3,634,884 | | | 3,638,226 | | | (0.1) | % | |
Average length of stay (days) | Average length of stay (days) | | 5.13 | | | 5.32 | | | (3.6) | % | | 5.26 | | | 5.25 | | | 0.2 | % | | Average length of stay (days) | | 5.02 | | | 5.13 | | | (2.1) | % | | 5.13 | | | 5.26 | | | (2.5) | % | |
Licensed beds (at end of period) | Licensed beds (at end of period) | | 15,369 | | | 15,399 | | | (0.2) | % | | 15,369 | | | 15,399 | | | (0.2) | % | | Licensed beds (at end of period) | | 15,372 | | | 15,369 | | | — | % | | 15,372 | | | 15,369 | | | — | % | |
Average licensed beds | Average licensed beds | | 15,376 | | | 15,399 | | | (0.1) | % | | 15,384 | | | 15,401 | | | (0.1) | % | | Average licensed beds | | 15,372 | | | 15,376 | | | — | % | | 15,372 | | | 15,384 | | | (0.1) | % | |
Utilization of licensed beds(3) | Utilization of licensed beds(3) | | 48.2 | % | | 52.8 | % | | (4.6) | % | (1) | | 48.7 | % | | 51.7 | % | | (3.0) | % | (1) | Utilization of licensed beds(3) | | 47.5 | % | | 48.2 | % | | (0.7) | % | (1) | | 48.8 | % | | 48.7 | % | | 0.1 | % | (1) |
| | | | | | | | |
| | |
(1) | The change is the difference between the 20222023 and 20212022 amounts presented. |
(2) | Adjusted admissions/patient days represents actual admissions/patient days adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual admissions/patient 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. |
| | | | Same-Hospital | | Same-Hospital | | | | Same-Hospital | | Same-Hospital | |
| | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) | | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
Outpatient Visits | Outpatient Visits | | 2022 | | 2021 | | 2022 | | 2021 | | Outpatient Visits | | 2023 | | 2022 | | 2023 | | 2022 | |
Total visits | Total visits | | 1,266,760 | | | 1,360,953 | | | (6.9) | % | | | 3,788,402 | | | 4,008,056 | | | (5.5) | % | | Total visits | | 1,369,399 | | | 1,396,998 | | | (2.0) | % | | | 4,136,448 | | | 4,179,181 | | | (1.0) | % | |
Paying visits (excludes charity and uninsured) | Paying visits (excludes charity and uninsured) | | 1,190,461 | | | 1,265,603 | | | (5.9) | % | | 3,557,929 | | | 3,736,175 | | | (4.8) | % | | Paying visits (excludes charity and uninsured) | | 1,293,626 | | | 1,315,692 | | | (1.7) | % | | 3,917,403 | | | 3,939,055 | | | (0.5) | % | |
Charity and uninsured visits | Charity and uninsured visits | | 76,299 | | | 95,350 | | | (20.0) | % | | 230,473 | | | 271,881 | | | (15.2) | % | | Charity and uninsured visits | | 75,773 | | | 81,306 | | | (6.8) | % | | 219,045 | | | 240,126 | | | (8.8) | % | |
Emergency department visits | Emergency department visits | | 545,766 | | | 567,260 | | | (3.8) | % | | 1,587,529 | | | 1,502,651 | | | 5.6 | % | | Emergency department visits | | 539,495 | | | 545,774 | | | (1.2) | % | | 1,606,851 | | | 1,587,529 | | | 1.2 | % | |
Surgery visits | Surgery visits | | 52,273 | | | 54,119 | | | (3.4) | % | | 157,169 | | | 161,982 | | | (3.0) | % | | Surgery visits | | 50,413 | | | 51,621 | | | (2.3) | % | | 154,140 | | | 155,142 | | | (0.6) | % | |
Paying visits as a percentage of total visits | Paying visits as a percentage of total visits | | 94.0 | % | | 93.0 | % | | 1.0 | % | (1) | | 93.9 | % | | 93.2 | % | | 0.7 | % | (1) | Paying visits as a percentage of total visits | | 94.5 | % | | 94.2 | % | | 0.3 | % | (1) | | 94.7 | % | | 94.3 | % | | 0.4 | % | (1) |
Charity and uninsured visits as a percentage of total visits | Charity and uninsured visits as a percentage of total visits | | 6.0 | % | | 7.0 | % | | (1.0) | % | (1) | | 6.1 | % | | 6.8 | % | | (0.7) | % | (1) | Charity and uninsured visits as a percentage of total visits | | 5.5 | % | | 5.8 | % | | (0.3) | % | (1) | | 5.3 | % | | 5.7 | % | | (0.4) | % | (1) |
| | | | | | | | |
| | |
(1) | The change is the difference between the 20222023 and 20212022 amounts presented. |
| | | | Same-Hospital | | Same-Hospital | | | | Same-Hospital | | Same-Hospital | |
| | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) | | | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
Revenues | Revenues | | 2022 | | 2021 | | 2022 | | 2021 | | Revenues | | 2023 | | 2022 | | 2023 | | 2022 | |
Total segment net operating revenues(1) | Total segment net operating revenues(1) | | $ | 3,629 | | | $ | 3,799 | | | (4.5) | % | | $ | 10,779 | | | $ | 11,050 | | | (2.5) | % | Total segment net operating revenues(1) | | $ | 3,785 | | | $ | 3,658 | | | 3.5 | % | | | $ | 11,350 | | | $ | 10,867 | | | 4.4 | % | |
Selected revenue data – hospitals and related outpatient facilities: | Selected revenue data – hospitals and related outpatient facilities: | | Selected revenue data – hospitals and related outpatient facilities: | |
Net patient service revenues(2) | Net patient service revenues(2) | | $ | 3,425 | | | $ | 3,599 | | | (4.8) | % | | $ | 10,217 | | | $ | 10,498 | | | (2.7) | % | Net patient service revenues(2) | | $ | 3,575 | | | $ | 3,453 | | | 3.5 | % | | $ | 10,711 | | | $ | 10,302 | | | 4.0 | % | |
Net patient service revenue per adjusted admission(2) | Net patient service revenue per adjusted admission(2) | | $ | 13,863 | | | $ | 14,466 | | | (4.2) | % | | $ | 14,309 | | | $ | 14,331 | | | (0.2) | % | Net patient service revenue per adjusted admission(2) | | $ | 14,421 | | | $ | 13,978 | | | 3.2 | % | | $ | 14,518 | | | $ | 14,430 | | | 0.6 | % | |
Net patient service revenue per adjusted patient day(2) | Net patient service revenue per adjusted patient day(2) | | $ | 2,805 | | | $ | 2,764 | | | 1.5 | % | | $ | 2,808 | | | $ | 2,790 | | | 0.6 | % | Net patient service revenue per adjusted patient day(2) | | $ | 2,989 | | | $ | 2,829 | | | 5.7 | % | | $ | 2,947 | | | $ | 2,832 | | | 4.1 | % | |
| Selected Operating Expenses | | Selected Operating Expenses | |
Salaries, wages and benefits | | Salaries, wages and benefits | | $ | 1,875 | | | $ | 1,843 | | | 1.7 | % | | $ | 5,582 | | | $ | 5,416 | | | 3.1 | % | |
Supplies | | Supplies | | 621 | | | 598 | | | 3.8 | % | | 1,886 | | | 1,787 | | | 5.5 | % | |
Other operating expenses | | Other operating expenses | | 899 | | | 835 | | | 7.7 | % | | 2,724 | | | 2,444 | | | 11.5 | % | |
| | | | $ | 3,395 | | | $ | 3,276 | | | 3.6 | % | | $ | 10,192 | | | $ | 9,647 | | | 5.6 | % | |
| Selected Operating Expenses as a Percentage of Net Operating Revenues | | Selected Operating Expenses as a Percentage of Net Operating Revenues | |
Salaries, wages and benefits | | Salaries, wages and benefits | | 49.5 | % | | 50.4 | % | | (0.9) | % | (1) | | 49.2 | % | | 49.8 | % | | (0.6) | % | (1) |
Supplies | | Supplies | | 16.4 | % | | 16.3 | % | | 0.1 | % | (1) | | 16.6 | % | | 16.4 | % | | 0.2 | % | (1) |
Other operating expenses | | Other operating expenses | | 23.8 | % | | 22.8 | % | | 1.0 | % | (1) | | 24.0 | % | | 22.5 | % | | 1.5 | % | (1) |
| | | | | | | | |
| | |
(1) | Revenues are net of implicit price concessions. |
(2) | Adjusted admissions/patient days represents actual admissions/patient days adjusted to include outpatient services provided by facilities in our Hospital Operations segment by multiplying actual admissions/patient days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Same-Hospital | | | | Same-Hospital | | |
| | Three Months Ended September 30, | | Increase (Decrease)(1) | | Nine Months Ended September 30, | | Increase (Decrease)(1) |
Total Segment Selected Operating Expenses | | 2022 | | 2021 | | | 2022 | | 2021 | |
Salaries, wages and benefits as a percentage of net operating revenues | | 50.5 | % | | 48.1 | % | | 2.4 | % | | 50.0 | % | | 48.8 | % | | 1.2 | % |
Supplies as a percentage of net operating revenues | | 16.4 | % | | 16.8 | % | | (0.4) | % | | 16.5 | % | | 17.1 | % | | (0.6) | % |
Other operating expenses as a percentage of net operating revenues | | 22.7 | % | | 22.4 | % | | 0.3 | % | | 22.4 | % | | 22.7 | % | | (0.3) | % |
| | | | | | | | |
| | |
(1) | The change is the difference between the 20222023 and 20212022 amounts presented. |
Revenues
Same‑hospital net operating revenues decreased $170increased by $127 million, or 4.5%3.5%, during the three months ended September 30, 20222023 compared to the three months ended September 30, 2021,2022, primarily due to lower overall patient volumes and decreased COVID‑related patient acuitya more favorable payer mix during the 20222023 period, partially offset byhigher patient volume and acuity, and negotiated commercial rate increases. Our Hospital Operations segment also recognized grant income totaling $54$3 million and $2$54 million from federal and state grants in the three months ended September 30, 20222023 and 2021,2022, respectively, which is not included in net operating revenues. Same‑hospital adjusted admissions and outpatient visits decreased 5.3% and 6.9%, respectively,increased 0.4% in the three months ended September 30, 20222023 compared to the same period in 2021, primarily driven by the COVID‑related patient acuity and volume changes noted above.
2022.
Same‑hospital net operating revenues decreased $271increased by $483 million, or 2.5%4.4%, during the nine months ended September 30, 20222023 compared to the nine months ended September 30, 2021,2022, primarily due in part to lowera more favorable payer mix during the 2023 period, higher patient volumes, decreased COVID‑related patient acuityvolume, negotiated commercial rate increases and the adverse impact of the Cybersecurity Incidentaforementioned cybersecurity incident on patient volumes. These factors were partially offset by negotiated commercial rate increases.volumes in 2022. Our Hospital Operations segment also recognized grant income totaling $13 million and $150 million from federal and state and local grants totaling $150 million and $30 million in the nine months ended September 30, 20222023 and 2021,2022, respectively, which is not included in net operating revenues. Same‑hospital adjusted admissions and outpatient visits decreased by 6.1% and 5.5%, respectively,increased 3.3% in the nine months ended September 30, 20222023 compared to the same period in 2021, primarily due to the factors described above.
The following table presents our consolidated net accounts receivable by payer:
| | | | September 30, 2022 | | December 31, 2021 | | September 30, 2023 | | December 31, 2022 |
Medicare | Medicare | | $ | 151 | | | $ | 155 | | Medicare | | $ | 160 | | | $ | 166 | |
Medicaid | Medicaid | | 44 | | | 47 | | Medicaid | | 53 | | | 44 | |
Net cost report settlements receivable and valuation allowances | Net cost report settlements receivable and valuation allowances | | 44 | | | 33 | | Net cost report settlements receivable and valuation allowances | | 70 | | | 48 | |
Managed care | Managed care | | 1,643 | | | 1,602 | | Managed care | | 1,623 | | | 1,661 | |
Self-pay uninsured | Self-pay uninsured | | 37 | | | 21 | | Self-pay uninsured | | 36 | | | 35 | |
Self-pay balance after insurance | Self-pay balance after insurance | | 82 | | | 70 | | Self-pay balance after insurance | | 81 | | | 92 | |
Estimated future recoveries | Estimated future recoveries | | 144 | | | 137 | | Estimated future recoveries | | 157 | | | 149 | |
Other payers | Other payers | | 304 | | | 331 | | Other payers | | 299 | | | 315 | |
Total Hospital Operations | Total Hospital Operations | | 2,449 | | | 2,396 | | Total Hospital Operations | | 2,479 | | | 2,510 | |
Ambulatory Care | Ambulatory Care | | 377 | | | 374 | | Ambulatory Care | | 418 | | | 433 | |
| Accounts receivable, net | Accounts receivable, net | | $ | 2,826 | | | $ | 2,770 | | Accounts receivable, net | | $ | 2,897 | | | $ | 2,943 | |
The collection of accounts receivable has beenis a key area of focus particularly over the past several years.for our business. At September 30, 2023 and December 31, 2022, our Hospital Operations segment collection rate on self‑pay accounts was approximately 28.9%.30.5% and 29.5%, respectively. Our 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 September 30, 2022,2023, a 10% decrease or increase in our self‑pay collection rate, or approximately 3%3.1%, which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to patient accounts receivable of approximately $10$11 million. There are various factors that can impact collection trends, such as changes in the economy and inflation, 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 beenwere affected by the COVID‑19 pandemic, continuously change and can have an impact on collection trends and our estimation process.
We also 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 95.9%97.1% and 95.7% at September 30, 2022.
2023 and December 31, 2022, respectively.
We manage our implicit price concessions using hospital‑specific goals and benchmarks such as (i)(1) total cash collections, (ii)(2) point‑of‑service cash collections, (iii)(3) AR Days and (iv)(4) accounts receivable by aging category. The following tables presenttable presents the approximate aging by payer of our net accounts receivable from the continuing operations of our Hospital Operations segment of $2.405$2.409 billion and $2.363$2.462 billion at September 30, 20222023 and December 31, 2021, respectively, excluding cost2022, respectively. Cost report settlements receivable, net of payables and related valuation allowances, of $44$70 million and $33$48 million respectively, at September 30, 20222023 and December 31, 2021:2022, respectively, are excluded from the table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Medicare | | Medicaid | | Managed Care | | Indemnity, Self-Pay and Other | | Total |
At September 30, 2022: | | | | | | | | | | |
0-60 days | | 91 | % | | 31 | % | | 56 | % | | 22 | % | | 50 | % |
61-120 days | | 5 | % | | 28 | % | | 16 | % | | 13 | % | | 15 | % |
121-180 days | | 2 | % | | 16 | % | | 9 | % | | 9 | % | | 9 | % |
Over 180 days | | 2 | % | | 25 | % | | 19 | % | | 56 | % | | 26 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | | |
At December 31, 2021: | | | | | | | | | | |
0-60 days | | 93 | % | | 35 | % | | 57 | % | | 22 | % | | 52 | % |
61-120 days | | 4 | % | | 31 | % | | 18 | % | | 14 | % | | 16 | % |
121-180 days | | 1 | % | | 14 | % | | 10 | % | | 9 | % | | 9 | % |
Over 180 days | | 2 | % | | 20 | % | | 15 | % | | 55 | % | | 23 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | Medicare | | Medicaid | | Managed Care | | Indemnity, Self-Pay and Other | | Total |
At September 30, 2023 | | | | | | | | | | |
0-60 days | | 92 | % | | 41 | % | | 58 | % | | 22 | % | | 53 | % |
61-120 days | | 4 | % | | 26 | % | | 16 | % | | 13 | % | | 15 | % |
121-180 days | | 2 | % | | 14 | % | | 10 | % | | 8 | % | | 9 | % |
Over 180 days | | 2 | % | | 19 | % | | 16 | % | | 57 | % | | 23 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | | |
At December 31, 2022 | | | | | | | | | | |
0-60 days | | 90 | % | | 34 | % | | 56 | % | | 22 | % | | 50 | % |
61-120 days | | 5 | % | | 28 | % | | 16 | % | | 15 | % | | 15 | % |
121-180 days | | 2 | % | | 16 | % | | 9 | % | | 7 | % | | 9 | % |
Over 180 days | | 3 | % | | 22 | % | | 19 | % | | 56 | % | | 26 | % |
Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
Conifer continues to implement revenue cycle initiatives intended 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 September 30, 2022, we had a cumulative total of patient account assignments to Conifer of $1.880 billion related to our continuing operations. These accounts have already been written off and are not included in our receivables; 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 Eligibility and Enrollment Services program (“EES”) 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 EES, net of appropriate implicit price concessions. Based on recent trends, approximately 97%95% of all accounts in the EES are ultimately approved for benefits under a government program, such as Medicaid.
The following table presents the approximate amount of accounts receivable in the EES still awaiting determination of eligibility under a government program at September 30, 2022 and December 31, 2021 by aging category:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
0-60 days | | $ | 69 | | | $ | 87 | |
61-120 days | | 16 | | | 17 | |
121-180 days | | 6 | | | 4 | |
Over 180 days | | 8 | | | 7 | |
Total | | $ | 99 | | | $ | 115 | |
| | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
0-60 days | | $ | 72 | | | $ | 79 | |
61-120 days | | 19 | | | 18 | |
121-180 days | | 5 | | | 3 | |
Over 180 days | | 12 | | | 6 | |
Total | | $ | 108 | | | $ | 106 | |
Salaries, Wages and Benefits
Same‑hospital salaries, wages and benefits expense increased $6by $32 million, or 0.3%1.7%, in the three months ended September 30, 20222023 compared to the same period in 2021.2022. This increasechange was primarily attributable to higher contract labor costs and annual merit increases for certain of our employees and increased employee benefits, recruiting and retention costs in the 2023 period, as well as higher incentive compensation expense. These factors were partially offset by lower employee benefit costs and our continued focus on cost‑efficiency measures. Same‑hospital salaries, wages and benefits asa decrease in contract labor expense. As a percentage of net operating revenues, increasedsame‑hospital salaries, wages and benefits decreased by 24090 basis points to 50.5%49.5% in the three months ended September 30, 20222023 compared to the three months ended September 30, 2021, due to the factors noted above and the impact of lower patient volumes on our patient revenues during the period.2022. Salaries, wages and benefits expense for the three months ended September 30, 20222023 and 20212022 included stock‑based compensation expense of $9 million and $10 million, and $9 million, respectively.
Same‑hospital salaries, wages and benefits decreased $11expense increased by $166 million, or 0.2%3.1%, in the nine months ended September 30, 20222023 compared to the same period in 2021.2022. This decreaseincrease was primarily attributable to reduced patient volumes, lower incentive compensation and employee benefit costs, and our continued focus on cost‑efficiency measures. Thesethe same factors were partially offset by higher premium pay and contract labor costs, as well as annual merit increases for certain of our employees. Same‑hospital salaries, wages and benefits asdiscussed above. As a percentage of net operating revenues, increasedsame‑hospital salaries, wages and benefits decreased by 12060 basis points to 50.0%49.2% in the nine months ended September 30, 20222023 compared to the nine months ended September 30, 2021, due to the factors noted above and the impact of the Cybersecurity Incident on our patient revenues during the 2022 period.2022. Salaries, wages and benefits expense for the nine months ended September 30, 20222023 and 20212022 included stock‑based compensation expense of $32 million and $36 million, and $31 million, respectively.
Supplies
Same‑hospital supplies expense decreased $43increased by $23 million, or 6.7%3.8%, in the three months ended September 30, 20222023 compared to the same period in 2021. The decrease2022. This increase was primarily due to decreased patient volumes, lower COVID-related patient acuity and our cost-efficiency measures, including those described below. These decreases were partially offsetdriven by the increased cost of certain supplies as a result of the COVID‑19 pandemic, the impact of general market conditions, as well as higher patient volume and inflation.acuity during the three‑month period in 2023. Same‑hospital supplies expense as a percentage of net operating revenues decreased by 40 basis points to 16.4% in the three months ended September 30, 2022 compared to2023 was comparable with the threesame period in 2022.
Same‑hospital supplies expense increased by $99 million, or 5.5%, in the nine months ended September 30, 2021, primarily due2023 compared to the factors described above.same period in 2022. This increase was driven by the impact of general market conditions and higher patient and surgical volumes during the nine-month period in 2023. Same‑hospital supplies expense as a percentage of net operating revenues increased by 20 basis points to 16.6% in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
Improvements realized from our focus on cost‑efficiency measures partially offset the increase in same-hospital supplies expense during both the three‑ and nine‑month periods in 2023. We strive to control supplies expense through product standardization, consistent contract terms and end‑to‑end contract management, improved utilization, bulk purchases, focused spending with a smaller number of vendors and operational improvements.
Other Operating Expenses, Net
Same‑hospital other operating expenses increased by $64 million, or 7.7%, in the three months ended September 30, 2023 compared to the same period in 2022. Other operating expenses for the three months ended September 30, 2022 were reduced by gains of $45 million from the sale of a portion of an interest in certain assets, whereas net gains recognized during the same period in 2023 were $11 million. The changes in other operating expenses during the three months ended September 30, 2023 also included:
•$34 million more of medical fees; and
•an increase of $22 million in malpractice expense; partially offset by
•a decrease of $28 million in indigent care expense.
Same‑hospital supplies expense decreased $106 million, or 5.6%, in the nine months ended September 30, 2022 compared to the same period in 2021. The decrease was primarily due to lower patient volumes and our cost-efficiency measures. The increased cost of certain supplies as a result of the COVID‑19 pandemic, the impact of general market conditions and inflation, as well as the growth in our higher-acuity supply-intensive surgical services, partially offset the decrease in supplies expense between the two nine-month periods. Same‑hospital supplies expense as a percentage of net operating revenues decreased by 60 basis points to 16.5% in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to the factors noted above.
Other Operating Expenses, Net
Same‑hospital other operating expenses decreased by $26 million, or 3.1%, in the three months ended September 30, 2022 compared to the same period in 2021. Same‑hospital other operating expenses as a percentage of net operating revenues increased by 30100 basis points to 22.7%23.8% for the three months ended September 30, 20222023 compared to 22.4%22.8% for the three months ended September 30, 2021, primarily due to the decrease in our patient volumes and the proportionally higher level of fixed costs (e.g., rent expense) in other operating expenses. The changes in2022.
Same‑hospital other operating expenses included:
•a gain fromincreased by $280 million, or 11.5%, in the nine months ended September 30, 2023 compared to the same period in 2022. Other operating expenses for the nine months ended September 30, 2022 were reduced by net gains of $115 million primarily related to the sale of several medical office buildings and the sale of a portion of an interest in certain assets, of $45 million, which is classified as a reduction ofwhereas net gains recognized during the same period in 2023 were $21 million. The changes in other operating expenses net;
•decreased malpractice expense of $25 million; and
•increased indigent care expense of $26 million.
Same‑hospital other operating expenses decreased by $103 million, or 4.1%, induring the nine months ended September 30, 2022 compared to the same period2023 also included:
•$85 million more in 2021. medical fees; and
•an increase of $72 million in malpractice expense.
Same‑hospital other operating expenses as a percentage of net operating revenues decreasedincreased by 30150 basis points to 22.4% in the nine months ended September 30, 2022 compared to 22.7%24.0% for the nine months ended September 30, 2021, primarily due2023 compared to 22.5% for the net gains from the sale of assets noted below. The changes in other operating expenses included:
•net gains from the sale of assets of $115 million, which are classified as a reduction of other operating expenses, net;
•decreased malpractice expense of $43 million;
•decreased contract services expense of $11 million; and
•increased indigent care expense of $26 million.
nine months ended September 30, 2022.
Ambulatory Care Segment
Our Ambulatory Care segment is comprised of USPI’s ASCs and surgical hospitals. USPI operates its surgical facilities in partnership with local physicians and, in many of these facilities, a health system partner. WeIn most cases, we hold an ownership interestinterests in each facility, with each being operatedthe facilities and operate them through a separate legal entity in most cases.entity. USPI operates facilities on a day‑to‑day basis through management services contracts. Our sources of earnings from each facility consist of:
•management and administrative services revenues from the facilities USPI operates through management services contracts, usually computed as a percentage of each facility’s net revenues (often net of implicit price concessions);revenues; 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 holds an ownership interest in (164(157 of 464481 facilities at September 30, 2022)2023), 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 300324 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.subsidiaries. The net profit attributable to owners other than USPI is classified within net income available to noncontrolling interests.
For unconsolidated affiliates, our 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 quantifiedcomputed as a percentage of each facility’s net revenues less implicit price concessions.
revenues.
Our Ambulatory Care segmentsegment’s 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 65%67% 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.
Our unconsolidated facilities received cash payments from the PRF during 2021 and 2020. During the three and nine months ended September 30, 2021, we recognized grant income of $1 million and $12 million, respectively, from these funds, which income is included in equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statement of Operations. No additional grant income was recognized from our unconsolidated facilities during the three‑ and nine‑month periods ended September 30, 2022.
Results of Operations
The following table summarizes certain statement of operations items:presents selected revenue and expense information for our Ambulatory Care segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| | 2022 | | 2021 | | | 2022 | | 2021 | |
Net operating revenues | | $ | 806 | | | $ | 666 | | | 21.0 | % | | $ | 2,315 | | | $ | 1,976 | | | 17.2 | % |
Grant income | | $ | — | | | $ | 1 | | | (100.0) | % | | $ | 4 | | | $ | 23 | | | (82.6) | % |
Equity in earnings of unconsolidated affiliates | | $ | 49 | | | $ | 43 | | | 14.0 | % | | $ | 143 | | | $ | 130 | | | 10.0 | % |
Salaries, wages and benefits | | $ | 208 | | | $ | 169 | | | 23.1 | % | | $ | 603 | | | $ | 512 | | | 17.8 | % |
Supplies | | $ | 218 | | | $ | 170 | | | 28.2 | % | | $ | 624 | | | $ | 496 | | | 25.8 | % |
Other operating expenses, net | | $ | 110 | | | $ | 97 | | | 13.4 | % | | $ | 315 | | | $ | 295 | | | 6.8 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| | 2023 | | 2022 | | | 2023 | | 2022 | |
Net operating revenues | | $ | 941 | | | $ | 806 | | | 16.7 | % | | $ | 2,788 | | | $ | 2,315 | | | 20.4 | % |
Grant income | | $ | — | | | $ | — | | | — | % | | $ | 1 | | | $ | 4 | | | (75.0) | % |
Equity in earnings of unconsolidated affiliates | | $ | 50 | | | $ | 49 | | | 2.0 | % | | $ | 149 | | | $ | 143 | | | 4.2 | % |
Salaries, wages and benefits | | $ | 234 | | | $ | 208 | | | 12.5 | % | | $ | 709 | | | $ | 603 | | | 17.6 | % |
Supplies | | $ | 252 | | | $ | 218 | | | 15.6 | % | | $ | 762 | | | $ | 624 | | | 22.1 | % |
Other operating expenses, net | | $ | 135 | | | $ | 110 | | | 22.7 | % | | $ | 387 | | | $ | 315 | | | 22.9 | % |
Revenues
Our Ambulatory Care segment’s net operating revenues increased by $140$135 million, or 21.0%16.7%, during the three months ended September 30, 20222023 compared to the same period in 2021.2022. The change was driven by an increase from acquisitions of $124$77 million, as well as an increase inhigher same‑facility net operating revenues of $19$65 million due primarily to higher net revenue per case.surgical patient volumes and negotiated commercial rate increases. These increases were partially offset by a decrease of $3$7 million due primarily to the closure and deconsolidation of two ASCs, as well as the adverse impacts of the COVID-19 pandemic and Hurricane Ian on case volumes. Our Ambulatory Care segment recognized grant income from federal grants totaling $1 million during the three months ended September 30, 2021, which is not included in net operating revenues. Our Ambulatory Care segment did not recognize any grant income in the three months ended September 30, 2022.
certain facilities.
Ambulatory Care net operating revenues increased by $339$473 million, or 17.2%20.4%, during the nine months ended September 30, 20222023 compared to the same period in 2021.2022. The change was driven by an increase from acquisitions of $298$281 million, as well as an increase inhigher same‑facility net operating revenues of $103$226 million due primarily to higher surgical patient volumevolumes and higher net revenue per case.negotiated commercial rate increases. These increases were partially offset by a decrease of $62$34 million due primarily to the saleclosure and deconsolidation of urgent care centers to an unaffiliated urgent care provider and the transfer of imaging centers to the Hospital Operations segment, both in April 2021, as well as the adverse impacts of COVID-19 and Hurricane Ian noted above.certain facilities. Our Ambulatory Care segment also recognized grant income from federal grants totaling $4$1 million and $23$4 million during the nine months ended September 30, 20222023 and 2021,2022, respectively, which is not included in net operating revenues.
Salaries, Wages and Benefits
Salaries, wages and benefits expense increased by $39$26 million, or 23.1%12.5%, during the three months ended September 30, 20222023 compared to the same period in 2021. Salaries, wages and benefits expense2022. This change was impacteddriven by an increase from acquisitions of $31$18 million, as well as an increase in same‑facility salaries, wages and benefits expense of $8 million.$11 million due to higher surgical patient volumes, partially offset by a decrease of $3 million primarily due to the closure and deconsolidation of certain facilities. As a percentage of net operating revenues, salaries, wages and benefits expense decreased to 24.9% for the three months ended September 30, 2023 from 25.8% for the same period in 2022 due to enhanced labor management processes. Salaries, wages and benefits expense included $6 million and $3 million of stock‑based compensation expense in each of the three‑month periodsthree months ended September 30, 2023 and 2022, and 2021.
respectively.
Salaries, wages and benefits expense increased by $91$106 million, or 17.8%17.6%, during the nine months ended September 30, 20222023 compared to the same period in 2021. Salaries, wages and benefits expense2022. This change was impacteddriven by an increase from acquisitions of $84$60 million and an increase in same‑facility salaries, wages and benefits expense of $35$54 million due primarily to higher surgical patient volumes, partially offset by a decrease of $28$8 million due primarily to the aforementioned saleclosure and deconsolidation of urgent care centerscertain facilities. As a percentage of net operating revenues, salaries, wages and benefits expense decreased to 25.4% for the transfer of imaging centers tonine months ended September 30, 2023 from 26.0% for the Hospital Operations segment.same period in 2022. Salaries, wages and benefits expense included $15 million and $9 million of stock‑based compensation expense in each of the nine‑month periodsnine months ended September 30, 2023 and 2022, and 2021.respectively.
Supplies
Supplies expense increased by $48$34 million, or 28.2%15.6%, during the three months ended September 30, 20222023 compared to the same period in 2021.2022. The change was driven by an increase from acquisitions of $44$22 million, as well as an increase in same‑facility supplies expense of $5$15 million due primarily to additional costs drivenhigher case volume, partially offset by a decrease of $3 million attributable to the higher level of patient acuity, mainly due to a greater number of implant cases,closure and higher pricingdeconsolidation of certain suppliesfacilities. Supplies expense as a resultpercentage of net operating revenues decreased to 26.8% for the COVID‑19 pandemic.three months ended September 30, 2023 from 27.0% for the same period in 2022.
Supplies expense increased by $128$138 million, or 25.8%22.1%, during the nine months ended September 30, 20222023 compared to the same period in 2021.2022. The change was driven by an increase from acquisitions of $107$83 million, as well as an increase in same‑facility supplies expense of $25$62 million due primarily to higheran increase in surgical patient volume, additional costs driven by the higher level of patient acuity, and higher pricing of certain supplies as a result of the COVID‑19 pandemic,cases at our consolidated centers, partially offset by a decrease of $4$7 million due to the aforementioned saleclosure and deconsolidation of urgent care centers andcertain facilities. Supplies expense as a percentage of net operating revenues increased to 27.3% for the transfer of imaging centersnine months ended September 30, 2023 compared to 27.0% for the Hospital Operations segment.
same period in 2022.
Other Operating Expenses, Net
Other operating expenses increased by $13$25 million, or 13.4%22.7%, during the three months ended September 30, 20222023 compared to the same period in 2021.2022. The change was driven by an increase in same‑facility other operating expenses of $14 million and an increase from acquisitions of $13 million, partially offset by a decrease of $2 million primarily due to the closure and deconsolidation of certain facilities. Other operating expenses as a percentage of net operating revenues increased to 14.3% for the three months ended September 30, 2023 from 13.7% for the same period in 2022.
Other operating expenses increased by $72 million, or 22.9%, during the nine months ended September 30, 2023 compared to the same period in 2022. The change was driven by an increase from acquisitions of $17$45 million partially offset by a decreaseand an increase in same‑facility other operating expenses of $4 million.
Other operating expenses increased by $20 million, or 6.8%, during the nine months ended September 30, 2022 compared to the same period in 2021. The change was driven by an increase from acquisitions of $37$31 million, partially offset by a decrease of $17$4 million primarily due to the aforementioned saleclosure and deconsolidation of urgent care centers andcertain facilities. Other operating expenses as a percentage of net operating revenues increased to 13.9% for the transfer of imaging centers tonine months ended September 30, 2023 from 13.6% for the Hospital Operations segment.
same period in 2022.
Facility Growth
The following table summarizespresents the year‑over‑year changes in our same‑facility revenue and cases 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 September 30, 2022 | | Nine Months Ended September 30, 2022 |
Net revenues | | | 3.0 | % | | 4.9 | % |
Cases | | | — | % | | 2.4 | % |
Net revenue per case | | | 3.0 | % | | 2.5 | % |
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 |
Net revenues | | 7.9 | % | | 9.0 | % |
Cases | | 4.1 | % | | 6.2 | % |
Net revenue per case | | 3.7 | % | | 2.7 | % |
Joint Ventures with 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 health system partner. Accordingly, as of September 30, 2022, the majority of facilities in our Ambulatory Care segment were operated in this model.
The table below summarizes the amounts we paid to acquire various ownership interests in ambulatory care facilities:
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Increase (Decrease) |
Type of Ownership Interests Acquired | | 2022 | | 2021 | |
Controlling interests | | $ | 224 | | | $ | 63 | | | $ | 161 | |
Noncontrolling interests | | — | | 1 | | (1) |
Equity investment in unconsolidated affiliates and consolidated facilities | | 18 | | 13 | | 5 |
Total | | $ | 242 | | | $ | 77 | | | $ | 165 | |
The table below provides information about the ownership structure of the facilities operated by our Ambulatory Care segment:
| | | | | | | | | | | |
Ownership Structure of Ambulatory Care Facilities | | | September 30, 20222023 |
Owned with a health system partner | | | 203208 | |
Owned without a health system partner | | | 261273 | |
Total | | | 464481 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Facility Acquisitions and Investment
The table below presents the aggregate amounts we paid to acquire various ownership interests in ambulatory care facilities:
| | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | |
| | 2023 | | 2022 | |
Controlling interests | | $ | 110 | | | $ | 224 | | | |
| | | | | | |
Equity investment in unconsolidated affiliates and consolidated facilities | | 13 | | | 18 | | | |
Total | | $ | 123 | | | $ | 242 | | | |
The table below reflects the change in the number of facilities operated by our Ambulatory Care segment since December 31, 2021:2022:
| | | | | | | | | | | |
| | | Nine Months Ended September 30, 20222023 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Acquisitions | | | 3314 | |
De novo | | | 128 | |
Dispositions/Mergers | | | (4)(7) | |
Total increase in number of facilities operated | | | 4115 | |
During the nine months ended September 30, 2022,2023, we acquired controlling interests in 3114 ASCs, 16 of which arethree located in Maryland, four in Florida, three in Arizona,Ohio, two in each of ColoradoFlorida and Tennessee,Texas, and four ASCsone in each located in otherof seven geographically diverse states. We paid cash totaling $169 million forOf these acquisitions. All of these facilities, 13 are jointly owned with physicians, exceptand one that is jointly owned with a health system partner and physicians. During the same periodWe also acquired controlling ownership interests in 2022, we acquired a noncontrolling interest in one ASC located in each of New Jersey and Texas.
Alsoeight previously unconsolidated ASCs during the nine months ended September 30, 2022, we acquired controlling ownership interests in 14 previously unconsolidated ASCs (including 12 SCD Centers) located in ten geographically diverse states.2023. We paid an aggregate of $55$110 million to acquire controlling ownership interests in theseall of the aforementioned facilities. Following our acquisition of a controlling interest in one of these ASCs, we contributed our ownership interest in it to a joint venture in which we have a noncontrolling ownership interest.
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 in control. These transactions are primarily the acquisitions of equity interests in ASCs and the investment of additional cash in facilities that need capital for new acquisitions, new construction or other business growth opportunities. During the nine months ended September 30, 2022,2023, we invested approximately $18$13 million in such transactions.
Conifer Segment
The following table presents selected revenue and expense information for our Conifer segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | Increase (Decrease) |
| | 2023 | | 2022 | | | 2023 | | 2022 | |
Revenue cycle and other services – Tenet | | $ | 109 | | | $ | 116 | | | (6.0) | % | | $ | 321 | | | $ | 342 | | | (6.1) | % |
Revenue cycle and other services – other customers | | $ | 206 | | | $ | 217 | | | (5.1) | % | | $ | 641 | | | $ | 648 | | | (1.1) | % |
Salaries, wages and benefits | | $ | 171 | | | $ | 175 | | | (2.3) | % | | $ | 517 | | | $ | 516 | | | 0.2 | % |
Supplies | | $ | 1 | | | $ | 1 | | | — | % | | $ | 4 | | | $ | 3 | | | 33.3 | % |
Other operating expenses | | $ | 60 | | | $ | 67 | | | (10.4) | % | | $ | 186 | | | $ | 196 | | | (5.1) | % |
Revenues
Our Conifer segment generated net operating revenues of $333 million and $314 million during the three months ended September 30, 2022 and 2021, respectively, a portion of which was eliminated in consolidation as described in Note 18 to the accompanying Condensed Consolidated Financial Statements. Conifer’ssegment’s revenues from third‑party clients, which revenues are not eliminated in consolidation, increased $19decreased by $11 million and $7 million, or 9.6%5.1% and 1.1%, for the three months ended September 30, 2022 compared to the same period in 2021. The increase was primarily attributable to contractual rate increases and new business expansion.
Our Conifer segment generated net operating revenues of $990 million and $943 million during the nine months ended September 30, 2022 and 2021, respectively. Conifer revenues from third‑party clients, which revenues are not eliminated in consolidation, increased $67 million, or 11.5%, for the nine months ended September 30, 20222023, respectively, compared to the same periodperiods in 2021. The increase was2022. These decreases were primarily driven by the same factors that impacted the three-month period described above.
client divestitures.
Salaries, Wages and Benefits
Salaries, wages and benefits expense for Conifer increased $7decreased by $4 million, or 4.2%2.3%, in the three months ended September 30, 20222023 compared to the same period in 2021,2022 and increased $8by $1 million, or 1.6%0.2%, in the nine months ended September 30, 20222023 compared to the same period in 2021. The increase in both periods was primarily due to new business expansion, planned staffing increases and annual merit increases for certain of our employees.nine months ended September 30, 2022.
Supplies
Other Operating Expenses, Net
Other operating expenses for Conifer increased $7 million, or 11.7%, inConifer’s supplies expense during the three months ended September 30, 2022 compared to2023 were comparable with the same period in 2021. Other operating expenses for Conifer2022. Conifer’s supplies expense increased $25by $1 million, or 14.6%33.3%, induring the nine months ended September 30, 20222023 compared to the nine months ended September 30, 2022.
Other Operating Expenses, Net
Our Conifer segment’s other operating expenses decreased by $7 million, or 10.4%, during the three months ended September 30, 2023 and by $10 million, or 5.1%, during the nine months ended September 30, 2023 compared to the same periodperiods in 2021.2022. The increasedecreases in each period wasboth periods were primarily due to new business expansion, higher vendor utilization and increased recruiting expenses in 2022.driven by client divestitures.
Consolidated
Impairment and Restructuring Charges, and Acquisition-Related Costs
The following table presents information about our impairment and restructuring charges, and acquisition‑related costs:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Consolidated: | | | | | | | | |
Impairment charges | | $ | 3 | | | $ | — | | | $ | 9 | | | $ | 1 | |
Restructuring charges | | 17 | | | 14 | | | 78 | | | 48 | |
Acquisition-related costs | | 4 | | | 1 | | | 10 | | | 6 | |
Total impairment and restructuring charges, and acquisition-related costs | | $ | 24 | | | $ | 15 | | | $ | 97 | | | $ | 55 | |
| | | | | | | | |
By segment: | | | | | | | | |
Hospital Operations | | $ | 14 | | | $ | 11 | | | $ | 68 | | | $ | 31 | |
Ambulatory Care | | 5 | | | 1 | | | 13 | | | 9 | |
Conifer | | 5 | | | 3 | | | 16 | | | 15 | |
Total impairment and restructuring charges, and acquisition-related costs | | $ | 24 | | | $ | 15 | | | $ | 97 | | | $ | 55 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Consolidated: | | | | | | | | |
Impairment charges | | $ | 14 | | | $ | 3 | | | $ | 16 | | | $ | 9 | |
Restructuring charges | | 29 | | | 17 | | | 60 | | | 78 | |
Acquisition-related costs | | 4 | | | 4 | | | 8 | | | 10 | |
Total impairment and restructuring charges, and acquisition-related costs | | $ | 47 | | | $ | 24 | | | $ | 84 | | | $ | 97 | |
| | | | | | | | |
By segment: | | | | | | | | |
Hospital Operations | | $ | 25 | | | $ | 14 | | | $ | 48 | | | $ | 68 | |
Ambulatory Care | | 18 | | | 5 | | | 23 | | | 13 | |
Conifer | | 4 | | | 5 | | | 13 | | | 16 | |
Total impairment and restructuring charges, and acquisition-related costs | | $ | 47 | | | $ | 24 | | | $ | 84 | | | $ | 97 | |
During the three months ended September 30, 2022,2023, restructuring charges consisted of $19 million of legal costs related to the sale of certain businesses, $4 million of employee severance costs, $2 million related to the transition of various administrative functions to our GBC and $4 million of other restructuring costs. Impairment charges for the three months ended September 30, 2023 primarily arose from the write-down of an investment in an ambulatory surgery center held by our Ambulatory Care segment. Restructuring charges for the three months ended September 30, 2022 included $3 million of employee severance costs, $5 million related to the transition of various administrative functions to our GBC, $3 million related to contract and lease termination fees, and $6 million of other restructuring costs. Impairment charges recognized duringfor the three months ended September 30, 2022 were comprised of $3 million fromactivity in our Hospital Operations segment. Acquisition‑related costs during the three‑month period consisted entirely of transaction costs.costs for both of the three-month periods ended September 30, 2023 and 2022.
Restructuring charges forDuring the threenine months ended September 30, 20212023, restructuring charges consisted of $30 million of legal costs related to the sale of certain businesses, $10 million of employee severance costs, of $3 million, $4$9 million related to the transition of various administrative functions to our GBC and $7$11 million of other restructuring costs. Acquisition‑related costs incurred during this period consisted entirelyImpairment charges for the nine months ended September 30, 2023 primarily arose from the write-down of transaction costs.
Duringan investment in an ambulatory surgery center held by our Ambulatory Care segment. Restructuring charges for the nine months ended September 30, 2022 restructuring charges includedconsisted of $24 million of employee severance cost,costs, $10 million related to the transition of various administrative functions to our GBC, $25 million related toof contract and lease termination fees, and $19 million of other restructuring costs. Impairment charges for the nine months ended September 30, 2022 were comprised of $5 million from our Hospital Operations segment and $2 million from each of our Ambulatory Care and Conifer segments. Acquisition‑related costs for the nine months ended September 30, 2022 consisted entirely of transaction costs.
Restructuring charges for the nine monthsnine-month periods ended September 30, 2021 consisted of employee severance costs of $13 million, costs related to the transition of various administrative functions to our GBC totaling $16 million2023 and $19 million of other restructuring costs. Impairment charges for the nine months ended September 30, 2021 were comprised of $1 million from our Ambulatory Care segment. Acquisition‑related costs during the nine‑month period consisted entirely of transaction costs.
2022.
Litigation and Investigation Costs
Litigation and investigation costs were $14 million and $12 million during the three months ended September 30, 2023 and 2022, respectively, and 2021 were $12$28 million and $29 million, respectively, and $50 million and $64 million, during the nine months ended September 30, 2023 and 2022, and 2021, respectively.
Net Gains on Sales, Consolidation and Deconsolidation of Facilities
DuringWe recognized a net loss of $1 million and a net gain of $12 million from the three months ended September 30, 2021, we recorded net gains on sales,sale, consolidation and deconsolidation of facilities of approximately $412 million, primarily comprised of a gain of $409 million related to our sale ofduring the Miami Hospitals in August 2021.
During thethree and nine months ended September 30, 2021, we recorded net2023, respectively. During both periods, the amounts recognized primarily arose from the consolidation of facilities by our Ambulatory Care segment. There were no gains on sales,or losses from the sale, consolidation andor deconsolidation of facilities of approximately $427 million, primarily comprised of a gain of $409 million related toduring the sale of the Miami Hospitals in August 2021, a gain of $14 million related to the sale of the majority of our urgent care centers in April 2021three and net gains of $4 million related to other activity.
nine months ended September 30, 2022.
Interest Expense
Interest expense for the three and nine months ended September 30, 20222023 was $227 million and $674 million, respectively, compared to $222 million and $671 million, respectively, compared to $227 million and $702 million for the same periods in 2021.2022.
Loss from Early Extinguishment of Debt
We did not incur losses from the early extinguishment of debt during the three‑month period ended September 30, 2023 or 2022.
We recorded losses from the early extinguishment of debt totaling $11 million during the nine months ended September 30, 2023. These losses related to the redemption of all of the outstanding principal of our September 2024 Senior Secured First Lien Notes in May 2023 and our July 2024 Senior Secured First Lien Notes in June 2023, in each case in advance of the notes’ maturity dates.
During the nine months ended September 30, 2022, we incurred aggregate losses from early extinguishment of debt of $109 million. These losses related to the redemption of our 7.500% senior secured first lien notes due 2025 (“2025 Senior Secured First Lien Notes”) in February 2022, open market purchases of our 6.750% senior unsecured notes due 2023 (the “2023(“2023 Senior Unsecured Notes”) during the six-month period ended June 30,first half of 2022 and the redemption in full of the 2023 Senior Unsecured Notes in June 2022, in all cases in advance of the notes’ maturity date.dates.
Loss from early extinguishment of debt was $20 million and $74 million forIn both the three and nine months ended September 30, 2021, respectively. The loss in the three months ended September 30, 2021 related to the redemption of our 4.625% senior secured first lien notes due 2024 (“2024 Senior Secured First Lien Notes”) in advance of their maturity date. The loss in the nine‑month period included the loss from the redemption of our 2024 Senior Secured First Lien Notes, as well as losses incurred from the redemption of our 5.125% senior secured second lien notes due 2025 in June 20212023 and the retirement of our 7.000% senior unsecured notes due 2025 in March 2021, both in advance of their respective maturity dates.
In all of the 2022, and 2021 periods, the losses from the early extinguishment of debt primarily related to the differencedifferences between the purchase or redemption prices and the par valuevalues of the notes, as well as the write‑off of associated unamortized issuance costs.
Income Tax Expense
During the three months ended September 30, 2023 and 2022, we recorded income tax expense of $112$79 million in continuing operations on pre-tax income of $380 million compared to $197and $112 million on pre-tax income of $774$345 million during the prior‑year period. During the nine months ended September 30, 2022, weand $380 million, respectively, and recorded income tax expense of $297$243 million in continuing operations on pre‑tax income of $1.023 billion compared to $303and $297 million on pre-tax income of $1.360$1.098 billion and $1.023 billion during the nine months ended September 30, 2021. During2023 and 2022, respectively. We recorded income tax expense of $24 million and $36 million during the three months ended September 30, 2023 and 2022, respectively, and income tax expense of $66 million and $113 million during the nine months ended September 30, 2023 and 2022, we recorded income tax expense of $113 millionrespectively, to increase the valuation allowance primarily for interest expense carryforwards as a result of the limitation on business interest expense. We did not have any interest expense limited during 2021.
A reconciliation between the amount of reported income tax expense and the amount computed by multiplying income from continuing operations before income taxes by the statutory federal tax rate is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Tax expense at statutory federal rate of 21% | | $ | 80 | | | $ | 163 | | | $ | 215 | | | $ | 286 | |
State income taxes, net of federal income tax benefit | | 15 | | | 29 | | | 40 | | | 56 | |
Tax benefit attributable to noncontrolling interests | | (29) | | | (26) | | | (86) | | | (79) | |
Nondeductible goodwill | | — | | | 28 | | | 1 | | | 35 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Stock-based compensation tax benefit | | (1) | | | (1) | | | (4) | | | (4) | |
Changes in valuation allowance | | 36 | | | — | | | 113 | | | — | |
| | | | | | | | |
Other items | | 11 | | | 4 | | | 18 | | | 9 | |
Income tax expense | | $ | 112 | | | $ | 197 | | | $ | 297 | | | $ | 303 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Tax expense at statutory federal rate of 21% | | $ | 73 | | | $ | 80 | | | $ | 231 | | | $ | 215 | |
State income taxes, net of federal income tax benefit | | 11 | | | 15 | | | 39 | | | 40 | |
Tax benefit attributable to noncontrolling interests | | (35) | | | (29) | | | (102) | | | (86) | |
Nondeductible goodwill | | — | | | — | | | — | | | 1 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Stock-based compensation tax benefit | | — | | | (1) | | | (4) | | | (4) | |
Changes in valuation allowance | | 24 | | | 36 | | | 66 | | | 113 | |
| | | | | | | | |
Other items | | 6 | | | 11 | | | 13 | | | 18 | |
Income tax expense | | $ | 79 | | | $ | 112 | | | $ | 243 | | | $ | 297 | |
Net Income Available to Noncontrolling Interests
Net income available to noncontrolling interests was $165 million for the three months ended September 30, 2023 compared to $137 million for the three months ended September 30, 2022 compared to $129 million for the three months ended September 30, 2021.2022. Net income available to noncontrolling interests for the 20222023 period was comprised of $111$137 million related to our Ambulatory Care segment, $23 million related to our Conifer segment and $5 million related to our Hospital Operations segment and $21 million related to our Conifer segment.
Net income available to noncontrolling interests was $488 million for the nine months ended September 30, 2023 compared to $418 million for the nine months ended September 30, 2022 compared to $392 million for the nine months ended September 30, 2021.2022. Net income available to noncontrolling interests for the nine months ended September 30, 20222023 period was comprised of $324$402 million related to our Ambulatory Care segment, $38$67 million related to our Conifer segment and $19 million related to our Hospital Operations segment and $56 million related to our Conifer segment. Of the portion related to our Ambulatory Care segment, $9 million related to the minority interest Baylor held in USPI until June 30, 2022.
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 acceptedAs noted in the United States of America (“GAAP”). However,introduction to MD&A, we use certain non‑GAAP financial measures, defined belowincluding Adjusted EBITDA, in this report and 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 EBITDA” is a non‑GAAP measure 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 loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax, (4) income tax benefit (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., health plan businesses). Litigation and investigation costs do not include ordinary course of business malpractice and other litigation and related expense.
statements. We believe the foregoing non‑GAAP measureAdjusted EBITDA is useful to investors and analysts because it presents additional information about our financial performance. Investors, analysts, company management and our board of directors utilize this non‑GAAP measure, in addition to GAAP measures, to track our financial and operating performance and compare that performance to peer companies, which utilize similar non‑GAAP measures in their presentations. The human resources committee of our board of directors also uses certain non‑GAAP measures to evaluate management’s performance for the purpose of determining incentive compensation. 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 our common stock. Company management also regularly reviews the Adjusted EBITDA performance for each operating segment. We do not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance. The non‑GAAP Adjusted EBITDA measure 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 our financial performance.
The following table presents the reconciliation of Adjusted EBITDA to net income available to Tenet Healthcare Corporation common shareholders (the most comparable GAAP term) for the three and nine months ended September 30, 2022 and 2021::
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 |
Net income available to Tenet Healthcare Corporation common shareholders | | $ | 131 | | | $ | 449 | | | $ | 309 | | | $ | 665 | |
Less: Net income available to noncontrolling interests | | (137) | | | (129) | | | (418) | | | (392) | |
Income from discontinued operations, net of tax | | — | | | 1 | | | 1 | | | — | |
Income from continuing operations | | 268 | | | 577 | | | 726 | | | 1,057 | |
Income tax expense | | (112) | | | (197) | | | (297) | | | (303) | |
Loss from early extinguishment of debt | | — | | | (20) | | | (109) | | | (74) | |
Other non-operating income, net | | 6 | | | 7 | | | 6 | | | 16 | |
Interest expense | | (222) | | | (227) | | | (671) | | | (702) | |
Operating income | | 596 | | | 1,014 | | | 1,797 | | | 2,120 | |
Litigation and investigation costs | | (12) | | | (29) | | | (50) | | | (64) | |
Net gains on sales, consolidation and deconsolidation of facilities | | — | | | 412 | | | — | | | 427 | |
Impairment and restructuring charges, and acquisition-related costs | | (24) | | | (15) | | | (97) | | | (55) | |
Depreciation and amortization | | (209) | | | (209) | | | (628) | | | (654) | |
| | | | | | | | |
Adjusted EBITDA | | $ | 841 | | | $ | 855 | | | $ | 2,572 | | | $ | 2,466 | |
| | | | | | | | | |
Net operating revenues | | $ | 4,801 | | | $ | 4,894 | | | $ | 14,184 | | | $ | 14,629 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Net income available to Tenet Healthcare Corporation common shareholders as a % of net operating revenues | | 2.7 | % | | 9.2 | % | | 2.2 | % | | 4.5 | % |
| | | | | | | | | |
Adjusted EBITDA as a % of net operating revenues (Adjusted EBITDA margin) | | 17.5 | % | | 17.5 | % | | 18.1 | % | | 16.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Net income available to Tenet Healthcare Corporation common shareholders | | $ | 101 | | | $ | 131 | | | $ | 367 | | | $ | 309 | |
Less: | | | | | | | | |
Net income available to noncontrolling interests | | (165) | | | (137) | | | (488) | | | (418) | |
Income from discontinued operations, net of tax | | — | | | — | | | — | | | 1 | |
Income from continuing operations | | 266 | | | 268 | | | 855 | | | 726 | |
Income tax expense | | (79) | | | (112) | | | (243) | | | (297) | |
Loss from early extinguishment of debt | | — | | | — | | | (11) | | | (109) | |
Other non-operating income, net | | 4 | | | 6 | | | 8 | | | 6 | |
Interest expense | | (227) | | | (222) | | | (674) | | | (671) | |
Operating income | | 568 | | | 596 | | | 1,775 | | | 1,797 | |
Litigation and investigation costs | | (14) | | | (12) | | | (28) | | | (50) | |
Net gains (losses) on sales, consolidation and deconsolidation of facilities | | (1) | | | — | | | 12 | | | — | |
Impairment and restructuring charges, and acquisition-related costs | | (47) | | | (24) | | | (84) | | | (97) | |
Depreciation and amortization | | (224) | | | (209) | | | (654) | | | (628) | |
| | | | | | | | |
Adjusted EBITDA | | $ | 854 | | | $ | 841 | | | $ | 2,529 | | | $ | 2,572 | |
| | | | | | | | |
Net operating revenues | | $ | 5,066 | | | $ | 4,801 | | | $ | 15,169 | | | $ | 14,184 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net income available to Tenet Healthcare Corporation common shareholders as a % of net operating revenues | | 2.0 | % | | 2.7 | % | | 2.4 | % | | 2.2 | % |
| | | | | | | | |
Adjusted EBITDA as a % of net operating revenues (Adjusted EBITDA margin) | | 16.9 | % | | 17.5 | % | | 16.7 | % | | 18.1 | % |
LIQUIDITY AND CAPITAL RESOURCES
CASH REQUIREMENTS
There have been no material changes to our obligations to make future cash payments under scheduled contractual obligations, 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 the matters set forth below under “Other Contractual Obligations” and the additional lease
obligations and the long‑termother long-term debt transactions disclosed in Notes 1 and 6, respectively, to our accompanying Condensed Consolidated Financial Statements.
Long-Term Debt
At September 30, 2022,2023, 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 3.87x.4.08x. We anticipate this ratio will fluctuate from quarter to quarter based on earnings performance and other factors, including the use of our Credit Agreement as a source of liquidity 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 continue to evaluate opportunities to retire, purchase, redeem and refinance outstanding debt 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 Forward‑Looking Statements and Risk Factors sections in Part I of our Annual Report and the Risk Factors section in Part II of our Q1’22 Report.
Interest payments, net of capitalized interest, were $601$589 million and $664$601 million in the nine months ended September 30, 2023 and 2022, and 2021, respectively.
Share Repurchase Program
In October 2022, our board of directors authorized a $1 billion share repurchase program. The timing and amounts of repurchases will be based on management’s discretion, subject to market conditions and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time before its scheduled expiration.
Other Contractual Obligations
Baylor Put/Call Agreement—As previously discussed in our Annual Report, our put/call agreement (the “Baylor Put/Call Agreement”) with Baylor contained put and call options with respect to the 5% ownership interest Baylor held in USPI. The Baylor Put/Call Agreement gave Baylor the option to annually put up to one-third of its total shares in USPI (the “Baylor Shares”) over a period of three years beginning in 2021. We had the right to call the difference between the number of shares Baylor put each year and the maximum number of shares it could have put.
In each of 2021 and 2022, we notified Baylor of our intention to exercise our call option to purchase 33.3% of the Baylor Shares for that year (66.6% in total). In June 2022, we entered into an agreement with Baylor (the “Share Purchase Agreement”) to complete the purchase of the Baylor Shares we called in 2021 and 2022 and to accelerate the acquisition of the remaining Baylor Shares eligible to be put/called in 2023. Under the terms of the Share Purchase Agreement, we agreed to pay Baylor $406 million to buy its entire 5% voting ownership interest in USPI. We paid $11 million upon execution of the Share Purchase Agreement and will make 35 additional non-interest bearing monthly payments of approximately $11 million, which payments commenced in August 2022. At September 30, 2022, we had liabilities of $135 million recorded in other current liabilities and $222 million in other long-term liabilities in the accompanying Condensed Consolidated BalanceOff-Balance Sheet for the purchase of these shares.
Investment in the SCD Centers—USPI continues to make offers in an ongoing process to acquire a portion of the equity interests in certain of the SCD Centers from the physician owners for consideration of up to approximately $250 million. During the nine months ended September 30, 2022, we made aggregate payments of $51 million to acquire controlling interests in 12 SCD Centers. We cannot reasonably predict how many additional physician owners will accept our offers to acquire a portion of their equity, nor the timing or amount of any remaining payments.
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 $219$230 million of standby letters of credit outstanding and guarantees at September 30, 2022.
2023.
Other Cash Requirements
Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations), surgical hospital expansion focused on higher acuity services, equipment and information systems additions and replacements, introduction of new medical technologies (including robotics), design and construction of new buildings or hospitals,facilities, and various other capital improvements. We continue to implement our portfolio diversification strategy into ambulatory surgery and have a baseline intention to invest $250 million annually in ambulatory business acquisitions and de novo facilities. Capital expenditures were $472$543 million and $354$472 million in the nine months ended September 30, 20222023 and 2021,2022, respectively. We anticipate that our capital expenditures for continuing operations for the year ending December 31, 20222023 will total approximately $675 million to $725 million, to $775 million, including $95$196 million that was accrued as a liability at December 31, 2021.2022.
USPI maintainsWe broke ground on a separate management equity plan (the “USPI Management Equity Plan”) under which it grants restricted stock units (“RSUs”) representing a contractual right to receive one share of USPI’s non‑voting common stocknew medical campus located in the future.Westover Hills area of San Antonio, Texas, in 2022. The vesting of RSUs granted undercampus is expected to include a 104‑bed acute care hospital, an ambulatory surgery center and medical office buildings. The project is currently on schedule for completion in mid-2024, and we expect it to cost approximately $230 million over the plan varies based on the terms of the underlying award agreement. 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 beconstruction period.
We made in cash or in shares of Tenet’s common stock. At September 30, 2022, there were 175,036 outstanding vested shares of non-voting common stock eligible to be sold to USPI.
Incomeincome tax payments, net of tax refunds, were $148of $212 million induring the nine months ended September 30, 20222023 compared to $54$148 million during the same period in the nine months ended September 30, 2021.2022.
SOURCES AND USES OF CASH
Our liquidity for the nine months ended September 30, 20222023 was primarily derived from net cash provided by operating activities and cash on hand. During the nine months ended September 30, 2022, we also received supplemental funds from federal and state grants provided under COVID‑19 relief legislation. We had $1.208$1.054 billion of cash and cash equivalents on hand at September 30, 20222023 to fund our operations and capital expenditures, and our borrowing availability under our credit facilityCredit Agreement was $1.500 billion based on our borrowing base calculation at September 30, 2022.2023.
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. Our Credit Agreement provides additional liquidity to manage fluctuations in operating cash caused by these factors.
Net cash provided by operating activities was $1.550 billion in the nine months ended September 30, 2023 compared to $662 million in the nine months ended September 30, 2022 compared to $1.211 billion in the nine months ended September 30, 2021.2022. Key factors contributing to the change between the 2023 and 2022 and 2021 periods includeincluded the following:
•$880 million ofNo Medicare advances recouped or repaid in the nine months ended September 30, 20222023 compared to $326$880 million recouped or repaid during the same period in 2021;2022;
•Lower payments of $52 million related to restructuring charges, acquisition‑related costs, and litigation costs and settlements in the 2023 period;
•$1559 million of cash received from grants induring the nine months ended September 30, 20222023 compared to $38$155 million received induring the nine months ended September 30, 2021;
•Lower interest payments of $63 million in 2022 period;
2022;
•Higher income tax payments of $94$64 million in the 20222023 period;
•Decreased net cash receipts of $94 million related to supplemental Medicaid programs in California and Texas; and
•The timing of other working capital items.
Net cash used in investing activities was $636 million for the nine months ended September 30, 2023 compared to $502 million for the nine months ended September 30, 2022. Key factors contributing to the change between the 2023 and 2022 compared to net cash provided by investing activities of $802 million forperiods included the nine months ended September 30, 2021. Proceedsfollowing: (1) proceeds from the salesales of facilities and other assets were $1.026 billion$171 million lower during the 20222023 period, primarily due to the sale of the majority of our urgent care centers in April 2021several medical office buildings and the sale of a portion of an interest in certain assets during the Miami Hospitals in August 2021. Additionally, cash used for the purchase of businesses increased $160 million andnine months ended September 30, 2022; (2) capital expenditures increased $118by $71 million in the nine months ended September 30, 20222023 compared to the same period in 2021.
2022; and (3) $114 million less cash was used to acquire businesses during the nine months ended September 30, 2023 than the same period in 2022.
We used net cash of $1.316 billion$718 million and $2.167$1.316 billion for financing activities in the nine months ended September 30, 2023 and 2022, respectively. The 2023 period included proceeds from the issuance of $1.350 billion aggregate principal amount of our 2031 Senior Secured First Lien Notes, which proceeds were subsequently used, together with cash on hand, to finance the redemption of the combined $1.345 billion aggregate principal amount outstanding of our September 2024 Senior Secured First Lien Notes and July 2024 Senior Secured First Lien Notes. In addition, financing activities during the nine‑month period in 2023 included distributions of $425 million to noncontrolling interest holders, payments totaling $90 million to repurchase 1,486 thousand shares of our common stock and payments of $127 million to purchase noncontrolling ownership interests.
Financing activities during the nine months ended September 30, 2022 and 2021, respectively. Financing activity during the nine months ended September 30, 2022 included long-term debt payments against our borrowings of $2.786 billion, including $1.933 billion paid to redeem all $1.872 billion of aggregate principal amount outstanding of our 2023 Senior Unsecured Notes and $730 million paid to redeem all $700 million aggregate principal amount outstanding of our 2025 Senior Secured First Lien Notes. In addition, we paid distributions of $432 million to noncontrolling interest holders increased $116during the nine‑month period in 2022, which included the distribution of $61 million including distributionsfor minority interest holders’ portion of the proceeds received from the sale of several medical office buildings to minority interest holders totaling $61 million.buildings. These factorspayments were partially offset by proceeds of $2.000 billion from the issuance of our 6.125% senior secured first lien notes due 2030 Senior Secured First Lien Notes during the nine months ended September 30, 2022.
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 willand materially impact our financial condition, results of operations or cash flows.
DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS
Credit Agreement—At September 30, 2022,2023, our Credit Agreement provided for revolving loans in an aggregate principal amount of up to $1.500 billion with a $200 million subfacility for standby letters of credit. In March 2022, we amended the revolving credit facility to, among other things, (i) decrease the previous maximum aggregate revolving credit commitments from $1.900 billion to $1.500 billion, subject to borrowing availability, (ii) extend the scheduled maturity date from September 2024 to March 2027, and (iii) replace the London Interbank Offered Rate (LIBOR) with the Term Secured Overnight Financing Rate (“SOFR”) and Daily Simple SOFR (each, as defined in the Credit Agreement) as the reference
interest rate. At September 30, 2022,2023, we had no 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, $1.500 billion was available for borrowing under the Credit Agreement at September 30, 2022.2023. We were in compliance with all covenants and conditions in our Credit Agreement at September 30, 2022.
2023.
Letter of Credit Facility—We have a letter of credit facility (as amended to date, the “LC Facility”) that provides for the issuance, from time to time, of standby and documentary letters of credit in an aggregate principal amount of up to $200
$200 million. TheWe amended the LC Facility in September 2023 to, among other things, (1) extend the scheduled maturity date of the LC Facility isfrom September 12, 2024.2024 to March 16, 2027, and (2) replace LIBOR with Term SOFR as the reference interest rate. The LC Facility is subject to an effective maximum secured debt covenant of 4.25 to 1.00. At September 30, 2022,2023, we were in compliance with all covenants and conditions in the LC Facility, and we had $116$111 million of standby letters of credit outstanding thereunder.
Senior Unsecured Notes and Senior Secured Notes—On June 15, 2022,At September 30, 2023, we had outstanding senior unsecured notes and senior secured notes with aggregate principal amounts outstanding of $14.762 billion. These notes have fixed interest rates and require semi-annual interest payments in arrears. The principal and any accrued but unpaid interest is due upon the maturity date of the respective notes, which dates are staggered from January 2026 through November 2031.
In May 2023, we issued $2.000$1.350 billion aggregate principal amount of our 20302031 Senior Secured First Lien Notes. We will pay interest on the 2030 Senior Secured First Lien Notes semi‑annuallythese notes semi-annually in arrears on JuneMay 15 and DecemberNovember 15 of each year, commencing on DecemberNovember 15, 2022. As further discussed below, we2023. We used a substantial portionthe issuance proceeds, together with cash on hand, to finance the redemption of the proceeds from the issuanceentire aggregate principal amounts outstanding of the 2030our September 2024 Senior Secured First Lien Notes after payment of fees and expenses, to finance the redemption of our 2023 Senior Unsecured Notes.
Through a series of open‑market transactions during the six months ended June 30, 2022, we repurchased $124 million aggregate principal amount outstanding of our 2023 Senior Unsecured Notes using cash on hand. Following the issuance of our 2030 Senior Secured First Lien Notes, we used a substantial portion of the proceeds to redeem the then-remaining $1.748 billion aggregate principal outstanding of the 2023 Senior Unsecured Notes in advance of their maturity date. In total, we paid $1.933 billion during the six months ended June 30, 2022 to retire our 2023 Senior Unsecured Notes in full and recorded aggregate losses from early extinguishment of debt of $71 million, primarily related to the difference between the purchase prices and the par value of the notes, as well as the write‑off of associated unamortized issuance costs.
On February 23, 2022, we redeemed all $700 million aggregate principal amount outstanding of our 2025July 2024 Senior Secured First Lien Notes in advance of their maturity date. We paid $730 million from cash on hand to redeem the notes. In connection with the redemption, we recorded a loss from early extinguishment of debt of $38 million in the threenine months ended March 31, 2022, primarily related to the difference between the purchase price and the par value of the notes, as well as the write‑off of associated unamortized issuance costs.
September 30, 2023.
For additional information regarding our long-term debt, see Note 6 to the accompanying Condensed Consolidated Financial Statements and Note 8 to the Consolidated Financial Statements included in our Annual Report.
LIQUIDITY
We continue to experience negative impacts of the COVID‑19 pandemic on our business in varying degrees. In various periods during the nine months ended September 30, 2022, we were affected by a significant acceleration in COVID‑19 cases associated with the Omicron variant and subvariants. Future variants could similarly emerge and cause surges in COVID‑19 cases, which may adversely impact the local economies of areas we serve. Any increase in the amount of or deterioration in the collectability of patient accounts receivable could adversely affect our cash flows and results of operations. If general economic conditions deteriorate or remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be impacted.
We have taken, and continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and changes in our service mix and revenue mix. These actions included the sale and redemption of various senior unsecured notes and senior secured notes, which eliminated any significant debt maturities until July 2024 and will reduce our future annual cash interest expense payments. In addition, we have continued cost-efficiency measures, as well as necessary cost reductions, 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 service 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, supported our ability to provide essential patient services during the initial uncertainty caused by the COVID‑19 pandemic and continue to do so.
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 and income tax payments, as well as cash disbursements required to respond to the COVID‑19 pandemic.payments. These fluctuations can result in material intra-quarter net operating and investing uses of cash that have caused, and in the future may 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 and anticipated future cash provided by 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 current and former joint venture partners, including those related to our Share Purchase Agreementshare purchase agreement with Baylor, and other presently known operating needs.
Various aspects of our operations continue to experience adverse impacts of the COVID‑19 pandemic, although to a much lesser extent than previously experienced. If new variants emerge and cause surges in COVID‑19 cases, the local economies of areas we serve could be negatively affected. Any significant deterioration in the collectability of patient accounts receivable could adversely affect our cash flows and results of operations. If general economic conditions deteriorate or remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be impacted.
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 or regulatory commitments to fund capital expenditures in, or intercompany borrowings to, businesses we own. In addition, liquidity could be 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, other sections of this report and in our Annual Report, and our Q1’22 Report, including any costs associated with legal proceedings and government investigations.
We dohave not relyrelied 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 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, if any, under our Credit Agreement.
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.
We consider our critical accounting estimates to be those that (i)(1) involve significant judgments and uncertainties, (ii)(2) require estimates that are more difficult for management to determine, and (iii)(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 September 30, 2022.2023. 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 end of the reporting period. The effects of unamortized discounts and issue costs are excluded from the table.
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Fixed rate long-term debt | | $ | 38 | | | $ | 134 | | | $ | 1,476 | | | $ | 64 | | | $ | 2,137 | | | $ | 11,381 | | | $ | 15,230 | | | $ | 14,036 | |
Average effective interest rates | | 4.7 | % | | 5.0 | % | | 4.7 | % | | 6.1 | % | | 4.9 | % | | 5.5 | % | | 5.3 | % | | |
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| | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | | Total | | Fair Value |
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Fixed rate long-term debt | | $ | 66 | | | $ | 123 | | | $ | 92 | | | $ | 2,149 | | | $ | 3,028 | | | $ | 9,709 | | | $ | 15,167 | | | $ | 13,848 | |
Average effective interest rates | | 6.8 | % | | 6.2 | % | | 6.8 | % | | 4.9 | % | | 5.7 | % | | 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. 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 as of September 30, 20222023 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 September 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
For information regarding material legal proceedings resolved since our Annual Report on Form 10‑K for the year ended December 31, 2022 (“Annual Report”), see Note 12 to the Condensed Consolidated Financial Statements in our Quarterly Report on Form 10‑Q for the quarter ended June 30, 2023.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K forReport.
ITEM 5. OTHER INFORMATION
(c) Trading Plans
During the yearthree months ended December 31, 2021 andSeptember 30, 2023, none of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
directors or Section 16 officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.
ITEM 6. EXHIBITS
Unless otherwise indicated, the following exhibits are filed with this report:
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(10) | | Material Contracts |
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| | (a) | Amendment No. 6, dated as of September 7, 2023, to the Letter of Credit Facility Agreement, betweendated as of March 7, 2014, by and among the Registrant, the LC participants and Ronald A. Rittenmeyer, dated October1,2022issuers party thereto, and Barclays Bank PLC, as administrative agent (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed OctoberSeptember 8, 2023) |
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(31) | | Rule 13a-14(a)/15d-14(a) Certifications |
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(101 SCH) | | Inline XBRL Taxonomy Extension Schema Document |
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(101 CAL) | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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(101 DEF) | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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(101 LAB) | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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(101 PRE) | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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(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 |
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(104) | | Cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 20222023 formatted in Inline XBRL (included in Exhibit 101) |
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* Management contract or compensatory plan or arrangement |
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.
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| | TENET HEALTHCARE CORPORATION (Registrant) |
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Date: October 28, 202230, 2023 | By: | /s/ R. SCOTT RAMSEY |
| | R. Scott Ramsey |
| | Senior Vice President, Controller |
| | (Principal Accounting Officer) |