| Organization And Summary Of Significant Accounting Policies | 12 Months Ended |
| Dec. 31, 2013 |
| Organization And Summary Of Significant Accounting Policies [Abstract] | ' |
| Organization And Summary Of Significant Accounting Policies | ' |
| Note 1. Organization and Summary of Significant Accounting Policies |
| Organization |
| LifePoint Hospitals, Inc., a Delaware corporation, acting through its subsidiaries, operates general acute care hospitals primarily in non-urban communities in the United States (“U.S.”). Unless the context otherwise indicates, LifePoint Hospitals, Inc. and its subsidiaries are referred to herein as “LifePoint” or the “Company.” At December 31, 2013, on a consolidated basis, the Company operated 60 hospital campuses in 20 states. Unless noted otherwise, discussions in these notes pertain to the Company’s continuing operations. |
| Principles of Consolidation |
| The accompanying consolidated financial statements include the accounts of the Company and all subsidiaries and entities controlled by the Company through the Company’s direct or indirect ownership of a majority interest and exclusive rights granted to the Company as the sole general partner or controlling member of such entities. Additionally, the Company consolidates any entities for which it receives the majority of the entity’s expected returns or is at risk for the majority of the entity’s expected losses based upon its investment or financial interest in the entity. All significant intercompany accounts and transactions within the Company have been eliminated in consolidation. |
| In connection with certain acquisitions the Company has entered into agreements to provide management and administrative support for the operations of four hospitals. The Company has concluded that these hospitals qualify as variable interest entities in accordance with Accounting Standards Codification (“ASC”) 810-10 “Consolidations”, and, due to its economic interest in these hospitals combined with its agreements to provide management and administrative support, it is the primary beneficiary. Accordingly, the Company has consolidated the operations of these four hospitals. |
| The Company accounts for its investments in entities in which the Company exhibits significant influence, but not control, in accordance with the equity method of accounting. The Company does not consolidate its equity method investments, but rather measures them at their initial costs and then subsequently adjusts their carrying values through income for their respective shares of the earnings or losses during the period. |
| Use of Estimates |
| The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the Company’s accompanying consolidated financial statements and notes to consolidated financial statements. Actual results could differ from those estimates. |
| Discontinued Operations |
| In accordance with the provisions of ASC 360-10, “Property, Plant and Equipment”, (“ASC 360-10”), the Company has presented the operating results and cash flows of its previously disposed facilities as discontinued operations, net of income taxes, in the accompanying consolidated financial statements. |
| General and Administrative Costs |
| The majority of the Company’s expenses are “cost of revenue” items. Costs that could be classified as “general and administrative” by the Company would include its hospital support center overhead costs, which were $182.1 million, $173.6 million and $136.4 million for the years ended December 31, 2013, 2012 and 2011, respectively. Included in the Company’s hospital support center overhead costs are depreciation and amortization expenses related primarily to the Company’s information systems platforms of $27.0 million, $16.2 million and $10.4 million for the years ended December 31, 2013, 2012 and 2011, respectively. Additionally, included in the Company’s hospital support center overhead costs are transactional expenses related to the Company’s recent acquisitions, including legal and consulting fees, which were $6.0 million, $10.1 million and $4.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. See Note 2 for a further discussion of the Company’s recent acquisition activity. |
| Fair Value of Financial Instruments |
| In accordance with ASC 825-10, “Financial Instruments”, the fair value of the Company’s financial instruments are further described as follows. |
| Cash and Cash Equivalents, Accounts Receivable and Accounts Payable |
| The carrying amounts reported in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term maturity of these instruments. |
| Long-Term Debt |
| The carrying amounts and fair values of the Company’s senior secured term loan facility (the “Term Facility”), senior secured incremental term loans (the “Incremental Term Loans”) and senior secured revolving credit facility (the “Revolving Facility”) under its senior secured credit agreement with, among others, Citibank, N.A. (“Citibank”), as administrative agent, and the lenders party thereto (the “Senior Credit Agreement”), 6.625% unsecured senior notes due October 1, 2020 (the “6.625% Senior Notes”), 5.5% unsecured senior notes due December 1, 2021 (the “5.5% Senior Notes”), 3½% convertible senior subordinated notes due May 15, 2014 (the “3½% Notes”) and 3¼% convertible senior subordinated debentures due August 15, 2025 (the “3¼% Debentures”) as of December 31, 2013 and December 31, 2012 were as follows (in millions): |
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| Carrying Amount | | Fair Value | | | | | | | | | |
| December 31, | | December 31, | | December 31, | | December 31, | | | | | | | | | |
| 2013 | | 2012 | | 2013 | | 2012 | | | | | | | | | |
| Term Facility | $ | 433.1 | | $ | 444.4 | | $ | 434.2 | | $ | 437.7 | | | | | | | | | |
| Incremental Term Loans, excluding unamortized discount | $ | 222.6 | | $ | - | | $ | 224.2 | | $ | - | | | | | | | | | |
| Revolving Facility | $ | - | | $ | 85.0 | | $ | - | | $ | 83.7 | | | | | | | | | |
| 6.625% Senior Notes | $ | 400.0 | | $ | 400.0 | | $ | 425.0 | | $ | 431.0 | | | | | | | | | |
| 5.5% Senior Notes | $ | 700.0 | | $ | - | | $ | 703.5 | | $ | - | | | | | | | | | |
| 3 ½ % Notes, excluding unamortized discount | $ | 575.0 | | $ | 575.0 | | $ | 622.4 | | $ | 592.3 | | | | | | | | | |
| 3 ¼ % Debentures, excluding unamortized discount | $ | - | | $ | 225.0 | | $ | - | | $ | 225.0 | | | | | | | | | |
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| The fair values of the Term Facility, the Incremental Term Loans, the Revolving Facility, the 6.625% Senior Notes and the 5.5% Senior Notes were estimated based on the average bid and ask price as determined using published rates and categorized as Level 2 within the fair value hierarchy in accordance with ASC 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”). The fair values of the 3½% Notes and the 3¼% Debentures were estimated based on the quoted market prices determined using the closing share price of the Company’s common stock and categorized as Level 1 within the fair value hierarchy in accordance with ASC 820-10. |
| Revenue Recognition and Accounts Receivable |
| The Company recognizes revenues in the period in which services are performed. Accounts receivable primarily consist of amounts due from third-party payors and patients. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Amounts the Company receives for treatment of patients covered by governmental programs such as Medicare and Medicaid and other third-party payors such as health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”) and other private insurers are generally less than the Company’s established billing rates. Additionally, to provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Accordingly, the revenues and accounts receivable reported in the Company’s consolidated financial statements are recorded at the net amount expected to be received. |
| On April 5, 2012, a settlement agreement (the “Rural Floor Settlement”) was signed between the Department of Health and Human Services (“HHS”), the Secretary of HHS, Centers for Medicare and Medicaid Services (“CMS”) and a large number of healthcare service providers, including the Company’s hospitals. The Rural Floor Settlement is intended to resolve all claims that have been brought or could have been brought relating to CMS’s calculation of the rural floor budget neutrality adjustment that was created by the Balanced Budget Act of 1997 from federal fiscal year 1998 through and including federal fiscal year 2011 for healthcare service providers that participated in certain court cases and group appeals. As a result of the Rural Floor Settlement, the Company recognized $33.0 million of additional Medicare revenue during the year ended December 31, 2012. |
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| The Company’s revenues by payor and approximate percentages of revenues were as follows for the years ended December 31, 2013, 2012 and 2011 (in millions): |
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| 2013 | | 2012 | | 2011 | | | |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | | | |
| Medicare | $ | 1,199.5 | | 32.6 | % | | $ | 1,170.3 | | 34.5 | % | | $ | 1,061.3 | | 35.0 | % | | | |
| Medicaid | | 517.0 | | 14.1 | | | | 494.6 | | 14.6 | | | | 432.1 | | 14.3 | | | | |
| HMOs, PPOs and other private insurers | | 1,876.1 | | 51.0 | | | | 1,645.5 | | 48.5 | | | | 1,446.6 | | 47.8 | | | | |
| Self-pay | | 766.5 | | 20.8 | | | | 653.9 | | 19.3 | | | | 565.3 | | 18.7 | | | | |
| Other | | 69.6 | | 1.9 | | | | 51.9 | | 1.5 | | | | 39.3 | | 1.3 | | | | |
| Revenues before provision for | | | | | | | | | | | | | | | | | | | | |
| doubtful accounts | | 4,428.7 | | 120.4 | | | | 4,016.2 | | 118.4 | | | | 3,544.6 | | 117.1 | | | | |
| Provision for doubtful accounts | | -750.4 | | -20.4 | | | | -624.4 | | -18.4 | | | | -518.5 | | -17.1 | | | | |
| Revenues | $ | 3,678.3 | | 100.0 | % | | $ | 3,391.8 | | 100.0 | % | | $ | 3,026.1 | | 100.0 | % | | | |
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| Contractual Discounts and Cost Report Settlements |
| The Company derives a significant portion of its revenues from Medicare, Medicaid and other payors that receive discounts from its established billing rates. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These interpretations sometimes result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Company’s accompanying consolidated statements of operations. |
| Cost report settlements under reimbursement agreements with Medicare and Medicaid are estimated and recorded in the period the related services are rendered and are adjusted in future periods as final settlements are determined. There is a reasonable possibility that recorded estimates will change by a material amount in the near term. The net adjustments to estimated cost report settlements resulted in increases to revenues of approximately $5.6 million, $7.0 million and $13.1 million, increases to net income of approximately $3.5 million, $4.4 million and $8.4 million, and increases to diluted earnings per share of approximately $0.07, $0.09 and $0.17 for the years ended December 31, 2013, 2012 and 2011, respectively. The net cost report settlements due from the Company included as a current liability under the caption “Other current liabilities” in the accompanying consolidated balance sheets, were approximately $13.3 million and $7.2 million at December 31, 2013 and 2012, respectively. The Company’s management believes that adequate provisions have been made for adjustments that may result from final determination of amounts earned under these programs. |
| Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’s financial statements. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs. |
| Charity Care |
| Self-pay revenues are derived primarily from patients who do not have any form of healthcare coverage. The revenues associated with self-pay patients are generally reported at the Company’s gross charges. The Company evaluates these patients, after the patient’s medical condition is determined to be stable, for their ability to pay based upon federal and state poverty guidelines, qualifications for Medicaid or other governmental assistance programs, as well as the local hospital’s policy for charity care. The Company provides care without charge to certain patients that qualify under the local charity care policy of each of its hospitals. For the years ended December 31, 2013, 2012 and 2011, the Company estimates that its costs of care provided under its charity care programs approximated $35.2 million, $30.9 million and $25.0 million, respectively. The Company does not report a charity care patient’s charges in revenues or in the provision for doubtful accounts as it is the Company’s policy not to pursue collection of amounts related to these patients. |
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| The Company’s management estimates its costs of care provided under its charity care programs utilizing a calculated ratio of costs to gross charges multiplied by the Company’s gross charity care charges provided. The Company’s gross charity care charges include only services provided to patients who are unable to pay and qualify under the Company’s local charity care policies. To the extent the Company receives reimbursement through the various governmental assistance programs in which it participates to subsidize its care of indigent patients, the Company does not include these patients’ charges in its cost of care provided under its charity care program. During the years ended December 31, 2013, 2012 and 2011, the Company recognized revenues of approximately $16.3 million, $34.0 million and $39.5 million, respectively, under one such program in New Mexico, the Sole Community Provider Program (“New Mexico SCPP”). Included in the amount recognized in revenues during the year ended December 31, 2013 is an adjustment of $12.0 million, related to revenue previously recognized during the year ended December 31, 2012, as a result of changes in the amounts available for reimbursement under the New Mexico SCPP. As a result, the Company’s net income for the year ended December 31, 2013 decreased by $7.4 million, or $0.16 per diluted share. |
| Provision and Allowance for Doubtful Accounts |
| To provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The primary uncertainty lies with uninsured patient receivables and deductibles, co-payments or other amounts due from individual patients. |
| The Company has an established process to determine the adequacy of the allowance for doubtful accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful accounts. Some of the analytical tools that the Company utilizes include, but are not limited to, historical cash collection experience, revenue trends by payor classification and revenue days in accounts receivable. Accounts receivable are written off after collection efforts have been followed in accordance with the Company’s policies. |
| A summary of activity in the Company’s allowance for doubtful accounts is as follows (in millions): |
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| | | | Additions | | Accounts | | | | | | | | | | | | |
| Balances at | | Recognized as | | Written Off, | | | | | | | | | | | | |
| Beginning of | | a Reduction to | | Net of | | Balances at | | | | | | | | | |
| Year | | Revenues | | Recoveries | | End of Year | | | | | | | | | |
| Year ended December 31, 2013 | $ | 558.4 | | $ | 750.4 | | $ | -567.6 | | $ | 741.2 | | | | | | | | | |
| Year ended December 31, 2012 | $ | 537.4 | | $ | 624.4 | | $ | -603.4 | | $ | 558.4 | | | | | | | | | |
| Year ended December 31, 2011 | $ | 459.8 | | $ | 517.7 | (a) | $ | -440.1 | | $ | 537.4 | | | | | | | | | |
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| (a) | Additions recognized as a reduction to revenues include amounts related to the Company’s continuing and discontinued operations in the Company’s accompanying consolidated financial statements. | | | | | | | | | | | | | | | | | | |
| The allowances for doubtful accounts as a percentage of gross accounts receivable, net of contractual discounts were 55.4% and 51.8% as of December 31, 2013 and 2012, respectively. The increase in the resulting ratio of the allowances for doubtful accounts as a percentage of gross accounts receivable, net of contractual discounts, as of December 31, 2013 as compared to December 31, 2012 is primarily the result of a timing difference in the recognition of additional allowances for doubtful accounts and the write-off of aged and fully reserved accounts receivable during the year ended December 31, 2013. Additionally, as of December 31, 2013 and 2012, the allowances for doubtful accounts plus certain contractual allowances and discounts related to self-pay patients as a percentage of self-pay receivables were 85.7% and 85.0%, respectively. |
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| Concentration of Revenues |
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| During the years ended December 31, 2013, 2012 and 2011, approximately 46.7%, 49.1% and 49.3%, respectively, of the Company’s revenues related to patients participating in the Medicare and Medicaid programs, collectively. The Company’s management recognizes that revenues and receivables from government agencies are significant to the Company’s operations, but it does not believe that there are significant credit risks associated with these government agencies. The Company’s management does not believe that there are any other significant concentrations of revenues from any particular payor that would subject the Company to any significant credit risks in the collection of its accounts receivable. |
| The Company’s revenues are particularly sensitive to regulatory and economic changes in certain states where the Company generates significant revenues. The following is an analysis by state of revenues as a percentage of the Company’s total revenues for those states in which the Company generates significant revenues for the years ended December 31, 2013, 2012 and 2011: |
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| | Hospital Campuses | | Revenue Concentration by State |
| | in State as of | | 2013 | | 2012 | | 2011 |
| | December 31, | | | | % of | | | | % of | | | | % of |
| | 2013 | | Amount | | Revenues | | Amount | | Revenues | | Amount | | Revenues |
| Kentucky | | 9 | | $ | 520.9 | | 14.2 | % | | $ | 510.9 | | 15.1 | % | | $ | 501.5 | | 16.6 | % |
| Virginia | | 6 | | | 469.2 | | 12.8 | | | | 413.6 | | 12.2 | | | | 369.0 | | 12.2 | |
| Tennessee | | 10 | | | 394.9 | | 10.7 | | | | 375.3 | | 11.1 | | | | 345.1 | | 11.4 | |
| Michigan | | 3 | | | 345.4 | | 9.4 | | | | 103.9 | | 3.1 | | | | - | | - | |
| New Mexico | | 2 | | | 256.5 | | 7.0 | | | | 299.6 | | 8.8 | | | | 291.3 | | 9.6 | |
| West Virginia | | 2 | | | 245.9 | | 6.7 | | | | 266.2 | | 7.8 | | | | 252.1 | | 8.3 | |
| Arizona | | 2 | | | 214.7 | | 5.8 | | | | 204.4 | | 6.0 | | | | 199.1 | | 6.6 | |
| Louisiana | | 5 | | | 192.8 | | 5.2 | | | | 206.1 | | 6.1 | | | | 195.4 | | 6.5 | |
| Other Income |
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| The American Recovery and Reinvestment Act of 2009 (“ARRA”) provides for incentive payments under the Medicare and Medicaid programs for certain hospitals and physician practices that demonstrate meaningful use of certified EHR technology. These provisions of ARRA, collectively referred to as the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), are intended to promote the adoption and meaningful use of interoperable health information technology and qualified EHR technology. |
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| The Company accounts for EHR incentive payments in accordance with ASC 450-30, “Gain Contingencies” (“ASC 450-30”). In accordance with ASC 450-30, the Company recognizes a gain for EHR incentive payments when its eligible hospitals and physician practices have demonstrated meaningful use of certified EHR technology for the applicable period and when the cost report information for the full cost report year that determines the final calculation of the EHR incentive payment is available. The demonstration of meaningful use is based on meeting a series of objectives and varies among hospitals and physician practices, between the Medicare and Medicaid programs and within the Medicaid program from state to state. Additionally, meeting the series of objectives in order to demonstrate meaningful use becomes progressively more stringent as its implementation is phased in through stages as outlined by CMS. EHR incentive payments are subject to audit and potential recoupment if it is determined that the Company’s hospitals did not meet the applicable meaningful use standards required in connection with such incentive payments. Furthermore, EHR incentive payments are subject to retrospective adjustment because the cost report data upon which the payments are based are further subject to audit. |
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| For the years ended December 31, 2013, 2012 and 2011, the Company recognized $64.1 million, $32.0 million and $26.7 million in EHR incentive payments, respectively, in accordance with the HITECH Act under the Medicare and Medicaid programs, collectively. These payments are reflected separately in the accompanying consolidated statement of operations under the caption “Other income”. Amounts recognized as other income that the Company anticipates collecting in future periods, but that were uncollected as of the balance sheet date totaled approximately $25.4 million and $18.5 million as of December 31, 2013 and 2012, respectively, and are included in the accompanying consolidated balance sheets under the caption “Other current assets”. Amounts received prior to the balance sheet date for which the Company has demonstrated meaningful use of certified EHR technology for the applicable period but its recognition as other income has been deferred until the cost reporting period that determines the final calculation of EHR incentive payments has ended totaled approximately $25.6 million and $12.6 million as of December 31, 2013 and 2012, respectively, and are included in the accompanying consolidated balance sheet under the caption “Other current liabilities”. |
| The Company incurs both capital expenditures and operating expenses in connection with the implementation of its various EHR initiatives. The amount and timing of these expenditures does not directly correlate with the timing of the Company’s receipt or recognition of the EHR incentive payments. |
| Cash and Cash Equivalents |
| Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. The Company places its cash in financial institutions that are federally insured in limited amounts. |
| Inventories |
| Inventories are stated at the lower of cost (first-in, first-out) or market and are comprised of purchased items. These inventory items are primarily operating supplies used in the direct or indirect treatment of patients. |
| Long-Lived Assets |
| Property and Equipment |
| Purchases of property and equipment are recorded at cost. Property and equipment acquired in connection with business combinations are recorded at estimated fair value in accordance with the acquisition method of accounting as prescribed in ASC 805-10, “Business Combinations” (“ASC 805-10”). Routine maintenance and repairs are charged to expense as incurred. Expenditures that increase capacities or extend useful lives are capitalized. Fully depreciated assets are retained in property and equipment accounts until they are disposed of. Allocated interest on funds used to pay for the construction or purchase of major capital additions is included in the cost of each capital addition. |
| Depreciation is calculated by applying the straight-line method over the estimated useful lives of buildings and improvements and equipment. Assets under capital and financing leases are generally amortized using the straight-line method over the shorter of the estimated useful life of the assets or life of the lease term, excluding any lease renewals, unless the lease renewals are reasonably assured. Capitalized internal-use software costs are amortized over their expected useful life, which is generally four years. Useful lives are as follows: |
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| Buildings and improvements (including those under capital and financing leases) | | | | Oct-40 | | | | | | | | | | | | | | | | |
| Equipment | | | | 10-Mar | | | | | | | | | | | | | | | | |
| Equipment under capital leases | | | | 5-Mar | | | | | | | | | | | | | | | | |
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| Depreciation expense was $222.9 million, $187.1 million and $162.2 million for the years ended December 31, 2013, 2012 and 2011, respectively. Amortization expense related to assets under capital and financing leases and capitalized internal-use software costs are included in depreciation expense. |
| As of December 31, 2013, the majority of the Company’s assets under capital and financing leases are primarily comprised of prepaid capital leases. The Company’s assets under capital and financing leases are set forth in the following table at December 31, 2013 and 2012 (in millions): |
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| 2013 | | 2012 | | | | | | | | | | | | | | | |
| Buildings and improvements | $ | 281.0 | | $ | 228.6 | | | | | | | | | | | | | | | |
| Equipment | | 37.7 | | | 36.6 | | | | | | | | | | | | | | | |
| | 318.7 | | | 265.2 | | | | | | | | | | | | | | | |
| Accumulated amortization | | -96.9 | | | -85.5 | | | | | | | | | | | | | | | |
| $ | 221.8 | | $ | 179.7 | | | | | | | | | | | | | | | |
| The Company evaluates its long-lived assets for possible impairment whenever circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable from estimated future cash flows, in accordance with ASC 360-10. Fair value estimates are derived from established market values of comparable assets or internal calculations of estimated future net cash flows. The Company’s estimates of future cash flows are based on assumptions and projections it believes to be reasonable and supportable. The Company’s assumptions take into account revenue and expense growth rates, patient volumes, changes in payor mix and changes in legislation and other payor payment patterns. These assumptions vary by type of facility. The Company incurred a $4.0 million pre-tax impairment charge in continuing operations during the year ended December 31, 2012 primarily related to the write-off of certain capitalized information system costs which the Company determined were no longer a necessary component of its ongoing information technology strategy. |
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| Deferred Loan Costs |
| The Company records deferred loan costs for expenditures related to acquiring or issuing new debt instruments as well as for amendments to its existing debt instruments. These expenditures include bank fees and premiums as well as attorney’s and filing fees. The Company amortizes these deferred loan costs over the life of the respective debt instrument using the effective interest method. |
| Goodwill and Intangible Assets |
| The Company accounts for its acquisitions in accordance with ASC 805-10 using the acquisition method of accounting. Goodwill represents the excess of the cost of an acquired entity over the net amounts assigned to assets acquired and liabilities assumed. In accordance with ASC 350-10, “Intangibles — Goodwill and Other” (“ASC 350-10”), goodwill and intangible assets with indefinite lives are reviewed by the Company at least annually for impairment. The Company’s business comprises a single reporting unit for impairment test purposes. For the purposes of these analyses, the Company’s estimates of fair value are based on a combination of the income approach, which estimates the fair value of the Company based on its future discounted cash flows, and the market approach, which estimates the fair value of the Company based on comparable market prices. During the years ended December 31, 2013, 2012 and 2011, the Company performed its annual impairment tests as of October 1 and did not incur an impairment charge. |
| The Company’s intangible assets relate to contract-based physician minimum revenue guarantees; non-competition agreements; certificates of need and certificates of need exemptions; and licenses, provider numbers, accreditations and other. Contract-based physician minimum revenue guarantees and non-competition agreements are amortized over the terms of the agreements. The certificates of need, certificates of need exemptions, licenses, provider numbers, accreditations and other have been determined to have indefinite lives and, accordingly, are not amortized. The Company’s goodwill and intangible assets are further described in Note 3. |
| Income Taxes |
| The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income. To the extent the Company believes that recovery is not likely, a valuation allowance is established. To the extent the Company establishes a valuation allowance or increases this allowance, the Company must include an expense within the provision for income taxes in the consolidated statements of operations. The Company classifies interest and penalties related to its tax positions as a component of income tax expense. Income taxes are further described in Note 5. |
| Point of Life Indemnity, Ltd. |
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| The Company operates, with approval from the Cayman Islands Monetary Authority, a captive insurance company under the name Point of Life Indemnity, Ltd. Through this wholly-owned subsidiary of the Company, the captive insurance company issues malpractice insurance policies to certain of the Company’s employed physicians in addition to providing property insurance deductible reimbursement for some types of property losses and workers’ compensation deductible coverage. Fees charged to these employed physicians are eliminated in consolidation. Reserves for the Company’s estimate of the related outstanding claims, including incurred but not reported losses, are actuarially determined and are included as a component of the Company’s reserves for professional liability self-insurance claims, as further discussed in this note. |
| Reserves for Self-Insurance Claims |
| Given the nature of the Company’s operating environment, it is subject to potential professional liability claims, employee workers’ compensation claims and other claims. To mitigate a portion of this risk, the Company maintains insurance for individual professional liability claims and employee workers’ compensation claims exceeding a self-insured retention level. The Company’s self-insured retention level for professional liability claims is $5.0 million per claim at December 31, 2013. Additionally, the Company’s self-insured retention level for workers’ compensation claims is $1.0 million per claim in all states in which it operates except for Wyoming. The Company participates in a state specific program in Wyoming for its workers’ compensation claims arising in this state. The Company’s self-insured retention levels are evaluated annually as a part of its insurance program's renewal process. |
| The Company’s reserves for self-insurance claims reflects the current estimate of all outstanding losses, including incurred but not reported losses, based upon actuarial calculations as of the balance sheet date. The loss estimates included in the actuarial calculations may change in the future based upon updated facts and circumstances. The Company’s expense for self-insurance claims coverage each year includes: the actuarially determined estimate of losses for the current year, including claims incurred but not reported; the change in the estimate of losses for prior years based upon actual claims development experience as compared to prior actuarial projections; the insurance premiums for losses in excess of the Company’s self-insured retention levels; the administrative costs of the insurance program; and interest expense related to the discounted portion of the liability. The Company’s expense for self-insurance claims was approximately $44.3 million, $42.8 million and $45.3 million for the years ended December 31, 2013, 2012, and 2011, respectively. |
| The Company’s reserves for professional liability claims are based upon quarterly actuarial calculations. The Company’s reserves for employee workers’ compensation claims are based upon semi-annual actuarial calculations. These reserve calculations consider historical claims data, demographic considerations, severity factors and other actuarial assumptions, which are discounted to present value. The Company’s reserves for self-insured claims have been discounted to their present value using a discount rate of 1.55%, 1.80% and 2.50% at December 31, 2013, 2012, and 2011, respectively. As a result of the decreases in the applied discount rate during the years ended December 31, 2013, 2012, and 2011, the Company’s self-insurance claims expense increased by approximately $1.4 million, $2.9 million and $2.5 million, which decreased the Company’s net income by approximately $0.9 million, $1.8 million and $1.6 million, or $0.02, $0.04 and $0.03 per diluted share, respectively. The Company’s management selects a discount rate by considering a risk-free interest rate that corresponds to the period when the self-insured claims are incurred and projected to be paid. |
| Professional and general liability claims are typically resolved over an extended period of time, often as long as five years or more, while workers’ compensation claims are typically resolved in one to two years. Accordingly, the Company’s reserves for self-insured claims, comprised of estimated indemnity and expense payments related to reported events and incurred but not reported events as of the end of the period, include both a current and long-term component. The current portion of the Company’s reserves for self-insured claims is included under the caption “Other current liabilities” and the long-term portion is included under the caption “Long-term portion of reserves for self-insurance claims” in the accompanying consolidated balance sheets. |
| The following table provides information regarding the classification of the Company’s reserves for self-insured claims at December 31, 2013 and 2012 (in millions): |
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| 2013 | | 2012 | | | | | | | | | | | | | | | |
| Current portion | $ | 28.2 | | $ | 27.2 | | | | | | | | | | | | | | | |
| Long-term portion | | 139.8 | | | 133.0 | | | | | | | | | | | | | | | |
| $ | 168.0 | | $ | 160.2 | | | | | | | | | | | | | | | |
| The combination of changing conditions and the extended time required for claim resolution results in a loss estimation process that requires actuarial skill and the application of judgment, and such estimates require periodic revision. As a result of the variety of factors that must be considered, there is a risk that actual incurred losses may develop differently from estimates. The results of the Company’s quarterly and semi-annual actuarial calculations resulted in changes to its reserves for self-insured claims for prior years. As a result, for the years ended December 31, 2013, 2012 and 2011, the Company’s related self-insured claims expense decreased by $12.9 million, $9.1 million and $6.2 million, which increased net income by approximately $7.9 million, $5.8 million and $3.9 million, or $0.17, $0.12 and $0.08 per diluted share, respectively. |
| Self-Insured Medical Benefits |
| The Company is self-insured for substantially all of the medical expenses and benefits of its employees. The reserve for medical benefits primarily reflects the current estimate of incurred but not reported losses based upon an annual actuarial calculation as of the balance sheet date. The undiscounted reserve for self-insured medical benefits was $18.9 million and $20.9 million at December 31, 2013 and 2012, respectively, and are included in the Company’s accompanying consolidated balance sheets under the caption “Other current liabilities”. |
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| Noncontrolling Interests and Redeemable Noncontrolling Interests |
| Noncontrolling interests represent the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. The Company’s accompanying consolidated financial statements include all assets, liabilities, revenues and expenses at their consolidated amounts, which include the amounts attributable to the Company and the noncontrolling interest. The Company recognizes as a separate component of equity and earnings on the portion of income or loss attributable to noncontrolling interests based on the portion of the entity not owned by the Company. |
| The following table presents the changes in the Company’s noncontrolling interests during the years ended December 31, 2013 and 2012 (in millions): |
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| Balance at January 1, 2012 | $ | 14.4 | | | | | | | | | | | | | | | | | | |
| Net income attributable to noncontrolling interests | | 3.7 | | | | | | | | | | | | | | | | | | |
| Acquisition of Twin County | | 4.3 | | | | | | | | | | | | | | | | | | |
| Acquisition of Marquette General | | 4.0 | | | | | | | | | | | | | | | | | | |
| Distributions | | -3.8 | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2012 | | 22.6 | | | | | | | | | | | | | | | | | | |
| Net income attributable to noncontrolling interests | | 4.4 | | | | | | | | | | | | | | | | | | |
| Acquisition of Scott Memorial | | 1.0 | | | | | | | | | | | | | | | | | | |
| Distributions | | -5.5 | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2013 | $ | 22.5 | | | | | | | | | | | | | | | | | | |
| Certain of the Company’s noncontrolling interests include redemption features that cause these interests not to meet the requirements for classification as equity in accordance with ASC 480-10-S99-3, “Distinguishing Liabilities from Equity”. Redemption of these interests features would require the delivery of cash. Accordingly, these redeemable noncontrolling interests are classified in the mezzanine section of the Company’s accompanying consolidated balance sheets under the caption “Redeemable noncontrolling interests”. Changes in the fair value of the Company’s redeemable noncontrolling interests are recognized as adjustments to consolidated stockholders’ equity. |
| The following table presents the changes in the Company’s redeemable noncontrolling interests during the years ended December 31, 2013 and 2012 (in millions): |
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| Balance at January 1, 2012 | $ | 26.2 | | | | | | | | | | | | | | | | | | |
| Acquisition of ancillary service-line | | 0.4 | | | | | | | | | | | | | | | | | | |
| Sales | | 1.6 | | | | | | | | | | | | | | | | | | |
| Noncash adjustments to redemption amounts | | 1.2 | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2012 | | 29.4 | | | | | | | | | | | | | | | | | | |
| Acquisition of Fauquier | | 22.0 | | | | | | | | | | | | | | | | | | |
| Acquisition of Portage | | 7.9 | | | | | | | | | | | | | | | | | | |
| Noncash adjustment to redemption amounts | | 0.5 | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2013 | $ | 59.8 | | | | | | | | | | | | | | | | | | |
| Redemption features related to the Company’s redeemable noncontrolling interests, if exercised, would require the Company to deliver cash in the following amounts for the years indicated (in millions): |
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| 2014 | $ | 37.8 | | | | | | | | | | | | | | | | | | |
| 2015 | | - | | | | | | | | | | | | | | | | | | |
| 2016 | | 22.0 | | | | | | | | | | | | | | | | | | |
| $ | 59.8 | | | | | | | | | | | | | | | | | | |
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| Segment Reporting |
| The Company has three operating groups as of December 31, 2013. The Company realigns these operating groups frequently based upon changing circumstances, including acquisition and divestiture activity. The Company considers these three operating groups as one operating segment, healthcare services, for segment reporting purposes and as one reporting unit for goodwill impairment testing in accordance with ASC 280-10, “Segment Reporting”, (“ASC 280-10”) and ASC 350-10. |
| In accordance with ASC 350-10, the Company has determined that its three operating groups and related acute care hospitals comprise one reporting unit because of their similar economic characteristics in each of the following areas: |
| · | | the way the Company manages its operations and extent to which its acquired facilities are integrated into its existing operations as a single reporting unit; | | | | | | | | | | | | | | | | | |
| · | | the Company’s goodwill is recoverable from the collective operations of its three operating groups and related acute care hospitals and not individually from one single operating group or hospital; | | | | | | | | | | | | | | | | | |
| · | | its operating groups are frequently realigned based upon changing circumstances, including acquisition and divestiture activity; and | | | | | | | | | | | | | | | | | |
| · | | because of the collective size of its three operating groups, each group and acute care hospital benefits from its participation in a group purchasing organization. | | | | | | | | | | | | | | | | | |
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| Stock-Based Compensation |
| The Company issues stock options and other stock-based awards to key employees and directors under various stockholder-approved stock-based compensation plans, as further described in Note 8. The Company accounts for its stock-based awards in accordance with the provisions of ASC 718-10 “Compensation — Stock Compensation”, (“ASC 718-10”). In accordance with ASC 718-10, the Company recognizes compensation expense over each of the stock-based award’s requisite service period based on the estimated grant date fair value of each stock-based award. |
| Deferred Cash Awards |
| The Company grants deferred cash awards to certain employees that are subject to continuing service requirements and a ratable vesting term of three years. The Company recognizes compensation expense for these awards over their requisite service period. For the years ended December 31, 2013, 2012 and 2011, expense related to the Company’s deferred cash awards was approximately $7.0 million, $5.6 million and $3.2 million, respectively. As of December 31, 2013, there was $9.1 million of total estimated unrecognized compensation costs related to deferred cash awards arrangements. The Company expects to recognize this cost over a weighted average period of 1.3 years. |
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| Defined Contribution Plans |
| The Company maintains a defined contribution retirement plan that covers a majority of the Company’s employees. In addition, the Company established two additional defined contribution plans in connection with certain acquisitions that were completed in 2013 and 2012 to provide benefits to certain employees at facilities acquired in such acquisitions. The Company’s expense related to its defined contribution plans was $11.1 million, $8.7 million and $4.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. |
| Defined Benefit Pension Plans |
| In connection with its acquisition of Marquette General Health System (“Marquette General”), a 315 bed hospital system located in Marquette, Michigan effective September 1, 2012, through Duke LifePoint Healthcare, a joint venture between LifePoint and a wholly-owned controlled affiliate of Duke University Health Systems, Inc., the Company acquired certain assets and assumed certain liabilities associated with the benefits in the seller’s defined benefit pension plan of certain employees covered by a collective bargaining agreement. The Company has established a separate defined benefit pension plan (the “Marquette Pension Plan”), to facilitate its administration of the assumed portion of the seller’s defined benefit pension plan. In addition, in connection with its acquisition of Bell Hospital (“Bell”), a 25 bed critical access hospital located in Ishpeming, Michigan, effective December 1, 2013, the Company assumed sponsorship of Bell’s defined benefit pension plan, which provides benefits to certain non-union employees (the “Bell Pension Plan” and, collectively with the Marquette Pension Plan, the “Pension Plans”). |
| The Company accounts for its Pension Plans in accordance with ASC 715-30 “Compensation – Defined Benefit Plans”, (“ASC 715-30”). In accordance with ASC 715-30, the Company recognizes the unfunded liability of its Pension Plans in the Company’s consolidated balance sheet and unrecognized gains (losses) and prior service credits (costs) as changes in other comprehensive income (loss). The measurement date of the Pension Plans’ assets and liabilities coincides with the Company’s year-end. The Company’s pension benefit obligation is measured using actuarial calculations that incorporate discount rates, rate of compensation increases, when applicable, expected long-term returns on plan assets and consider expected age of retirement and mortality. |
| Earnings Per Share (“EPS”) |
| EPS is based on the weighted average number of common shares outstanding and dilutive stock options, convertible notes, when dilutive, and nonvested shares. In addition, the numerator of EPS, net income, is adjusted for interest expense related to the Company’s convertible notes, when dilutive, as more fully discussed in Note 4 and Note 11. The computation of the Company’s basic and diluted EPS is set forth in Note 11. |
| Recently Issued Accounting Pronouncements |
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| In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-2, “Comprehensive Income – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-2”). ASU 2013-2 requires entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. During the years ended December 31, 2013 and 2012, there were no reclassifications out of accumulated other comprehensive income into net income. During the year ended December 31, 2011, the Company reclassified $1.1 million in previously recognized and cumulative ineffective losses to income as a component of interest expense in connection with the maturity of the Company’s interest rate swap agreement. The Company’s interest rate swap agreement matured on May 30, 2011 and is more fully discussed in Note 4. |
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