| BASIS OF PRESENTATION | 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 care delivery network includes our subsidiary USPI Holding Company, Inc. (“USPI”), which operated or had indirect ownership interests in 410 ambulatory surgery centers and 24 surgical hospitals at June 30, 2022. We hold noncontrolling interests in 165 of these facilities, which are recorded using the equity method of accounting. We also operated 60 acute care and specialty hospitals, 110 other outpatient facilities, a network of employed physicians and a Global Business Center (“GBC”) in Manila, Philippines at June 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 acute care and specialty hospitals, imaging centers, ancillary outpatient facilities, micro‑hospitals and physician practices. Our Ambulatory Care segment is comprised of the operations of USPI, which holds indirect ownership interests in ambulatory surgery centers and surgical hospitals. Our Conifer segment provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients. This quarterly report supplements our Annual Report on Form 10‑K for the year ended December 31, 2021 (“Annual Report”). As permitted by the Securities and Exchange Commission for interim reporting, we have omitted certain notes and disclosures that substantially duplicate those in our Annual Report. For further information, refer to the audited Consolidated Financial Statements and notes included in our Annual Report. Unless otherwise indicated, all financial and statistical data included in these notes to our Condensed Consolidated Financial Statements relate to our continuing operations, with dollar amounts expressed in millions (except per‑share amounts). Effective January 1, 2022, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”) 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 five million shares for the six months ended June 30, 2022. However, because there were also adjustments to net income under the if-converted method, the increase in diluted shares did not result in any change in the reported diluted earnings per share available to Tenet common shareholders for the six-month period. Although the Condensed Consolidated Financial Statements and related notes within this document are unaudited, we believe all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. In preparing our financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), we are required to make estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and these accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable given the particular circumstances in which we operate. Actual results may vary from those estimates. 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 six‑month periods ended June 30, 2022 are not necessarily indicative of the results that may be expected for the full year. Reasons for this include, but are not limited to: the impact of the COVID‑19 pandemic on our operations, business, financial condition and cash flows; 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. Factors that affect service mix, revenue mix, patient volumes and, thereby, the results of operations at our ambulatory surgery centers, hospitals and other healthcare facilities include, but are not limited to: changes in federal, state and local healthcare and business regulations, including mandated closures and other operating restrictions; changes in general economic conditions nationally and regionally, including inflation and the impacts of the COVID-19 pandemic and other factors on business conditions, the economy and 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. COVID ‑ 19 Pandemic The COVID‑19 pandemic has impacted all three segments of our business, as well as our patients, communities and employees, in varying degrees since March 2020. Throughout this time, federal, state and local authorities have undertaken several actions designed to assist healthcare providers in providing care to COVID‑19 and other patients and to mitigate the adverse economic impact of the COVID‑19 pandemic. 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, we received cash payments from the PRF and state and local grant programs during the three and six months ended June 30, 2022 and 2021. Grant funds received by our Hospital Operations segment and those facilities in our Ambulatory Care segment that we consolidate 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 Six Months Ended 2022 2021 2022 2021 Grant funds received from COVID-19 relief programs: Included in cash flows from operating activities: Hospital Operations $ 97 $ 5 $ 101 $ 27 Ambulatory Care 2 — 3 9 $ 99 $ 5 $ 104 $ 36 Included in cash flows from financing activities: Cash‑Managed Affiliates $ — $ (1) $ — $ 27 As a condition to receiving distributions, providers must agree to certain terms and conditions, including, among other things, that the funds are being used for lost revenues and unreimbursed COVID ‑ related costs as defined by the U.S. Department of Health and Human Services (“HHS”), and that the providers will not seek collection of out ‑ of ‑ pocket payments from a COVID ‑ 19 patient that are greater than what the patient would have otherwise been required to pay if the care had been provided by an in ‑ network provider. All recipients of PRF payments are 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 unconsolida ted affiliates, in each case in our condensed consolidated statements of operations. Three Months Ended Six Months Ended 2022 2021 2022 2021 Grant income recognized from COVID-19 relief programs: Included in grant income: Hospital Operations $ 92 $ 4 $ 96 $ 28 Ambulatory Care 2 15 4 22 $ 94 $ 19 $ 100 $ 50 Included in equity in earnings of unconsolidated affiliates: Unconsolidated affiliates $ — $ 5 $ — $ 11 At June 30, 2022 and December 31, 2021, we had remaining deferred grant payment balances of $8 million and $5 million, respectively, which amounts were recorded in other current liabilities in the accompanying Condensed Consolidated Balance Sheets for those periods. 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. Recipients may retain the accelerated payments for one year from the date of receipt before recoupment commences, which is effectuated by a 25% offset of claims payments for 11 months, followed by a 50% offset for the succeeding six months. At the end of the 29‑month period, interest on the unrecouped balance will be assessed at 4.00% per annum. The initial 11‑month recoupment period began in April 2021. Our Hospital Operations and Ambulatory Care segments did not receive any additional advance payments from the MAPP during the six months ended June 30, 2022 or 2021. The table below summarizes MAPP advances from prior periods recouped during the three and six months ended June 30, 2022 and 2021. Advances to 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 are presented in cash flows from operating activities in our condensed consolidated statements of cash flows. Advances to our Cash‑Managed Affiliates were recouped through a reduction of those affiliates’ Medicare claims payments and are presented in cash flows from financing activities. Three Months Ended Six Months Ended 2022 2021 2022 2021 MAPP advances recouped: Included in cash flows from operating activities: Hospital Operations $ 279 $ 141 $ 473 $ 141 Ambulatory Care 2 11 2 11 $ 281 $ 152 $ 475 $ 152 Included in cash flows from financing activities: Cash‑Managed Affiliates $ — $ 12 $ — $ 12 In the accompanying Condensed Consolidated Balance Sheets, advances totaling $405 million and $880 million were included in contract liabilities at June 30, 2022 and December 31, 2021, respectively. Deferral 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 and December 2022. We paid the first half of the Social Security taxes we deferred in 2020 in December 2021. At both June 30, 2022 and December 31, 2021, deferred Social Security tax payments totaling $128 million were included in accrued compensation and benefits in the accompanying Condensed Consolidated Balance Sheets. Leases During the six months ended June 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, presented in other operating expenses, net in the accompanying Condensed Consolidated Statement of Operations, and we recognized right-of-use assets and lease-related obligations of $109 million related to the leases, in each case in the six months ended June 30, 2022. During the six months ended June 30, 2022 and 2021, we recorded right‑of‑use assets related to non‑cancellable finance leases of $29 million and $40 million, respectively, and related to non‑cancellable operating leases of $227 million and $96 million, respectively. 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 $1.351 billion and $2.364 billion at June 30, 2022 and December 31, 2021, respectively. At June 30, 2022 and December 31, 2021, our book overdrafts were $145 million and $226 million, respectively, which were classified as accounts payable. At June 30, 2022 and December 31, 2021, $165 million and $188 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 June 30, 2022 and December 31, 2021, we had $72 million and $95 million, respectively, of property and equipment purchases accrued for items received but not yet paid. Of these amounts, $58 million and $88 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, 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. This has been reflected as noncash financing activity in the accompanying Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2022. See Note 13 for additional information about this transaction. Other Intangible Assets The following tables provide information regarding other intangible assets, which were included in the accompanying Condensed Consolidated Balance Sheets: Gross Carrying Accumulated Net Book Value At June 30, 2022: Other intangible assets with finite useful lives: Capitalized software costs $ 1,751 $ (1,174) $ 577 Contracts 295 (138) 157 Other 94 (77) 17 Total other intangible assets with finite lives 2,140 (1,389) 751 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 $ 2,851 $ (1,389) $ 1,462 Gross Carrying Accumulated 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 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 Estimated future amortization of intangibles with finite useful lives at June 30, 2022 was as follows: Six Months Ending Years Ending Later Years December 31, Total 2022 2023 2024 2025 2026 Amortization of intangible assets $ 751 $ 83 $ 123 $ 120 $ 100 $ 81 $ 244 We recognized amortization expense of $92 million and $95 million in the accompanying Condensed Consolidated Statements of Operations for the six months ended June 30, 2022 and 2021, respectively. Other Current Assets The principal components of other current assets in the accompanying Condensed Consolidated Balance Sheets were as follows: June 30, 2022 December 31, 2021 Prepaid expenses $ 349 $ 252 Contract assets 187 199 Receivables from government programs 446 627 Guarantees 99 104 Non-patient receivables 329 321 Other 58 54 Total other current assets $ 1,468 $ 1,557 Investments in Unconsolidated Affiliates We control 269 of the facilities within our Ambulatory Care segment and, therefore, consolidate their results. We account for many of the facilities our Ambulatory Care segment operates (165 of 434 at June 30, 2022), as well as additional companies in which our Hospital Operations segment holds ownership interests, under the equity method as investments in unconsolidated affiliates and report only our share of net income as equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Operations. No grant income was recognized during the three and six months ended June 30, 2022 by our unconsolidated affiliates. Equity in earnings of unconsolidated affiliates included $5 million and $11 million of grant income for the three and six months ended June 30, 2021, respectively. Summarized financial information for these equity method investees is included in the following table. For investments acquired during the reported periods, amounts below include 100% of the investee’s results beginning on the date of our acquisition of the investment. Three Months Ended Six Months Ended 2022 2021 2022 2021 Net operating revenues $ 794 $ 711 $ 1,563 $ 1,345 Net income $ 193 $ 197 $ 362 $ 362 Net income available to the investees $ 109 $ 115 $ 207 $ 217 |
