COMMUNITY HEALTH SYSTEMS INC – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read this discussion together with our condensed consolidated
financial statements and the accompanying notes included herein.
Throughout this Form 10-Q, we refer to
Parent Company, and its consolidated subsidiaries in a simplified manner and on
a collective basis, using words like "we," "our," "us" and the "Company". This
drafting style is suggested by the
and is not meant to indicate that the publicly traded Parent Company or any
particular subsidiary of the Parent Company owns or operates any asset, business
or property. The hospitals, operations and businesses described in this filing
are owned and operated by distinct and indirect subsidiaries of
Systems, Inc.
Executive Overview
We are one of the largest publicly traded providers of healthcare services in
outpatient facilities in communities across the country. We provide healthcare
services through the hospitals that we own and operate and affiliated businesses
in non-urban and selected urban markets throughout
generate revenues by providing a broad range of general and specialized hospital
healthcare services and outpatient services to patients in the communities in
which we are located. As of
comprised of 81 general acute care hospitals and two stand-alone rehabilitation
or psychiatric hospitals. We are paid for our services by governmental agencies,
private insurers and directly by the patients we serve.
COVID-19 Pandemic
As a provider of healthcare services, we have been and continue to be
significantly affected by the public health and economic effects of the COVID-19
pandemic, which has been declared a public health emergency by the Secretary of
the
our patients, physicians, nurses, and employees in the communities we serve
remains our primary focus. Our hospitals, medical clinics, medical personnel,
and employees have been actively caring for COVID-19 patients, and we have been
working with federal, state and local health authorities to respond to COVID-19
cases in the communities we serve.
Taking into account the pandemic and other factors,
has recently experienced general inflationary pressures, significant disruptions
to global supply networks, and an extremely competitive labor market. We have
experienced disruptions in connection with the provision of equipment,
pharmaceuticals and medical supplies to us, as well as ongoing inflationary
pressures in connection with the operation of our business. In this regard, we
have incurred, and may continue to incur, certain increased expenses arising
from the pandemic and these economic conditions, including additional labor,
supply chain, capital and other expenditures. While we have implemented cost
containment and other measures to try to counteract these developments, we may
be unable to fully offset these increases in our costs and otherwise effectively
respond to supply disruptions.
Negative economic conditions and other factors resulting from the COVID-19
pandemic have affected, and may continue to affect, our service mix, revenue
mix, payor mix and/or patient volumes, as well as our ability to collect
outstanding receivables. To this end, we experienced the largest COVID-19 surge
to-date during the three months ended
net operating revenues, labor expense and length of stay during the period.
While we are not able to fully quantify the impact that the COVID-19 pandemic
will have on our future financial results, we expect developments related to
COVID-19 to continue to affect our financial performance. Moreover, if a major
COVID-19 outbreak occurs in a geographic region where any of our hospitals or
other facilities are located, we could be affected by responsive measures
affecting treatment capacity and care, such as restrictions on elective medical
procedures. In addition, the COVID-19 pandemic may otherwise have material
adverse effects on our results of operations, financial position, and/or our
cash flows if economic and/or public health conditions in
deteriorate. The ongoing impact of the pandemic on our financial results will
depend on, among other factors, the duration and severity of the pandemic, the
impact of the pandemic on economic conditions, the volume of canceled or
rescheduled procedures at our facilities, the volume of COVID-19 patients cared
for across our health systems, the timing, availability and acceptance of
effective medical treatments, the availability, acceptance of and need for
additional doses of vaccines, the spread of potentially more contagious and/or
virulent forms of the virus, including any variants of the virus that may be
resistant to currently available vaccines, and the impact of government actions
and administrative regulation on the hospital industry and broader economy,
including through existing and any future stimulus efforts as well as vaccine
requirements. As discussed below under "Overview of Legislative Developments",
we have received, and may continue to receive, payments and advances made
available under various federal and state stimulus laws, which have been
beneficial in partially mitigating the impact of the COVID-19 pandemic on our
results of operation and financial position to date. The federal government may
consider additional stimulus and relief efforts but we are unable to predict
whether any additional stimulus measures will be enacted or their impact, if
any. We are unable to assess the extent to which potential ongoing negative
impacts on us arising from the COVID-19 pandemic will ultimately be offset by
amounts received, and benefits which we may in the future receive, under various
federal and state stimulus programs.
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Completed Divestiture and Acquisition Activity
No hospitals were divested during the three months ended
During 2021, we completed the divestiture of five hospitals, including three
which closed effective
proceeds at a preliminary closing on
represented annual net operating revenues in 2020 of approximately
and, including the net proceeds for the three hospital divestitures that
preliminarily closed on
approximately
The following table provides a summary of hospitals that we divested during the
year ended
Licensed Effective Hospital Buyer City, State Beds Date 2021 Divestitures: Lea Regional Medical Covenant Health System Hobbs, NM 84 January 1, Center 2021 Tennova Healthcare - Vanderbilt University Tullahoma, TN 135 January 1, Tullahoma Medical Center 2021 Tennova Healthcare - Vanderbilt University Shelbyville, TN 60 January 1, Shelbyville Medical Center 2021 Northwest MississippiDelta Health System Clarksdale, MS 181 February Medical Center 1, 2021 AllianceHealth Midwest SSM Health Care of Midwest City, OK 255 April 1, Oklahoma 2021
Our portfolio rationalization and deleveraging strategy involving the
divestiture of hospitals and non-hospital businesses concluded at the end of
2020. However, we continue to receive interest from potential acquirers for
certain of our hospitals, and may, from time to time, consider selling
additional hospitals if we consider any such disposition to be in our best
interests. We expect proceeds from any such divestitures to be used for general
corporate purposes and capital expenditures.
On
substantially all of the assets of AllianceHealth Seminole (32 licensed beds) in
disposition is expected to be completed during the second half of 2022.
During the three months ended
to acquire the operating assets and related businesses of certain physician
practices, clinics and other ancillary businesses that operate within the
communities served by our hospitals. We allocated the purchase price to property
and equipment, working capital, noncontrolling interests and goodwill.
Overview of Operating Results
Net operating revenues increased from
same-store basis, net operating revenues for the three months ended
2022
We had net income of
compared to a net loss of
Net income for the three months ended
• an after-tax charge of
debt, and
• an after-tax charge of
hospital held for sale based on its estimated fair value.
Net loss for the three months ended
• an after-tax charge of$93 million associated with a loss on the early extinguishment of debt, • an after-tax benefit of$64 million for the recognition of pandemic relief funds, and • an after-tax charge of$17 million to adjust the carrying value of long-lived assets at several hospitals that were sold at a sales price below carrying value, net of gains recognized upon the sale of certain facilities.
Consolidated inpatient admissions for the three months ended
decreased 1.7%, compared to the three months ended
adjusted admissions for the three months ended
compared to the three months ended
admissions for the three months ended
to the three months ended
the three months ended
months ended
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Self-pay revenues represented approximately 1.4% and 0.5% of net operating
revenues for the three months ended
amount of foregone revenue related to providing charity care services as a
percentage of net operating revenues was approximately 11.7% and 7.6% for the
three months ended
costs incurred in providing charity care services as a percentage of net
operating revenues was approximately 1.3% and 0.9% for the three months ended
Overview of Legislative Developments
large number of proposals and legislation designed to make major changes in the
healthcare system, including changes that have impacted access to health
insurance. The most prominent of these efforts, the Affordable Care Act,
regulates how healthcare services are covered, delivered and reimbursed. The
Affordable Care Act increased health insurance coverage through a combination of
public program expansion and private sector health insurance reforms. The
Affordable Care Act also made a number of changes to Medicare and Medicaid
reimbursement, such as a productivity offset to the Medicare market basket
update and reductions to Medicare and Medicaid disproportionate share hospital,
or DSH, payments. However, reductions to Medicaid DSH payments have been delayed
by the Consolidated Appropriations Act, or the CAA, through 2023 (to begin in
federal fiscal year 2024).
The Affordable Care Act has been subject to legislative and regulatory
changes and court challenges. For example, effective
financial penalty associated with the mandate that most individuals enroll in a
health insurance plan was effectively eliminated. This change resulted in legal
challenges to the constitutionality of the individual mandate and validity of
the Affordable Care Act as a whole. However, in
Court
in place. Nonetheless, the elimination of the individual mandate penalty and
other changes may impact the number of individuals that elect to obtain public
or private health insurance or the scope of such coverage, if purchased. Some
states have imposed individual health insurance mandates, and other states have
explored or offer public health insurance options.
The current presidential administration has indicated that it generally
intends to protect and strengthen the Affordable Care Act and Medicaid programs.
For example, in
instructed certain governmental agencies to review and reconsider their existing
policies and rules that limit access to health insurance coverage. In a final
rule published in
for coverage through federal marketplaces and granted state exchanges
flexibility to lengthen their open enrollment periods.
Of critical importance to us is the potential impact of any changes specific
to the Medicaid program, including the funding and expansion provisions of the
Affordable Care Act and subsequent legislation or agency initiatives.
Historically, the states with the greatest reductions in the number of uninsured
adult residents have expanded Medicaid. A number of states have opted out of the
Medicaid coverage expansion provisions, but could ultimately decide to expand
their programs at a later date. Of the 16 states in which we operated hospitals
as of
programs. At this time, the other seven states have not, including
number of hospitals as of
applied to use, waivers granted by CMS to implement expansion, impose different
eligibility or enrollment conditions, or otherwise implement programs that vary
from federal standards.
There is uncertainty regarding the ongoing net effect of the Affordable Care
Act due to the potential for continued changes to the law's implementation and
its interpretation by government agencies and courts. There is also uncertainty
regarding the potential impact of other health reform efforts at the federal and
state levels. Some reforms may have a positive impact on our business, while
others may increase our operating costs, adversely impact the reimbursement we
receive, or require us to modify certain aspects of our operations. For example,
some members of
government-sponsored health insurance coverage, including single-payor models,
and some states have implemented or are considering public health insurance
options. Legislative and executive branch efforts related to healthcare reform
could result in increased prices for consumers purchasing health insurance
coverage or destabilize insurance markets, among other effects. Some current
initiatives, requirements and proposals, including those aimed at price
transparency and out-of-network charges, may impact prices, our competitive
position and the relationships between hospitals, insurers and patients. For
example, the No Surprises Act requires providers to send an insured patient's
health plan a good faith estimate of expected charges, including billing and
diagnostic codes, prior to when the patient is scheduled to receive the item or
service. HHS is deferring enforcement of this requirement until it issues
additional regulations.
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In recent years, a number of laws, including the Affordable Care Act and the
Medicare Access and CHIP Reauthorization Act, have promoted shifting from
traditional fee-for-service reimbursement models to alternative payment models
that tie reimbursement to quality and cost of care. For example, CMS currently
administers various accountable care organizations and bundled payment
demonstration projects. In
outline of its strategy for the next decade, noting the need to accelerate the
movement to value-based care and drive broader system transformation. However,
the COVID-19 pandemic may impact provider performance and data reporting under
value-based care initiatives. CMS has temporarily modified requirements of
certain programs by, for example, implementing special scoring and payment
policies intended to mitigate negative impacts of the public health emergency on
hospitals participating in the Hospital Value-Based Purchasing Program and
similar programs.
In response to the COVID-19 pandemic, federal and state governments have
passed legislation, promulgated regulations, and taken other administrative
actions intended to assist healthcare providers in providing care to COVID-19
and other patients during the public health emergency and to provide financial
relief. These measures include temporary relief from Medicare conditions of
participation requirements for healthcare providers, temporary relaxation of
licensure requirements for healthcare professionals, temporary relaxation of
privacy restrictions for telehealth remote communications, promoting use of
telehealth by temporarily expanding the scope of services for which Medicare
reimbursement is available, and limited waivers of fraud and abuse laws for
activities related to COVID-19 during the public health emergency period.
Primary legislative sources of COVID-19 relief include the Coronavirus Aid,
Relief and Economic Security Act, or the CARES Act, the Paycheck Protection
Program and Health Care Enhancement Act, or the PPPHCE Act, the CAA, and the
American Rescue Plan Act of 2021, or the ARPA. Together, these stimulus laws
authorize over
Health and Social Services Emergency Fund
including public entities and Medicare- and/or Medicaid-enrolled providers.
PHSSEF payments are intended to compensate healthcare providers for lost
revenues or incremental expenses incurred in response to the COVID-19 pandemic
and are not required to be repaid, provided that recipients attest to and comply
with certain terms and conditions, including limitations on balance billing, not
using PHSSEF funds to reimburse expenses or losses that other sources have been
or are obligated to reimburse and audit and reporting requirements.
In addition, the CARES Act expanded the Medicare Accelerated and Advance
Payment Program to increase cash flow to providers impacted by the COVID-19
pandemic. Inpatient acute care hospitals were able to request accelerated
payment of up to 100% of their Medicare payment amount for a six-month period.
The Medicare Accelerated and Advanced Payment Program payments are advances that
providers must repay. Providers are required to repay accelerated payments
beginning one year after the payment was issued. After such one-year period,
Medicare payments owed to providers will be recouped according to the repayment
terms.
The CARES Act and related legislation include other provisions offering
financial relief, for example suspending the Medicare sequestration payment
adjustment from
otherwise reduced payments to Medicare providers by 2% as required by the Budget
Control Act of 2011 (but also extending sequestration through 2030).
further delayed these sequestration cuts through
sequestration adjustment to 1% from
the reductions set for 2030. The CARES Act and related legislation also delay
scheduled reductions to Medicaid DSH payments, provide a 20% add-on to the
inpatient PPS DRG rate for COVID-19 patients for the duration of the public
health emergency, permitted the deferral of payment of the employer portion of
social security taxes between
the deferred amount due
2022
provision of COVID-19 testing, treatment, and vaccine administration to
uninsured individuals by way of the
or HRSA, COVID-19 Uninsured Program. However, in addition to providing funding
for healthcare providers, the ARPA increased the federal budget deficit in a
manner that triggers an additional statutorily mandated sequestration under the
Pay-As-You-Go Act of 2010. As a result, an additional Medicare spending
reduction of up to 4% was required to take effect in
Through March, 31, 2022, net of amounts that have been repaid to the
respective federal state, and local agency, we received approximately
million
local programs on a cumulative basis since their enactment. Of the net amount
received to-date, approximately
ended
operating revenues, and had a positive impact on net loss attributable to
31, 2022
Amounts received through various federal, state or local programs that have not
yet been recognized or otherwise have not been refunded to HHS are included
within accrued liabilities-other in the condensed consolidated balance sheets,
and such unrecognized amounts may be returned to HHS or the respective state or
local agency, as applicable, or may be recognized in future periods if the
underlying conditions for recognition are reasonably assured of being met.
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With respect to the Medicare Accelerated and Advanced Payment Program, we
received Medicare accelerated payments of approximately
2020
such time and because CMS is no longer accepting new applications for
accelerated payments, we do not expect to receive additional Medicare
accelerated payments. CMS began recouping Medicare accelerated payments in
2021
were recouped or repaid to CMS or assumed by buyers related to hospitals we
divested. In this regard, approximately
accelerated payments were recouped or repaid to CMS or assumed by buyers related
to hospitals we divested during the years ended
respectively.
There is still a high degree of uncertainty regarding the magnitude and
timing of any future payments or benefits that we may receive or realize under
the CARES Act and other stimulus legislation passed in response to the COVID-19
pandemic. In addition, the public health emergency continues to evolve. Some of
the measures allowing for flexibility in delivery of care and various financial
supports for healthcare providers are available only until funds expire or for
the duration of the public health emergency, and it is unclear whether or for
how long the public health emergency declaration will be extended. The current
declaration expires
declaration for successive 90-day periods for as long as the emergency continues
to exist and may terminate the declaration whenever he determines that the
public health emergency no longer exists, but has indicated that HHS will
provide states with 60 days' notice prior to termination of the declaration. The
federal government may consider additional stimulus and relief efforts, but we
are unable to predict whether additional stimulus measures will be enacted or
their impact on us. For example, the HRSA COVID-19 Uninsured Program has stopped
accepting claims for reimbursement for testing, treatment, and vaccinations, and
we are unable to predict whether this program will receive additional funding.
There can be no assurance as to the total amount of financial and other types of
assistance that we will receive under federal, state and local stimulus or
relief programs, and it is difficult to predict the impact of such measures on
our operations or how they will affect operations of our competitors. Further,
there can be no assurance that the terms of provider relief funding or other
programs will not change or be interpreted in ways that affect our funding or
eligibility to participate or our ability to comply with applicable requirements
and retain amounts received. We continue to assess the potential impact of the
CARES Act and other enacted stimulus legislation, the potential impact of future
stimulus measures, if any, and the impact of other laws, regulations, and
guidance related to COVID-19 on our business, results of operations, financial
condition and cash flows.
In
Services
procedures before announcing an earlier policy related to DSH payments made
under Medicare to hospitals. In response to this adverse ruling, CMS proposed a
rule in
procedural errors cited by the
decision. CMS's action has introduced uncertainty regarding the potential
outcomes from the
further litigation. If HHS or CMS are unsuccessful in their attempt to assert
the proposed rule or another legal basis for their policy, one potential outcome
is the federal government could be required to reimburse hospitals, including
our affiliated hospitals, for Medicare DSH payments which otherwise would have
been payable over certain prior time periods absent the enactment of this
policy. While the ruling in Allina was specific to the DSH payments calculated
for federal fiscal year 2012 for the plaintiff hospitals, we believe that,
because of the precedent of this ruling, prior time periods with the potential
for higher DSH payments, including federal fiscal years 2005 to 2013, could be
impacted. There continues to be uncertainty regarding the extent to which, if
any, Medicare DSH payments will be remitted to our affiliated hospitals as the
result of Allina and subsequent litigation, and, if so, the timing of any such
payments. Litigants in lawsuits challenging the proposed rule are seeking such
relief. We anticipate that if it is ultimately determined that our affiliated
hospitals are entitled to receive such Medicare DSH payments for these prior
time periods, these payments could have a material positive impact on a
non-recurring basis in any future period in which net income is recognized in
respect thereof as well as on our cash flows from operations in any future
period in which these payments are received.
As a result of our current levels of cash, pandemic relief fund payments we have
received and may in the future receive under federal, state or local stimulus or
relief programs, available borrowing capacity, long-term outlook on our debt
repayments, the refinancing of certain of our notes, proceeds from the sale of
hospitals and the continued projection of our ability to generate cash flows, we
anticipate that we will be able to invest the necessary capital in our business
over the next twelve months and for the foreseeable future thereafter. We
believe there continues to be ample opportunity to strengthen our market share
in substantially all of our markets by decreasing the need for patients to
travel outside their communities for healthcare. Furthermore, we will continue
to strive to improve operating efficiencies and procedures in order to improve
the performance of our hospitals.
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Sources of Revenue
The following table presents the approximate percentages of net operating
revenues by payor source for the periods indicated. The data for the periods
presented are not strictly comparable due to the effect that hospital
acquisitions and divestitures have had on these statistics.
Three Months Ended
March 31,
2022 2021
Medicare 21.5 % 23.0 %
Medicaid 15.0 13.0
Managed Care and other third-party payors 62.1 63.5
Self-pay 1.4 0.5
Total 100.0 % 100.0 %
As shown above, we receive a substantial portion of our revenues from the
Medicare and Medicaid programs. Included in Managed Care and other third-party
payors is operating revenues from insurance companies with which we have
insurance provider contracts, Medicare managed care, insurance companies for
which we do not have insurance provider contracts, workers' compensation
carriers and non-patient service revenue, such as rental income and cafeteria
sales. In the future, we generally expect the portion of revenues received from
the Medicare and Medicaid programs to increase over the long-term due to the
general aging of the population and other factors, including health reform
initiatives. There has been a trend toward increased enrollment in Medicare and
Medicaid managed care, which may adversely affect our operating revenue. We may
also be impacted by regulatory requirements imposed on insurers, such as minimum
medical-loss ratios and specific benefit requirements. Furthermore, in the
normal course of business, managed care programs, insurance companies and
employers actively negotiate the amounts paid to hospitals. Our relationships
with payors may be impacted by price transparency initiatives and out-of-network
billing restrictions, including those in the No Surprises Act, which took effect
reimbursement arrangements or that third-party payors will not attempt to
further reduce the rates they pay for our services.
Net operating revenues include amounts estimated by management to be
reimbursable by Medicare and Medicaid under prospective payment systems and
provisions of cost-based reimbursement and other payment methods. In addition,
we are reimbursed by non-governmental payors using a variety of payment
methodologies. Amounts we receive for the treatment of patients covered by
Medicare, Medicaid and non-governmental payors are generally less than our
standard billing rates. We account for the differences between the estimated
program reimbursement rates and our standard billing rates as contractual
allowance adjustments, which we deduct from gross revenues to arrive at net
operating revenues. Final settlements under some of these programs are subject
to adjustment based on administrative review and audit by third parties. We
account for adjustments to previous program reimbursement estimates as
contractual allowance adjustments and report them in the periods that such
adjustments become known. Contractual allowance adjustments related to final
settlements and previous program reimbursement estimates impacted net operating
revenues and net income (loss) by an insignificant amount in each of the
three-month periods ended
The payment rates under the Medicare program for hospital inpatient and
outpatient acute care services are based on prospective payment systems, which
depend upon a patient's diagnosis or the clinical complexity of services
provided to a patient, among other factors. These rates are indexed for
inflation annually, although increases have historically been less than actual
inflation. On
index by 2.7% for hospital inpatient acute care services that are reimbursed
under the prospective payment system for federal fiscal year 2022 (which began
for hospital inpatient acute care services are expected to increase
approximately 2.5%. Hospitals that do not submit required patient quality data
are subject to a reduction in payments. We are complying with this data
submission requirement. Payments may also be affected by various other
adjustments, including those that depend on patient-specific or hospital
specific factors. For example, the "two midnight rule" establishes admission and
medical review criteria for inpatient services limiting when services to
Medicare beneficiaries are payable as inpatient hospital services. Reductions in
the rate of increase or overall reductions in Medicare reimbursement may cause a
decline in the growth of our net operating revenues.
Payment rates under the Medicaid program vary by state. In addition to the base
payment rates for specific claims for services rendered to Medicaid enrollees,
several states utilize supplemental reimbursement programs to make separate
payments that are not specifically tied to an individual's care, some of which
offset a portion of the cost of providing care to Medicaid and indigent
patients. These programs are designed with input from CMS and are funded with a
combination of state and federal resources, including, in certain instances,
fees or taxes levied on the providers. The programs are generally authorized for
a specified period of time and require CMS's approval to be extended. We are
unable to predict whether or on what terms CMS will extend the supplemental
programs in the states in which we operate. Under these supplemental programs,
we recognize revenue and related expenses in the period in which amounts are
estimable and payment is reasonably assured. Reimbursement under these programs
is reflected in net operating revenues and included as Medicaid revenue in the
table above, and fees, taxes or other program related costs are reflected in
other operating expenses.
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Results of Operations
Our hospitals offer a broad variety of inpatient and outpatient medical and
surgical services. These include general acute care, emergency room, general and
specialty surgery, critical care, internal medicine, obstetrics, diagnostic
services, psychiatric and rehabilitation services. Historically, the strongest
demand for hospital services generally occurs during January through April and
the weakest demand for these services generally occurs during the summer months.
Accordingly, eliminating the effects of new acquisitions and/or divestitures,
our net operating revenues and earnings are historically highest during the
first quarter and lowest during the third quarter. As previously noted, the
COVID-19 pandemic has disrupted the pattern of demand for services we provide.
The following tables summarize, for the periods indicated, selected operating
data.
Three Months Ended
March 31,
2022 2021
Operating results, as a percentage of net operating
revenues:
Net operating revenues
100.0 % 100.0 % Operating expenses (a) (87.0 ) (83.9 ) Depreciation and amortization (4.1 ) (4.6 ) Impairment and (gain) loss on sale of businesses, net (0.2 ) (0.7 ) Income from operations 8.7 10.8 Interest expense, net (7.0 ) (7.7 ) Loss from early extinguishment of debt (0.2 ) (2.3 ) Equity in earnings of unconsolidated affiliates 0.2 0.3 Income before income taxes 1.7 1.1 Provision for income taxes (0.7 ) (2.3 ) Net income (loss) 1.0 (1.2 ) Less: Net income attributable to noncontrolling interests (1.0 ) (0.9 )
Net loss attributable to
Systems, Inc. stockholders 0.0 % (2.1 )%
Three Months Ended March 31,
2022 2021
Percentage increase (decrease) from prior year:
Net operating revenues 3.3 % (0.4 )%
Admissions (b) (1.7 ) (14.0 )
Adjusted admissions (c) 2.2 (15.8 )
Average length of stay (d) 2.0 11.1
Net loss attributable to
Systems, Inc. 98.4 (455.6 ) Same-store percentage increase (decrease) from prior year (e): Net operating revenues 3.8 % 9.8 % Admissions (b) (0.3 ) (4.9 ) Adjusted admissions (c) 3.2 (7.2 )
(a) Operating expenses include salaries and benefits, supplies, other operating
expenses, lease cost and rent, net of the reduction in operating expenses
through March 31, 2022 and 2021, resulting from the recognition of pandemic
relief funds.
(b) Admissions represents the number of patients admitted for inpatient
treatment.
(c) Adjusted admissions is a general measure of combined inpatient and outpatient
volume. We computed adjusted admissions by multiplying admissions by gross
patient revenues and then dividing that number by gross inpatient revenues.
(d) Average length of stay represents the average number of days inpatients stay
in our hospitals.
(e) Excludes information for businesses sold or closed during each of the
respective periods, as applicable.
Items (b) - (e) are metrics used to manage our performance. These metrics
provide useful insight to investors about the volume and acuity of services we
provide, which aid in evaluating our financial results.
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Three Months Ended
Net operating revenues increased to
2021
operated throughout both periods increased
three months ended
31, 2021
was attributable to increased patient volumes, acuity, and reimbursement rates.
Non-same-store net operating revenues decreased
months ended
consolidated basis, inpatient admissions decreased by 1.7% and adjusted
admissions increased by 2.2% during the three months ended
compared to the three months ended
operating revenues per adjusted admission increased 0.5%, while inpatient
admissions decreased by 0.3% and adjusted admissions increased by 3.2% for the
three months ended
2021
Operating costs and expenses, as a percentage of net operating revenues,
increased from 89.2% during the three months ended
during the three months ended
excluding depreciation and amortization and impairment and (gain) loss on sale
of businesses, as a percentage of net operating revenues, increased from 83.9%
for the three months ended
revenues, decreased from 43.2% for the three months ended
42.6% for the three months ended
moving to contract labor roles, partially offset by wage inflation. Supplies, as
a percentage of net operating revenues, decreased from 16.3% for the three
months ended
Other operating expenses, as a percentage of net operating revenues, increased
from 24.5% for the three months ended
months ended
and rates for contract labor. Lease cost and rent, as a percentage of net
operating revenues, decreased from 2.6% for the three months ended
2021
as a percentage of net operating revenues, was (1.5)% for the three months ended
Depreciation and amortization, as a percentage of net operating revenues,
decreased to 4.1% for the three months ended
three months ended
Impairment and (gain) loss on sale of businesses, net was expense of
for the three months ended
sale, compared to
related primarily to divestitures during the period.
Interest expense, net, decreased by
months ended
2021 as discussed further in Liquidity.
Loss from early extinguishment of debt of
recognized during the three months ended
as a result of the refinancing of certain of our outstanding notes.
Equity in earnings of unconsolidated affiliates, as a percentage of net
operating revenues, decreased to (0.2)% for the three months ended
2022
sale of our unconsolidated equity interests in
three months ended
The net results of the above-mentioned changes resulted in income before income
taxes increasing
2022
Our provision for income taxes for the three months ended
million
effective tax rates were 43.4% and 202.9% for the three months ended
2022
163(j) interest carryforwards created as a result of the financing transaction
completed during the three months ended
allowances recognized related to the financing transactions completed during the
three months ended
the effective tax rate.
Net income (loss), as a percentage of net operating revenues, was 1.0% for the
three months ended
Net income attributable to noncontrolling interests as a percentage of net
operating revenues was 1.0% for the three months ended
to 0.9% for the three months ended
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Net loss attributable to
million
the three months ended
Liquidity and Capital Resources
Net cash provided by operating activities remained consistent at
for both of the three-month periods ended
interest was
to
taxes, net of refunds received, resulted in a net payment of
than
respectively.
Our net cash used in investing activities was approximately
three months ended
the three months ended
in investing activities during the three months ended
primarily impacted by a decrease of
dispositions of hospitals and other ancillary operations, an increase of
million
available-for-sale and equity securities, a
from the sale of property and equipment and a
proceeds from the sale of investments in unconsolidated affiliates.
These decreases in cash used in investing activities were partially offset by a
decrease of
decrease of
related businesses and a decrease of
investments.
Our net cash used in financing activities was approximately
three months ended
the three months ended
activities of approximately
effect of our debt repayments, refinancing activities, and cash paid for
deferred financing costs and other debt-related costs during the three months
ended
Liquidity
Net working capital was approximately
between
the increase in prepaid expenses and taxes and decreases in accrued interest and
other accrued liabilities during the three months ended
partially offset by a decrease in cash, as a result of debt repayments,
refinancing activities and cash paid for deferred financing costs.
In addition to cash flows from operations, available sources of capital include
amounts available under the asset-based loan (ABL) credit agreement, or the ABL
Credit Agreement, as amended and restated on
anticipated access to public and private debt markets.
Pursuant to the ABL Credit Agreement, the lenders have extended to
Health Systems, Inc.
Facility, in the maximum aggregate principal amount of
borrowing base capacity. At
the ABL Facility was
outstanding letters of credit and
We had no outstanding borrowings as of
credit were primarily in support of potential insurance-related claims and
certain bonds. Principal amounts outstanding under the ABL Facility, if any,
will be due and payable in full on
2022 Financing Activity
On
aggregate principal amount of 5¼% Senior Secured Notes due
5¼% Senior Secured Notes due 2030. The proceeds of the offering were used to
redeem the 6?% Senior Secured Notes due 2025 on
related fees and expenses. The 5¼% Senior Secured Notes due 2030 bear interest
at a rate of 5.250% per year payable semi-annually in arrears on
Additional Liquidity Information
Our ability to meet the restricted covenants and financial ratios and tests in
the ABL Facility and the indentures governing our outstanding notes can be
affected by events beyond our control, and we cannot assure you that we will
meet those tests. A breach of any of these covenants could result in a default
under the ABL Facility and/or the indentures that govern our outstanding notes.
Upon the occurrence of an event of default under the ABL Facility or indentures
that govern our outstanding notes, all amounts outstanding under the ABL
Facility and the indentures that govern our outstanding notes may become
immediately due and payable and all commitments under the ABL Facility to extend
further credit may be terminated.
29
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As of
billion
As previously discussed, we may require an increased level of working capital if
we experience extended billing and collection cycles resulting from negative
economic conditions and other factors arising from the COVID-19 pandemic, which
may impact service mix, revenue mix, payor mix and patient volumes, as well as
our ability to collect outstanding receivables. A material increase in the
amount or deterioration in the collectability of accounts receivable will
adversely affect our cash flows and results of operations, requiring an
increased level of working capital.
We believe that internally generated cash flows and current levels of
availability for additional borrowing under the ABL Facility, as well as our
continued access to the capital markets, will be sufficient to finance
acquisitions, capital expenditures, working capital requirements, and any debt
repurchases or other debt repayments we may elect to make or be required to make
through the next 12 months and the foreseeable future thereafter. Pandemic
relief funds that we have received and may continue to receive through various
federal, state and local stimulus or relief programs have been and will continue
to be used according to applicable terms and conditions as reimbursement for
lost revenues or incremental expenses attributable to COVID-19, including
working capital requirements and capital expenditures. As noted above, the
COVID-19 pandemic has resulted in, and may continue to result in, significant
disruptions of financial and capital markets, which could reduce our ability to
access capital and negatively affect our liquidity in the future. Additionally,
while we have received PHSSEF payments and accelerated Medicare payments under
the CARES Act and related legislation and may continue to receive and be able to
utilize PHSSEF payments which have been received, as noted above, there is no
assurance regarding the extent to which anticipated ongoing negative impacts on
us arising from the COVID-19 pandemic will be offset by benefits which we may
recognize or receive in the future under the CARES Act and related legislation
or any future stimulus measures.
We may elect from time to time to continue to purchase our outstanding debt in
open market purchases, privately negotiated transactions or otherwise. Any such
debt repurchases will depend upon prevailing market conditions, our liquidity
requirements, contractual restrictions, applicable securities laws requirements,
and other factors.
There have been no material changes outside of the ordinary course of business
to our upcoming cash obligations during the three months ended
from those disclosed under "Capital Resources" in Management's Discussion and
Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K,
except as discussed above related to debt refinancing activity during 2022.
Capital Resources
Cash expenditures for purchases of facilities and other related businesses were
approximately
three months ended
practices and other ancillary services.
Excluding the cost to construct replacement and de novo hospitals, our cash
expenditures for routine capital for the three months ended
totaled
2021
equipment, minor renovations and information systems infrastructure. Costs to
construct replacement hospitals totaled
three months ended
the construction of a replacement facility in
three months ended
million
construction costs primarily for one de novo hospital in the
market. This de novo hospital is expected to be completed in the first half of
2022 and have 52 beds.
Pursuant to a hospital purchase agreement from our
build a replacement facility in
facility for
years of the date we enter into a new lease with
hospital lessor, or in the event we do not enter into a new lease with
County
entered into a new lease with the lessor for
currently anticipate completing construction of the
replacement facility in 2026. The estimated construction costs, including
equipment costs, for the construction of this replacement facility in
Indiana
Reimbursement, Legislative and Regulatory Changes
Ongoing legislative and regulatory efforts could reduce or otherwise adversely
affect the payments we receive from Medicare and Medicaid and other payors.
Within the statutory framework of the Medicare and Medicaid programs, there are
substantial areas subject to administrative rulings, interpretations and
discretion which may further affect payments made under those programs, and the
federal and state governments might, in the future, reduce the funds available
under those programs or require more stringent
30
--------------------------------------------------------------------------------
utilization and quality reviews of hospital facilities. Additionally, there may
be a continued rise in managed care programs and additional restructuring of the
financing and delivery of healthcare in
cause our future financial results to be adversely impacted. We cannot estimate
the impact of Medicare and Medicaid reimbursement changes that have been enacted
or are under consideration. We cannot predict whether additional reimbursement
reductions will be made or whether any such changes or other restructuring of
the financing and delivery of healthcare would have a material adverse effect on
our business, financial conditions, results of operations, cash flow, capital
resources and liquidity.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in
United States of America
requires us to make estimates and judgments that affect the reported amount of
assets and liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities at the date of our condensed consolidated
financial statements. Actual results may differ from these estimates under
different assumptions or conditions.
Critical accounting policies are defined as those policies that involve a
significant level of estimation uncertainty and have had or are reasonably
likely to have a material impact on the financial condition or results of
operations of the registrant. We believe that our critical accounting policies
are limited to those described below. The following information should be read
in conjunction with our significant accounting policies included in Note 1 of
the Notes to the Consolidated Financial Statements included under Part II, Item
8 of our 2021 Form 10-K.
Revenue Recognition
Net operating revenues include amounts estimated by management to be
reimbursable by Medicare and Medicaid under prospective payment systems and
provisions of cost-reimbursement and other payment methods. In addition, we are
reimbursed by non-governmental payors using a variety of payment methodologies.
Amounts we receive for treatment of patients covered by these programs are
generally less than the standard billing rates. Explicit price concessions are
recorded for contractual allowances that are calculated and recorded through
internally-developed data collection and analysis tools to automate the monthly
estimation of required contractual allowances. Within this automated system,
payors' historical paid claims data are utilized to calculate the contractual
allowances. This data is automatically updated on a monthly basis. All hospital
contractual allowance calculations are subjected to monthly review by management
to ensure reasonableness and accuracy. We account for the differences between
the estimated program reimbursement rates and the standard billing rates as
contractual allowance adjustments, which is one component of the deductions from
gross revenues to arrive at net operating revenues. The process of estimating
contractual allowances requires us to estimate the amount expected to be
received based on payor contract provisions. The key assumption in this process
is the estimated contractual reimbursement percentage, which is based on payor
classification, historical paid claims data and, when applicable, application of
the expected managed care plan reimbursement based on contract terms.
Due to the complexities involved in these estimates, actual payments we receive
could be different from the amounts we estimate and record. If the actual
contractual reimbursement percentage under government programs and managed care
contracts differed by 1% at
percentage, net income for the three months ended
changed by approximately
2022
programs are subject to adjustment based on administrative review and audit by
third parties. We account for adjustments to previous program reimbursement
estimates as contractual allowance adjustments and report them in the periods
that such adjustments become known. Contractual allowance adjustments related to
final settlements and previous program reimbursement estimates impacted net
operating revenues and net income (loss) by an insignificant amount for each of
the three-month periods ended
Patient Accounts Receivable
Substantially all of our accounts receivable are related to providing healthcare
services to patients at our hospitals and affiliated businesses. Collection of
these accounts receivable is our primary source of cash and is critical to our
operating performance. Our primary collection risks relate to uninsured patients
and outstanding patient balances for which the primary insurance payor has paid
some but not all of the outstanding balance, with the remaining outstanding
balance (generally deductibles and co-payments) owed by the patient. For all
procedures scheduled in advance, our policy is to verify insurance coverage
prior to the date of the procedure. Insurance coverage is not verified in
advance of procedures for walk-in and emergency room patients.
We estimate any adjustments to the transaction price for implicit price
concessions by reserving a percentage of all self-pay accounts receivable
without regard to aging category, based on collection history, adjusted for
expected recoveries and any anticipated changes in trends. Our ability to
estimate the transaction price and any implicit price concessions is not
impacted by not utilizing an aging of our net accounts receivable as we believe
that substantially all of the risk exists at the point in time such accounts are
31
--------------------------------------------------------------------------------
identified as self-pay. The percentage used to reserve for all self-pay accounts
is based on our collection history. We believe that we collect substantially all
of our third-party insured receivables, which include receivables from
governmental agencies.
Patient accounts receivable can be impacted by the effectiveness of our
collection efforts and, as described in our significant accounting policies
included in Note 1 of the Notes to Condensed Consolidated Financial Statements
included under Part I, Item 1 of this Form 10-Q, numerous factors may affect the
net realizable value of accounts receivable. If the actual collection percentage
differed by 1% at
result of a change in expected recoveries, net income for the three months ended
overall reserve adequacy by monitoring historical cash collections as a
percentage of trailing net operating revenues, as well as by analyzing current
period net revenue and admissions by payor classification, days revenue
outstanding, the composition of self-pay receivables between pure self-pay
patients and the patient responsibility portion of third-party insured
receivables and the impact of recent acquisitions and dispositions.
Our policy is to write-off gross accounts receivable if the balance is under
believe this policy accurately reflects our ongoing collection efforts and is
consistent with industry practices. We had approximately
31, 2022
outside collection agencies. We expect to collect less than 4%, net of estimated
collection fees, of the amounts being pursued by outside collection agencies. As
these amounts have been written-off, they are not included in our accounts
receivable. Collections on amounts previously written-off are recognized as a
recovery of net operating revenues when received. However, we take into
consideration estimated collections of these future amounts written-off in
determining the implicit price concessions used to measure the transaction price
for the applicable portfolio of patient accounts receivable.
All of the following information is derived from our hospitals, excluding
clinics, unless otherwise noted.
Patient accounts receivable from our hospitals represent approximately 98% of
our total consolidated accounts receivable.
Days revenue outstanding, adjusted for the impact of receivables for state
Medicaid supplemental payment programs and divested facilities, was 56 days and
55 days at
Total gross accounts receivable (prior to allowance for contractual adjustments
and implicit price concessions) was approximately
2022
receivable (prior to allowance for contractual adjustments and implicit price
concessions) summarized by aging categories is as follows:
As of
% of Gross Receivables
0 - 90 90 - 180 180 - 365 Over 365
Payor Days Days Days Days
Medicare 12 % 1 % - % - %
Medicaid 7 % 1 % 1 % 1 %
Managed Care and Other 34 % 5 % 4 % 3 %
Self-Pay 7 % 5 % 9 % 10 %
As of
% of Gross Receivables
0 - 90 90 - 180 180 - 365 Over 365
Payor Days Days Days Days
Medicare 12 % 1 % - % - %
Medicaid 7 % 1 % 1 % 1 %
Managed Care and Other 33 % 5 % 3 % 2 %
Self-Pay 8 % 5 % 9 % 12 %
32
--------------------------------------------------------------------------------
The approximate percentage of total gross accounts receivable (prior to
allowances for contractual adjustments and implicit price concessions)
summarized by payor is as follows:
March 31, December 31,
2022 2021
Insured receivables 67.9 % 66.3 %
Self-pay receivables 32.1 33.7
Total 100.0 % 100.0 %
The combined total at our hospitals and clinics for the estimated implicit price
concessions for self-pay accounts receivable and allowances for other self-pay
discounts and contractuals, as a percentage of gross self-pay receivables, was
approximately 90% at
If the receivables that have been written-off, but where collections are still
being pursued by outside collection agencies, were included in both the
allowances and gross self-pay receivables specified above, the percentage of
combined allowances to total self-pay receivables would have been 93% at both
Professional Liability Claims
As part of our business of providing healthcare services, we are subject to
legal actions alleging liability on our part. We accrue for losses resulting
from such liability claims, as well as loss adjustment expenses that are
out-of-pocket and directly related to such liability claims. These direct
out-of-pocket expenses include fees of outside counsel and experts. We do not
accrue for costs that are part of our corporate overhead, such as the costs of
our in-house legal and risk management departments. The losses resulting from
professional liability claims primarily consist of estimates for known claims,
as well as estimates for incurred but not reported claims. The estimates are
based on specific claim facts, our historical claim reporting and payment
patterns, the nature and level of our hospital operations, and actuarially
determined projections. The actuarially determined projections are based on our
actual claim data, including historic reporting and payment patterns which have
been gathered over an approximately 20-year period. As discussed below, since we
purchase excess insurance on a claims-made basis that transfers risk to
third-party insurers, the liability we accrue does include an amount for the
losses covered by our excess insurance. We also record a receivable for the
expected reimbursement of losses covered by our excess insurance. Since we
believe that the amount and timing of our future claims payments are reliably
determinable, we discount the amount we accrue for losses resulting from
professional liability claims using the risk-free interest rate corresponding to
the timing of our expected payments.
The net present value of the projected payments was discounted using a
weighted-average risk-free rate of approximately 3.0% and 1.8% at
and
information in the period such information becomes known to us. Professional
malpractice expense includes the losses resulting from professional liability
claims and loss adjustment expense, as well as excess insurance premiums, and is
presented within other operating expenses in the accompanying condensed
consolidated statements of loss.
Our processes for obtaining and analyzing claims and incident data are
standardized across all of our businesses and have been consistent for many
years. We monitor the outcomes of the medical care services that we provide and
for each reported claim, we obtain various information concerning the facts and
circumstances related to that claim. In addition, we routinely monitor current
key statistics and volume indicators in our assessment of utilizing historical
trends. The average lag period between claim occurrence and payment of a final
settlement is between three and four years, although the facts and circumstances
of individual claims could result in the timing of such payments being different
from this average. Since claims are paid promptly after settlement with the
claimant is reached, settled claims represent less than 1.0% of the total
liability at the end of any period.
For purposes of estimating our individual claim accruals, we utilize specific
claim information, including the nature of the claim, the expected claim amount,
the year in which the claim occurred and the laws of the jurisdiction in which
the claim occurred. Once the case accruals for known claims are determined,
information is stratified by loss layers and retentions, accident years,
reported years and geography. Several actuarial methods are used against this
data to produce estimates of ultimate paid losses and reserves for incurred but
not reported claims. Each of these methods uses our company-specific historical
claims data and other information. Company-specific data includes information
regarding our business, including historical paid losses and loss adjustment
expenses, historical and current case loss reserves, actual and projected
hospital statistical data, a variety of hospital census information, employed
physician information, professional liability retentions for each policy year,
geographic information and other data. Significant assumptions are made on the
basis of the aforementioned information in estimating reserves for incurred but
not reported claims. A 1% change in assumptions for either severity or frequency
as of
million
33
--------------------------------------------------------------------------------
Based on these analyses, we determine our estimate of the professional liability
claims. The determination of management's estimate, including the preparation of
the reserve analysis that supports such estimate, involves subjective judgment
of management. Changes in reserve data or the trends and factors that influence
reserve data may signal fundamental shifts in our future claim development
patterns or may simply reflect single-period anomalies. Even if a change
reflects a fundamental shift, the full extent of the change may not become
evident until years later. Moreover, since our methods and models use different
types of data and we select our liability from the results of all of these
methods, we typically cannot quantify the precise impact of such factors on our
estimates of the liability. Due to our standardized and consistent processes for
handling claims and the long history and depth of our company-specific data, our
methodologies have historically produced reliably determinable estimates of
ultimate paid losses. Management considers any changes in the amount and pattern
of its historical paid losses up through the most recent reporting period to
identify any fundamental shifts or trends in claim development experience in
determining the estimate of professional liability claims. However, due to the
subjective nature of this estimate and the impact that previously unforeseen
shifts in actual claim experience can have, future estimates of professional
liability could be adversely impacted when actual paid losses develop
unexpectedly based on assumptions and settlement events that were not previously
known or anticipated.
We are primarily self-insured for professional liability claims; however, we
obtain excess insurance that transfers the risk of loss to a third-party insurer
for claims in excess of our self-insured retentions. Our excess insurance is
underwritten on a claims-made basis. For claims reported prior to
substantially all of our professional and general liability risks were subject
to a less than
reported from
were
2003
Substantially all claims reported on or after
2014
reported on or after
2018
selectively increased the insured risk at certain hospitals based upon insurance
pricing and other factors and may continue that practice in the future.
Excess insurance for all hospitals has been purchased through commercial
insurance companies and generally covers us for liabilities in excess of the
self-insured retentions. The excess coverage consists of multiple layers of
insurance, the sum of which totals up to
aggregate for claims reported on or after
occurrence and in the aggregate for claims reported on or after
up to
after
aggregate for claims reported on or after
integrated occurrence malpractice claims, there is an additional
excess coverage for claims reported on or after
through
also apply to claims reported between
that occurred prior to
reported. For certain policy years prior to
layer of excess coverage becomes fully utilized, then the self-insured retention
will increase to
year until our total aggregate coverage is met. Beginning
drop-down provision in the excess policies attaches over the
claim self-insured retention.
Effective
Associates, Inc.
and through commercial insurance companies as described above for substantially
all claims reported on or after
with an occurrence date prior to
HMA hospitals obtained insurance coverage through a wholly-owned captive
insurance subsidiary and a risk retention group subsidiary which are domiciled
in the
subsidiaries, which are collectively referred to as the "Insurance
Subsidiaries," provided (i) claims-made coverage to all of the former HMA
hospitals and (ii) occurrence-basis coverage to most of the physicians employed
by the former HMA hospitals. The employed physicians not covered by the
Insurance Subsidiaries generally maintained claims-made policies with unrelated
third party insurance companies. To mitigate the exposure of the program
covering the former HMA hospitals and other healthcare facilities, the Insurance
Subsidiaries bought claims-made reinsurance policies from unrelated third
parties for claims above self-retention levels of
claim, depending on the policy year.
There were no significant changes in our estimate of the reserve for
professional liability claims during the three months ended
Income Taxes
We must make estimates in recording provision for income taxes, including
determination of deferred tax assets and deferred tax liabilities and any
valuation allowances that might be required against the deferred tax assets. We
believe that future income will enable us to realize certain deferred tax
assets, subject to the valuation allowance we have established.
34
--------------------------------------------------------------------------------
The total amount of unrecognized benefit that would impact the effective tax
rate, if recognized, was less than
less than
liability for uncertain tax positions at
recognize interest and penalties related to unrecognized benefits in our
condensed consolidated statements of loss as income tax expense.
It is possible the amount of unrecognized tax benefit could change in the next
12 months as a result of a lapse of the statute of limitations and settlements
with taxing authorities; however, we do not anticipate the change will have a
material impact on our consolidated results of operations or consolidated
financial position.
Our federal income tax return for the 2018 tax year remains under examination by
the Internal Revenue Service. We believe the result of this examination will not
be material to our consolidated results of operations or consolidated financial
position. We have extended the federal statute of limitations through
2022
2014
through
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, Section 21E of the Securities
Exchange Act of 1934, as amended, and the Private Securities Litigation Reform
Act of 1995 that involve risks and uncertainties. Statements that are predictive
in nature, that depend upon or refer to future events or conditions or that
include words such as "expects," "anticipates," "intends," "plans," "believes,"
"estimates," "thinks," and similar expressions are forward-looking statements.
These statements involve known and unknown risks, uncertainties, and other
factors that may cause our actual results and performance to be materially
different from any future results or performance expressed or implied by these
forward-looking statements. A number of factors could affect the future results
of the Company or the healthcare industry generally and could cause the
Company's expected results to differ materially from those expressed in this
Form 10-Q. These factors include, among other things:
• developments related to COVID-19, including, without limitation, related to
the length and severity of the pandemic; the volume of canceled or rescheduled
procedures; the volume of COVID-19 patients cared for across our health
systems; the timing, availability and acceptance of effective medical
treatments, vaccines (including additional dosages of vaccines) and tests; the
spread of potentially more contagious and/or virulent forms of the virus,
including variants of the virus for which currently available vaccines,
treatments and tests may not be effective or authorized; measures we are
taking to respond to the COVID-19 pandemic; the impact of government actions
on us, including with respect to vaccine mandates, testing requirements,
travel restrictions and other virus containment measures; changes in net
operating revenues due to patient volumes, payor mix and evolving
macroeconomic conditions; inflationary conditions and increased expenses
related to labor, supply chain, capital and other expenditures; workforce
disruptions; and supply shortages and disruptions;
• uncertainty regarding the magnitude and timing of any future payments or
benefits we may receive or realize under the CARES Act, the PPPHCE Act, the
CAA, the ARPA and any other future stimulus measures related to COVID-19;
• general economic and business conditions, both nationally and in the regions
in which we operate, including economic and business conditions resulting from
the COVID-19 pandemic;
• the impact of current or future federal and state health reform initiatives,
including the Affordable Care Act, and the potential for changes to the
Affordable Care Act, its implementation or its interpretation (including
through executive orders and court challenges);
• the extent to and manner in which states support increases, decreases or
changes in Medicaid programs, implement health insurance exchanges or alter
the provision of healthcare to state residents through legislation, regulation
or otherwise;
• the future and long-term viability of health insurance exchanges and potential
changes to the beneficiary enrollment process;
• risks associated with our substantial indebtedness, leverage and debt service
obligations, including our ability to refinance such indebtedness on
acceptable terms or to incur additional indebtedness, and our ability to
remain in compliance with debt covenants;
• demographic changes;
• changes in, or the failure to comply with, federal, state or local laws or
governmental regulations affecting our business, including any such laws or
governmental regulations which are adopted in connection with the COVID-19
pandemic;
• potential adverse impact of known and unknown legal, regulatory and
governmental proceedings and other loss contingencies, including governmental
investigations and audits, and federal and state false claims act litigation;
35
--------------------------------------------------------------------------------
• our ability, where appropriate, to enter into and maintain provider
arrangements with payors and the terms of these arrangements, which may be
further affected by the increasing consolidation of health insurers and
managed care companies and vertical integration efforts involving payors and
healthcare providers;
• changes in, or the failure to comply with, contract terms with payors and
changes in reimbursement policies or rates paid by federal or state healthcare
programs or commercial payors;
• any security breaches, cyber-attacks, loss of data, other cybersecurity
threats or incidents, and any actual or perceived failures to comply with
legal requirements governing the privacy and security of health information or
other regulated, sensitive or confidential information, or legal requirements
regarding data privacy or data protection;
• any potential impairments in the carrying value of goodwill, other intangible
assets, or other long-lived assets, or changes in the useful lives of other
intangible assets;
• changes in inpatient or outpatient Medicare and Medicaid payment levels and
methodologies;
• the effects related to the implementation of the sequestration spending
reductions pursuant to both the Budget Control Act of 2011 and the
Pay-As-You-Go Act of 2010 and the potential for future deficit reduction
legislation;
• increases in the amount and risk of collectability of patient accounts
receivable, including decreases in collectability which may result from, among
other things, self-pay growth and difficulties in recovering payments for
which patients are responsible, including co-pays and deductibles;
• the efforts of insurers, healthcare providers, large employer groups and
others to contain healthcare costs, including the trend toward value-based
purchasing;
• the impact of competitive labor market conditions and the shortage of
experienced nurses, including in connection with our ability to hire and
retain qualified nurses, physicians, other medical personnel and key
management, and increased labor expenses as a result of such competitive labor
market conditions, inflation and competition for such positions;
• any failure to obtain medical supplies or pharmaceuticals at favorable prices;
• liabilities and other claims asserted against us, including self-insured
malpractice claims;
• competition;
• trends toward treatment of patients in less acute or specialty healthcare
settings, including ambulatory surgery centers or specialty hospitals or via
telehealth;
• changes in medical or other technology;
• changes in GAAP;
• the availability and terms of capital to fund any additional acquisitions or
replacement facilities or other capital expenditures;
• our ability to successfully make acquisitions or complete divestitures, our
ability to complete any such acquisitions or divestitures on desired terms or
at all, the timing of the completion of any such acquisitions or divestitures,
and our ability to realize the intended benefits from any such acquisitions or
divestitures;
• the impact that changes in our relationships with joint venture or syndication
partners could have on effectively operating our hospitals or ancillary
services or in advancing strategic opportunities;
• our ability to successfully integrate any acquired hospitals and/or outpatient
facilities, or to recognize expected synergies from acquisitions;
• the impact of seasonal severe weather conditions and climate change, as well
as the timing and amount of insurance recoveries in relation to severe weather
events;
• our ability to obtain adequate levels of insurance, including general
liability, professional liability, and directors and officers liability
insurance;
• timeliness of reimbursement payments received under government programs;
• effects related to pandemics, epidemics, or outbreaks of infectious diseases,
including the novel coronavirus causing the disease known as COVID-19;
• any failure to comply with our obligations under license or technology
agreements;
• challenging economic conditions in certain non-urban communities in which we
operate;
• any developments with respect to the final auditing and reporting requirements
of, or other adverse developments with respect to, the Corporate Integrity
Agreement to which we are subject;
36
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• the concentration of our revenue in a small number of states;
• our ability to realize anticipated cost savings and other benefits from our
current strategic and operational cost savings initiatives;
• any changes in or interpretations of income tax laws and regulations; and
• the risk factors set forth in our 2021 Form 10-K and our other public filings
with the SEC .
Although we believe that these forward-looking statements are based upon
reasonable assumptions, these assumptions are inherently subject to significant
regulatory, economic and competitive uncertainties and contingencies, which are
difficult or impossible to predict accurately and may be beyond our control.
Accordingly, we cannot give any assurance that our expectations will in fact
occur, and we caution that actual results may differ materially from those in
the forward-looking statements. Given these uncertainties, prospective investors
are cautioned not to place undue reliance on these forward-looking statements.
These forward-looking statements are made as of the date of this filing. We
undertake no obligation to revise or update any forward-looking statements, or
to make any other forward-looking statements, whether as a result of new
information, future events or otherwise.
KINSALE CAPITAL GROUP, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
Part I – Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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