HCA HEALTHCARE, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This quarterly report on Form 10-Q includes certain disclosures which contain
"forward-looking statements" within the meaning of the federal securities laws,
which involve risks and uncertainties. Forward-looking statements include
statements regarding expected share-based compensation expense, expected capital
expenditures and expected net claim payments and all other statements that do
not relate solely to historical or current facts, and can be identified by the
use of words like "may," "believe," "will," "expect," "project," "estimate,"
"anticipate," "plan," "initiative" or "continue." These forward-looking
statements are based on our current plans and expectations and are subject to a
number of known and unknown uncertainties and risks, many of which are beyond
our control, which could significantly affect current plans and expectations and
our future financial position and results of operations. These factors include,
but are not limited to, (1) developments related to COVID-19, including, without
limitation, the length and severity of its impact and the spread of virus
strains with new epidemiological characteristics; the volume of canceled or
rescheduled procedures and the volume of COVID-19 patients cared for across our
health systems; measures we are taking to respond to COVID-19; the impact and
terms of government and administrative regulation and stimulus and relief
measures (including the Families First Coronavirus Response Act, the Coronavirus
Aid, Relief, and Economic Security ("CARES") Act, the Paycheck Protection
Program and Health Care Enhancement Act, the Consolidated Appropriations Act,
2021, the American Rescue Plan Act of 2021 ("ARPA") and other enacted and
potential future legislation) and whether various stimulus and relief programs
continue or new similar programs are enacted in the future; changes in revenues
due to declining patient volumes, changes in payer mix and deteriorating
macroeconomic conditions (including increases in uninsured and underinsured
patients); potential increased expenses related to labor, supply chain or other
expenditures; workforce disruptions, including the impact of any current or
future vaccine mandates; supply shortages and disruptions; and the timing,
availability and adoption of effective medical treatments and vaccines
(including boosters), (2) the impact of our substantial indebtedness and the
ability to refinance such indebtedness on acceptable terms, as well as risks
associated with disruptions in the financial markets and the business of
financial institutions as the result of COVID-19, which could impact us from a
financial perspective, (3) the impact of current and future federal and state
health reform initiatives and possible changes to other federal, state or local
laws and regulations affecting the health care industry, including but not
limited to, the Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act of 2010 (collectively, the
"Affordable Care Act"), and the effects of additional changes to the Affordable
Care Act, its implementation, or interpretation (including through executive
orders and court challenges), and proposals to expand coverage of
federally-funded insurance programs as an alternative to private insurance or
establish a single-payer system (such reforms often referred to as "Medicare for
All"), and also including any such laws or governmental regulations which are
adopted in response to COVID-19, (4) the effects related to the implementation
of sequestration spending reductions required under the Budget Control Act of
2011, related legislation extending these reductions and those required under
the Pay-As-You-Go Act of 2010 ("PAYGO Act") as a result of the federal budget
deficit impact of the ARPA, and the potential for future deficit reduction
legislation that may alter these spending reductions, which include cuts to
Medicare payments, or create additional spending reductions, (5) increases in
the amount and risk of collectability of uninsured accounts and deductibles and
copayment amounts for insured accounts, (6) the ability to achieve operating and
financial targets, and attain expected levels of patient volumes and control the
costs of providing services, (7) possible changes in Medicare, Medicaid and
other state programs, including Medicaid supplemental payment programs or
Medicaid waiver programs, that may impact reimbursements to health care
providers and insurers and the size of the uninsured or underinsured population,
(8) increases in wages and the ability to attract and retain qualified
management and personnel, including affiliated physicians, nurses and medical
and technical support personnel, (9) the highly competitive nature of the health
care business, (10) changes in service mix, revenue mix and surgical volumes,
including potential declines in the population covered under third-party payer
agreements, the ability to enter into and renew third-party payer provider
agreements on acceptable terms and the impact of consumer-driven health plans
and physician utilization trends and practices, (11) the efforts of health
insurers, health care providers, large employer groups and others to contain
health care costs, (12) the outcome of our continuing efforts to monitor,
maintain and comply with appropriate laws, regulations, policies and procedures,
(13) the availability and terms of capital to fund the expansion of our business
and improvements to our existing facilities, (14) changes in accounting
practices, (15) changes in general economic conditions nationally and regionally
in our markets, including inflation and economic and business conditions (and
the impact thereof on the economy, financial markets and banking industry)
resulting from COVID-19, (16) the emergence of and effects related to pandemics,
epidemics and infectious diseases, (17) future divestitures which may result in
charges and possible impairments of long-lived assets, (18) changes in business
strategy or development plans, (19) delays in receiving payments for services
provided, (20) the outcome of pending and any future tax audits, disputes and
litigation associated with our tax positions, (21) potential adverse impact of
known and unknown government investigations, litigation and other claims that
may be made against us, (22) the impact of potential cybersecurity incidents or
security breaches, (23) our ongoing ability to demonstrate meaningful use of
certified electronic health record ("EHR") technology and the impact of
interoperability requirements, (24) the impact of natural disasters, such as
hurricanes and floods, physical risks from climate change or similar events
beyond our control, (25) changes in
including interpretive guidance that may be issued by taxing authorities or
other standard setting bodies, and (26) other risk factors described in our
annual report on Form 10-K for the year ended
filings with the
plans, anticipated actions and future financial position and results of
operations may differ from those expressed in any forward-looking statements
made by or on behalf of HCA. You are cautioned not to unduly rely on such
forward-looking statements when evaluating the information presented in this
report, which forward-looking statements reflect management's views only as of
the date of this report. We undertake no obligation to revise or update any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
COVID-19
On
pandemic. We believe the extent of COVID-19's impact on our operating results
and financial condition has been and will continue to be driven by many factors,
most of which are beyond our control and ability to forecast. Because of these
uncertainties, we cannot estimate how long or to what extent COVID-19 will
impact our operations.
First Quarter 2022 Operations Summary
Revenues increased to
billion
Inc.
quarter ended
sales of facilities of
the state of
Services
the current program year that began
of 2022, revenues include
million
September through
upon amounts net of the applicable income taxes. Shares used for diluted
earnings per share were 307.374 million shares for the quarter ended
2022
2021 and the first quarter of 2022, we repurchased 37.812 million shares and
8.375 million shares, respectively, of our common stock.
Revenues increased 6.9% on a consolidated basis and 7.8% on a same facility
basis for the quarter ended
31, 2021
the combined impact of a 3.6% increase in revenue per equivalent admission and a
3.2% increase in equivalent admissions. The same facility revenues increase
primarily resulted from the combined impact of a 2.7% increase in same facility
revenue per equivalent admission and a 5.0% increase in same facility equivalent
admissions. The consolidated and same facility increases in revenue per
equivalent admission were negatively impacted by declines in acuity of COVID-19
patients.
During the quarter ended
and same facility admissions increased 2.1% compared to the quarter ended
31, 2021
facility basis during the quarter ended
ended
consolidated basis and 14.6% on a same facility basis during the quarter ended
same facility uninsured admissions declined 4.9% and 3.0%, respectively, for the
quarter ended
Cash flows from operating activities declined
for the first quarter of 2021 to
The decline in cash provided by operating activities was primarily related to
the combined impact of negative changes in working capital items of
million
taxes from 2020, and a
sales of facilities.
Results of Operations Revenue/Volume Trends
Our revenues generally relate to contracts with patients in which our
performance obligations are to provide health care services to the patients.
Revenues are recorded during the period our obligations to provide health care
services are satisfied. Our performance obligations for inpatient services are
generally satisfied over periods that average approximately five days, and
revenues are recognized based on charges incurred in relation to total expected
charges. Our performance obligations for outpatient services are generally
satisfied over a period of less than one day. The contractual relationships with
patients, in most cases, also involve a third-party payer (Medicare, Medicaid,
managed care health plans and commercial insurance companies, including plans
offered through the health insurance exchanges) and the transaction prices for
the services provided are dependent upon the terms provided by (Medicare and
Medicaid) or negotiated with (managed care health plans and commercial insurance
companies) the third-party payers. The payment arrangements with third-party
payers for the services we provide to the related patients typically specify
payments at amounts less than our standard charges. Medicare generally pays for
inpatient and outpatient services at prospectively determined rates based on
clinical, diagnostic and other factors. Services provided to patients having
Medicaid coverage are generally paid at prospectively determined rates per
discharge, per identified service or per covered member. Agreements with
commercial insurance carriers, managed care and preferred provider organizations
generally provide for payments based upon predetermined rates per diagnosis, per
diem rates or discounted fee-for-service rates. Management continually reviews
the contractual estimation process to consider and incorporate updates to laws
and regulations and the frequent changes in managed care contractual terms
resulting from contract renegotiations and renewals.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
Revenues increased 6.9% from
quarter ended
through
directed payment program for the current program year that began
2021
to receive from patients and third-party payers. Estimates of contractual
adjustments under managed care and commercial insurance plans are based upon the
payment terms specified in the related contractual agreements. Revenues related
to uninsured patients and uninsured copayment and deductible amounts for
patients
discounts and contractual discounts). We also record estimated implicit price
concessions (based primarily on historical collection experience) related to
uninsured accounts to record self-pay revenues at the estimated amounts we
expect to collect. Patients treated at our hospitals for non-elective care,
have income at or below 400% of the federal poverty level, are eligible for
charity care. Because we do not pursue collection of amounts determined to
qualify as charity care, they are not reported in revenues. Our revenues by
primary third-party payer classification and other (including uninsured
patients) for the quarters ended
following table (dollars in millions):
2022 Ratio 2021 Ratio
Medicare $ 2,726 18.2 % $ 2,559 18.3 %
Managed Medicare 2,324 15.6 2,053 14.7
Medicaid 579 3.9 527 3.8
Managed Medicaid 1,110 7.4 725 5.2
Managed care and insurers 7,152 47.9 6,885 49.1
International (managed care and insurers) 356 2.4 333 2.4
Other 698 4.6 895 6.5
Revenues $ 14,945 100.0 % $ 13,977 100.0 %
Consolidated and same facility revenue per equivalent admission increased 3.6%
and 2.7%, respectively, in the first quarter of 2022, compared to the first
quarter of 2021. Consolidated and same facility equivalent admissions increased
3.2% and 5.0%, respectively, in the first quarter of 2022, compared to the first
quarter of 2021. Consolidated and same facility outpatient surgeries increased
7.0% and 6.8%, respectively, in the first quarter of 2022, compared to the first
quarter of 2021. Consolidated and same facility inpatient surgeries declined
0.6% and increased 0.8%, respectively, in the first quarter of 2022, compared to
the first quarter of 2021. Consolidated and same facility emergency department
visits increased 11.7% and 14.6%, respectively, in the first quarter of 2022,
compared to the first quarter of 2021.
To quantify the total impact of the trends related to uninsured patient
accounts, we believe it is beneficial to view total uncompensated care, which is
comprised of charity care, uninsured discounts and implicit price concessions. A
summary of the estimated cost of total uncompensated care for the quarters ended
2022 2021
Patient care costs (salaries and benefits, supplies, other
operating expense and depreciation
and amortization)$ 12,744 $ 11,643
Cost-to-charges ratio (patient care costs as percentage of
gross patient charges)
11.3 % 11.4 % Total uncompensated care$ 7,005 $ 6,821 Multiply by the cost-to-charges ratio 11.3 % 11.4 % Estimated cost of total uncompensated care$ 792 $ 778
Same facility uninsured admissions declined by 1,030 admissions, or 3.0%, in the
first quarter of 2022 compared to the first quarter of 2021. Same facility
uninsured admissions in 2021, compared to 2020, declined 6.3% in the fourth
quarter, increased 1.2% in the third quarter, increased 6.6% in the second
quarter of 2021, and declined 15.7% in the first quarter. The fluctuations in
quarterly same facility admissions were primarily due to reimbursements
received, as provided for under the Families First Coronavirus Response Act and
subsequent legislation, for uninsured patients diagnosed with COVID-19 and the
resulting classification of those patients as insured admissions, as well as
general fluctuations in patient volumes resulting from COVID-19's impact on our
operations. The government program to reimburse for testing and treatment of
uninsured COVID-19 patients stopped accepting claims in
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
The approximate percentages of our admissions related to Medicare, managed
Medicare, Medicaid, managed Medicaid, managed care and insurers and the
uninsured for the quarters ended
following table.
2022 2021
Medicare 23 % 24 %
Managed Medicare 23 22
Medicaid 5 5
Managed Medicaid 13 12
Managed care and insurers 30 30
Uninsured 6 7
100 % 100 %
The approximate percentages of our inpatient revenues related to Medicare,
managed Medicare, Medicaid, managed Medicaid, managed care and insurers for the
quarters ended
2022 2021
Medicare 24 % 24 %
Managed Medicare 18 17
Medicaid 6 5
Managed Medicaid 9 6
Managed care and insurers 43 48
100 % 100 %
At
During the quarter ended
revenues were generated by these hospitals. Uninsured admissions in
We receive a significant portion of our revenues from government health
programs, principally Medicare and Medicaid, which are highly regulated and
subject to frequent and substantial changes. The Texas Healthcare Transformation
and Quality Improvement Program ("Texas Waiver Program") currently operates
pursuant to a Medicaid waiver. During
letter that challenged the approval and extension of the Texas Waiver Program,
and the program is now approved and extended through
Medicaid revenues included Texas Waiver Program supplemental revenues of
million
respectively. In
implement a proposed directed payment program effective for the current program
year that began
include
through
are aware these supplemental payment programs are currently being reviewed by
certain state agencies and some states have made requests to CMS to replace
their existing supplemental payment programs. It is possible these reviews and
requests will result in the restructuring of such supplemental payment programs
and could result in the payment programs being reduced or eliminated. Because
deliberations about these programs are ongoing, we are unable to estimate the
financial impact the program structure modifications, if any, may have on our
results of operations.
Key Performance Indicators
We present certain metrics and statistical information that management uses when
assessing our results of operations. We believe this information is useful to
investors as it provides insight to how management evaluates operational
performance and trends between reporting periods. Information on how these
metrics and statistical information are defined is provided in the following
tables summarizing operating results and operating data.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Operating Results Summary
The following is a comparative summary of results of operations for the quarters
ended
2022 2021
Amount Ratio Amount Ratio
Revenues $ 14,945 100.0 $ 13,977 100.0
Salaries and benefits 6,939 46.4 6,301 45.1
Supplies 2,321 15.5 2,224 15.9
Other operating expenses 2,752 18.5 2,421 17.4
Equity in earnings of affiliates (11 ) (0.1 ) (21 ) (0.2 )
Depreciation and amortization 732 5.0 697 5.0
Interest expense 408 2.7 384 2.7
Gains on sales of facilities (10 ) (0.1 ) (2 ) -
13,131 87.9 12,004 85.9
Income before income taxes 1,814 12.1 1,973 14.1
Provision for income taxes 349 2.3 393 2.8
Net income 1,465 9.8 1,580 11.3
Net income attributable to noncontrolling
interests 192 1.3 157 1.1
Net income attributable to HCA Healthcare ,
Inc. $ 1,273 8.5 $ 1,423 10.2
% changes from prior year:
Revenues 6.9 % 8.7 %
Income before income taxes (8.1 ) 143.6
Net income attributable to HCA Healthcare ,
Inc. (10.6 ) 145.0
Admissions(a) 0.1 (4.1 )
Equivalent admissions(b) 3.2 (6.4 )
Revenue per equivalent admission 3.6 16.1
Same facility % changes from prior year(c):
Revenues 7.8 9.0
Admissions(a) 2.1 (4.2 )
Equivalent admissions(b) 5.0 (6.5 )
Revenue per equivalent admission 2.7 16.6
(a)
Represents the total number of patients admitted to our hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(b)
Equivalent admissions are used by management and certain investors as a general
measure of combined inpatient and outpatient volume. Equivalent admissions are
computed by multiplying admissions (inpatient volume) by the sum of gross
inpatient revenues and gross outpatient revenues and then dividing the resulting
amount by gross inpatient revenues. The equivalent admissions computation
"equates" outpatient revenues to the volume measure (admissions) used to measure
inpatient volume, resulting in a general measure of combined inpatient and
outpatient volume.
(c)
Same facility information excludes the operations of hospitals and their related
facilities which were either acquired or divested during the current and prior
period.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended
Revenues increased to
billion
Inc.
quarter ended
sales of facilities of
the state of
payment program effective for the current program year that began
2021
operating expenses include
this program for the period September through
share" disclosures are based upon amounts net of the applicable income taxes.
Shares used for diluted earnings per share were 307.374 million shares for the
quarter ended
million shares and 8.375 million shares, respectively, of our common stock.
Revenues increased 6.9% on a consolidated basis and 7.8% on a same facility
basis for the quarter ended
31, 2021
the combined impact of a 3.6% increase in revenue per equivalent admission and a
3.2% increase in equivalent admissions. The same facility revenues increase
primarily resulted from the combined impact of a 2.7% increase in same facility
revenue per equivalent admission and a 5.0% increase in same facility equivalent
admissions. The consolidated and same facility increases in revenue per
equivalent admission were negatively impacted by declines in acuity of COVID-19
patients.
Salaries and benefits, as a percentage of revenues, were 46.4% in the first
quarter of 2022 and 45.1% in the first quarter of 2021. Salaries and benefits
per equivalent admission increased 6.7% in the first quarter of 2022 compared to
the first quarter of 2021. Same facility salaries and benefits per full time
equivalent increased 7.7% for the first quarter of 2022 compared to the first
quarter of 2021 as we continue to utilize certain contract, overtime and other
premium rate labor costs to support our clinical staff and patients. We intend
to reduce our utilization of and rates paid for premium rate labor, but the pace
and amount of any expected future declines may be affected by labor market
conditions and other factors.
Supplies, as a percentage of revenues, were 15.5% in the first quarter of 2022
and 15.9% in the first quarter of 2021. Supply costs per equivalent admission
increased 1.1% in the first quarter of 2022 compared to the first quarter of
2021. Supply costs per equivalent admission increased 5.9% for medical devices
and 2.5% for general medical and surgical items and declined 10.7% for pharmacy
supplies in the first quarter of 2022 compared to the first quarter of 2021. The
decline in pharmacy supplies is primarily related to certain COVID-19 therapies
used in the surge of COVID-19 cases during the first quarter of 2021.
Other operating expenses, as a percentage of revenues, were 18.5% in the first
quarter of 2022 and 17.4% in the first quarter of 2021. Other operating expenses
is primarily comprised of contract services, professional fees, repairs and
maintenance, rents and leases, utilities, insurance (including professional
liability insurance) and nonincome taxes. We have seen inflation have a negative
impact on certain of these expenses and expect inflationary pressures will
continue to impact operating expenses in the future. Provisions for losses
related to professional liability risks were
the first quarters of 2022 and 2021, respectively. For the quarter ended
31, 2022
assessments for September through
approval of a
year that began
Equity in earnings of affiliates was
quarters of 2022 and 2021, respectively.
Depreciation and amortization increased
first quarter of 2021 to
in depreciation relates primarily to capital expenditures at our existing
facilities.
Interest expense was
in the first quarter of 2021. Our average debt balance was
the first quarter of 2022 compared to
2021. The average effective interest rate for our long-term debt was 4.6% and
5.0%, respectively, for the quarters ended
During the first quarters of 2022 and 2021, we recorded gains on sales of
facilities of
22
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended
The effective tax rates were 21.5% and 21.7% for the first quarters of 2022 and
2021, respectively. The effective tax rate computations exclude net income
attributable to noncontrolling interests as it relates to consolidated
partnerships. Our provisions for income taxes for the first quarters of 2022 and
2021 included tax benefits of
to employee equity award settlements. Excluding the effect of these adjustments,
the effective tax rate for the first quarters of 2022 and 2021 would have been
25.5% and 25.7%, respectively.
Net income attributable to noncontrolling interests increased from
for the first quarter of 2021 to
increase in net income attributable to noncontrolling interests related
primarily to the operations of two of our
Liquidity and Capital Resources
Cash provided by operating activities totaled
quarter of 2022 compared to
quarter of 2022 compared to the first quarter of 2021, related primarily to the
combined impact of negative changes in working capital items of
primarily related to a payment of
2020, and a
facilities. The combination of interest payments and net income tax payments in
the first quarter of 2022 totaled
of interest payments and income tax refunds in the first quarter of 2021 of
million
billion
Cash used in investing activities was
compared to
capital expenditures were
million
to approximate
under construction which had estimated additional costs to complete and equip
over the next five years of approximately
capital expenditures with internally generated and borrowed funds.
Cash provided by financing activities totaled
of 2022, compared to cash used in financing activities of
first quarter of 2021. During the first quarter of 2022, net cash flows provided
by financing activities included a net increase of
indebtedness, payment of dividends of
of
During the first quarter of 2021, net cash flows used in financing activities
included a net increase of
of
to noncontrolling interests of
We are a highly leveraged company with significant debt service requirements.
Our debt totaled
quarter of 2021.
In addition to cash flows from operations, available sources of capital include
amounts available under our senior secured credit facilities (
and anticipated access to public and private debt markets.
Investments of our insurance subsidiaries, held to maintain statutory equity
levels and to provide liquidity to pay claims, totaled
million
subsidiary maintained net reserves for professional liability risks of
million
Our facilities are insured by our insurance subsidiary for losses up to
million
cases, to a
insurance subsidiary has entered into reinsurance contracts providing
reimbursement for a certain portion of losses in excess of self-insured
retentions. Net reserves for the self-insured professional liability risks
retained were
31, 2021
the next 12 months are expected to approximate
approximately
months will relate to claims subject to the self-insured retention.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
During
secured notes comprised of (i)
1/8% senior secured notes due 2027, (ii)
of 3 3/8% senior secured notes due 2029, (iii)
principal amount of 3 5/8% senior secured notes due 2032, (iv)
aggregate principal amount of 4 3/8% senior secured notes due 2042 and (v)
2052. During
revolving credit facilities. During
outstanding aggregate principal amount of our 4.75% senior secured notes due
2023 and provided a notice of our election to redeem all
outstanding aggregate principal amount of our 5.875% senior notes due 2023.
Management believes that cash flows from operations, amounts available under our
senior secured credit facilities and our anticipated access to public and
private debt markets will be sufficient to meet expected liquidity needs during
the next 12 months.
Summarized Financial Information
primary obligor under a substantial portion of our indebtedness, including our
senior secured credit facilities, senior secured notes and senior unsecured
notes. The senior secured notes and senior unsecured notes issued by
are fully and unconditionally guaranteed on an unsecured basis by
Healthcare, Inc.
are fully and unconditionally guaranteed on a senior secured basis by
substantially all existing and future, direct and indirect, 100% owned material
domestic subsidiaries that are "Unrestricted Subsidiaries" under our Indenture
dated
only guarantee and pledge their assets under our senior secured asset-based
revolving credit facility). For a list of subsidiary guarantors, see Exhibit 22
to this quarterly report on Form 10-Q.
The subsidiary guarantees rank senior in right of payment to all subordinated
indebtedness of each subsidiary guarantor, equally in right of payment with all
senior indebtedness of the subsidiary guarantors and are structurally
subordinated in right of payment to all indebtedness and other liabilities of
any nonguarantor subsidiaries of the subsidiary guarantors (other than
indebtedness and liabilities owed to one of the subsidiary guarantors). The
subsidiary guarantees are secured by first-priority liens on the subsidiary
guarantors' assets, subject to certain exceptions, that secure our senior
secured cash flow credit facility on a first-priority basis. The subsidiary
guarantees are secured by second-priority liens on the subsidiary guarantors'
assets that secure our senior secured asset-based revolving credit facility on a
first-priority basis and our senior secured cash flow credit facility on a
second-priority basis.
The subsidiary guarantees may be automatically and unconditionally released and
discharged upon certain customary events, including in the event such guarantee
is released under our senior secured credit facilities. The indentures governing
the senior secured notes include a "savings clause" intended to limit each
subsidiary guarantor's obligations as necessary to prevent the guarantee from
constituting a fraudulent conveyance under applicable law, which could reduce a
subsidiary guarantor's liability on its guarantee to zero. For further
information regarding the guarantees, refer to the applicable indentures that
are filed as exhibits to this quarterly report on Form 10-Q and our annual
report on Form 10-K for the year ended
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Summarized Financial Information (continued)
Summarized financial information is presented on a combined basis and
transactions between the combining entities have been eliminated. Financial
information for nonguarantor entities has been excluded. The summarized
operating results information for the quarter ended
ended
31, 2022
subsidiary guarantors (the Parent, Subsidiary Issuer and Subsidiary Guarantors)
follow (dollars in millions):
Quarter EndedMarch 31, 2022 and Year EndedDecember 31, 2021 : Quarter Year March 31, 2022 December 31, 2021 Revenues $ 8,728 $ 34,889 Income before income taxes 1,155 6,061 Net income 920 4,666 Net income attributable to Parent, Subsidiary Issuer and Subsidiary Guarantors 896 4,564
At
March 31, 2022 December 31, 2021 Current assets $ 9,415 $ 8,268 Property and equipment, net 16,040 15,559 Goodwill and other intangible assets 5,695 5,694 Total noncurrent assets 22,719 22,370 Total assets 32,134 30,638 Current liabilities 6,807 5,697 Long-term debt, net 35,769 33,904 Intercompany balances 3,668 3,423 Income taxes and other liabilities 744 1,053 Total noncurrent liabilities 40,722 38,912 Stockholders' deficit attributable to Parent, Subsidiary Issuer and Subsidiary Guarantors (15,551 ) (14,124 ) Noncontrolling interests 156 153
The first-priority liens securing the subsidiary guarantees discussed above
include liens on (i) substantially all of the capital stock of substantially all
wholly owned first-tier subsidiaries of
(but limited to 65% of the stock of any such wholly owned first-tier subsidiary
that is a foreign subsidiary), subject to certain limited exceptions, and (ii)
substantially all indebtedness owing to
guarantors, including any and all intercompany indebtedness owed by
Healthcare, Inc.
guarantor. For a list of affiliates whose securities are pledged as collateral
for the senior secured notes, see Exhibit 22 to this quarterly report on Form
10-Q.
Under the first lien intercreditor agreement, the administrative agent for the
lenders under the cash flow credit facility, subject to the occurrence of
certain events, has the exclusive right to direct foreclosures and take other
actions with respect to these liens, and the trustee for the senior secured
notes has no right to take any such actions. In certain circumstances, including
upon certain events of default under the senior secured credit facilities and
the senior secured notes, the collateral agent in respect of the cash flow
credit facility and the senior secured notes could proceed against the
collateral granted to it to secure such indebtedness, including the
aforementioned pledged capital stock and pledged indebtedness, and require such
collateral to be delivered to the collateral agent to the extent not already in
its possession for purposes of perfecting the lien on such assets. For further
information regarding the collateral, including events or circumstances that may
require delivery of the collateral, refer to the applicable indentures, the
first lien intercreditor agreement, the cash flow credit agreement and the
pledge agreement that are filed as exhibits to this quarterly report on Form
10-Q and our annual report on Form 10-K for the year ended
25
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Summarized Financial Information (continued)
There is no trading market for any of
securities are pledged as collateral for the senior secured notes.
Rule 13-02 of Regulation S-X requires the presentation of summarized financial
information of the combined affiliates whose securities are pledged as
collateral for the senior secured notes unless such information is not material.
The rule provides that such information is not material if the assets,
liabilities and results of operations of the combined affiliates whose
securities are pledged as collateral are not materially different than the
corresponding amounts presented in the consolidated financial statements of the
Registrant.
first-tier subsidiary of
pledged as collateral for the senior secured notes. Due to the corporate
structure relationship of
Healthcare, Inc.'s
securities are pledged as collateral for the senior secured notes, are also
subsidiaries of Healthtrust. The corporate structure relationship, combined with
the application of push-down accounting in Healthtrust's consolidated financial
statements related to
that the assets, liabilities and results of operations of Healthtrust (and,
therefore, of the combined affiliates whose securities are pledged as collateral
for the senior secured notes) are not materially different than the
corresponding amounts presented in the financial statements of
Inc.
securities are pledged as collateral for the senior secured notes is not
required to be presented under Rule 13-02.
Market Risk
We are exposed to market risk related to changes in market values of securities.
The investment securities held by our insurance subsidiaries were recorded at
with changes in unrealized gains and losses that are not credit-related being
recorded as adjustments to other comprehensive income. At
net unrealized losses of
We are exposed to market risk related to market illiquidity. Investment
securities held by our insurance subsidiaries could be impaired by the inability
to access the capital markets. Should the insurance subsidiaries require
significant amounts of cash in excess of normal cash requirements to pay claims
and other expenses on short notice, we may have difficulty selling these
investments in a timely manner or be forced to sell them at a price less than
what we might otherwise have been able to in a normal market environment. We may
be required to recognize credit-related impairments on our investment securities
in future periods should issuers default on interest payments or should the fair
market valuations of the securities deteriorate due to ratings downgrades or
other issue-specific factors.
We are also exposed to market risk related to changes in interest rates, and we
periodically enter into interest rate swap agreements to manage our exposure to
these fluctuations. Our interest rate swap agreements involve the exchange of
fixed and variable rate interest payments between two parties, based on common
notional principal amounts and maturity dates. The notional amounts of the swap
agreements represent balances used to calculate the exchange of cash flows and
are not our assets or liabilities. Our credit risk related to these agreements
is considered low because the swap agreements are with creditworthy financial
institutions. The interest payments under these agreements are settled on a net
basis. These derivatives have been recognized in the financial statements at
their respective fair values. Changes in the fair value of these derivatives,
which are designated as cash flow hedges, are included in other comprehensive
income.
With respect to our interest-bearing liabilities, approximately
of long-term debt at
while the remaining balance of long-term debt of
2022
rates and our leverage affect our variable interest rates. Our variable debt is
comprised primarily of amounts outstanding under the senior secured credit
facilities. Borrowings under the senior secured credit facilities bear interest
at a rate equal to an applicable margin plus, at our option, either (a) a base
rate determined by reference to the higher of (1) the federal funds rate plus
0.50% or (2) the prime rate of Bank of America or (b) a LIBOR rate for the
currency of such borrowing for the relevant interest period. The applicable
margin for borrowings under the senior secured credit facilities may fluctuate
according to a leverage ratio. The average effective interest rate for our
long-term debt was 4.6% and 5.0% for the quarters ended
respectively.
26
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Market Risk (continued)
The estimated fair value of our total long-term debt was
prices for the same or similar issues of long-term debt with the same
maturities. Based on a hypothetical 1% increase in interest rates, the potential
annualized reduction to future pretax earnings would be approximately
million
target a portion of our debt portfolio to be maintained at fixed rates.
We are exposed to currency translation risk related to our foreign operations.
We currently do not consider the market risk related to foreign currency
translation to be material to our consolidated financial statements or our
liquidity.
Tax Examinations
At
the Company's 2016, 2017 and 2018 federal income tax returns and the 2019 return
for one affiliated partnership. We are also subject to examination by state and
foreign taxing authorities. Management believes
predecessors, subsidiaries and affiliates properly reported taxable income and
paid taxes in accordance with applicable laws and agreements established with
will not have a material, adverse effect on our results of operations or
financial position. However, if payments due upon final resolution of any issues
exceed our recorded estimates, such resolutions could have a material, adverse
effect on our results of operations or financial position.
27
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data
2022 2021
Number of hospitals in operation at:
March 31 182 186
June 30 187
September 30 183
December 31 182
Number of freestanding outpatient surgical centers in
operation at:
March 31 124 121
June 30 122
September 30 123
December 31 125
Licensed hospital beds at(a):
March 31 48,892 49,561
June 30 49,693
September 30 48,950
December 31 48,803
Weighted average beds in service(b):
Quarter:
First 41,818 42,363
Second 42,464
Third 42,088
Fourth 41,685
Year 42,148
Average daily census(c):
Quarter:
First 29,797 29,678
Second 28,901
Third 31,144
Fourth 29,273
Year 29,752
Admissions(d):
Quarter:
First 506,956 506,380
Second 532,041
Third 536,848
Fourth 514,706
Year 2,089,975
Equivalent admissions(e):
Quarter:
First 859,290 832,489
Second 916,212
Third 905,627
Fourth 881,910
Year 3,536,238
Average length of stay (days)(f):
Quarter:
First 5.3 5.3
Second 4.9
Third 5.3
Fourth 5.2
Year 5.2
28
--------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
2022 2021
Emergency room visits(g):
Quarter:
First 2,056,389 1,841,778
Second 2,128,428
Third 2,338,180
Fourth 2,166,959
Year 8,475,345
Outpatient surgeries(h):
Quarter:
First 247,421 231,228
Second 262,107
Third 249,192
Fourth 265,709
Year 1,008,236
Inpatient surgeries(i):
Quarter:
First 126,880 127,590
Second 136,460
Third 126,436
Fourth 131,583
Year 522,069
Days revenues in accounts receivable(j):
Quarter:
First 51 48
Second 48
Third 51
Fourth 49
Outpatient revenues as a % of patient revenues(k):
Quarter:
First 37 % 36 %
Second 38 %
Third 34 %
Fourth 38 %
Year 37 %
(a)
Licensed beds are those beds for which a facility has been granted approval to
operate from the applicable state licensing agency.
(b)
Represents the average number of beds in service, weighted based on periods
owned.
(c)
Represents the average number of patients in our hospital beds each day.
(d)
Represents the total number of patients admitted to our hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(e)
Equivalent admissions are used by management and certain investors as a general
measure of combined inpatient and outpatient volume. Equivalent admissions are
computed by multiplying admissions (inpatient volume) by the sum of gross
inpatient revenues and gross outpatient revenues and then dividing the resulting
amount by gross inpatient revenues. The equivalent admissions computation
"equates" outpatient revenues to the volume measure (admissions) used to measure
inpatient volume resulting in a general measure of combined inpatient and
outpatient volume.
(f)
Represents the average number of days admitted patients stay in our hospitals.
(g)
Represents the number of patients treated in our emergency rooms.
(h)
Represents the number of surgeries performed on patients who were not admitted
to our hospitals. Pain management and endoscopy procedures are not included in
outpatient surgeries.
(i)
Represents the number of surgeries performed on patients who have been admitted
to our hospitals. Pain management and endoscopy procedures are not included in
inpatient surgeries.
(j)
Revenues per day is calculated by dividing revenues for the quarter by the days
in the quarter. Days revenues in accounts receivable is then calculated as
accounts receivable at the end of the quarter divided by revenues per day.
(k)
Represents the percentage of patient revenues related to patients who are not
admitted to our hospitals.
29
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