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 and acuity 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, (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 and financial markets) resulting from COVID-19 or other factors, (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
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
and Exchange Commission
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.
17
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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.
Second Quarter 2022 Operations Summary
Revenues increased to
billion
Healthcare, Inc.
quarter ended
share, for the quarter ended
2021 include losses on sales of facilities of
share, and gains on sales of facilities of
share, respectively. Second quarter results for 2022 and 2021 also include
losses on retirement of debt of
million
disclosures are based upon amounts net of the applicable income taxes. Shares
used for diluted earnings per share were 296.061 million shares for the quarter
ended
2021
million shares and 20.605 million shares, respectively, of our common stock.
Revenues increased 2.7% on a consolidated basis and 4.0% on a same facility
basis for the quarter ended
30, 2021
impact of a 4.2% increase in revenue per equivalent admission and a 1.5% decline
in equivalent admissions. The same facility revenues increase resulted from the
combined impact of a 3.5% increase in same facility revenue per equivalent
admission and a 0.5% increase in same facility equivalent admissions.
During the quarter ended
and same facility admissions declined 1.2% compared to the quarter ended
30, 2021
facility basis during the quarter ended
ended
consolidated basis and 7.3% on a same facility basis during the quarter ended
same facility uninsured admissions declined 7.4% and 5.1%, respectively, for the
quarter ended
Cash flows from operating activities declined
for the second quarter of 2021 to
The decline in cash provided by operating activities was primarily related to
negative changes in working capital items of
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.
18
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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 2.7% from
estimated amounts we expect to be entitled 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
coverage may have discounts applied (uninsured 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,
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 and six months ended
millions):
Quarter
2022 Ratio 2021 Ratio
Medicare $ 2,495 16.8 % $ 2,612 18.1 %
Managed Medicare 2,260 15.2 2,104 14.6
Medicaid 611 4.1 503 3.5
Managed Medicaid 954 6.4 831 5.8
Managed care and insurers 7,144 48.4 7,417 51.3
International (managed care and insurers) 325 2.2 338 2.3
Other 1,031 6.9 630 4.4
Revenues $ 14,820 100.0 % $ 14,435 100.0 %
Six Months
2022 Ratio 2021 Ratio
Medicare $ 5,221 17.5 % $ 5,171 18.2 %
Managed Medicare 4,584 15.4 4,157 14.6
Medicaid 1,190 4.0 1,030 3.6
Managed Medicaid 2,064 6.9 1,556 5.5
Managed care and insurers 14,296 48.1 14,302 50.4
International (managed care and insurers) 681 2.3 671 2.4
Other 1,729 5.8 1,525 5.3
Revenues $ 29,765 100.0 % $ 28,412 100.0 %
Consolidated and same facility revenue per equivalent admission increased 4.2%
and 3.5%, respectively, in the second quarter of 2022, compared to the second
quarter of 2021. Consolidated and same facility equivalent admissions declined
1.5% and increased 0.5%, respectively, in the second quarter of 2022, compared
to the second quarter of 2021. Consolidated and same facility outpatient
surgeries declined 1.5% and 1.4%, respectively, in the second quarter of 2022,
compared to the second quarter of 2021. Consolidated and same facility inpatient
surgeries declined 4.0% and 2.3%, respectively, in the second quarter of 2022,
compared to the second quarter of 2021. Consolidated and same facility emergency
department visits increased 4.5% and 7.3%, respectively, in the second quarter
of 2022, compared to the second quarter of 2021.
19
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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)
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 and
six months ended
Quarter Six Months
2022 2021 2022 2021
Patient care costs (salaries and benefits,
supplies, other operating
expense and depreciation and amortization)
Cost-to-charges ratio (patient care costs as
percentage of gross
patient charges) 11.0 % 11.1 % 11.2 % 11.2 % Total uncompensated care$ 8,457 $ 7,696 $ 15,462 $ 14,517 Multiply by the cost-to-charges ratio 11.0 % 11.1 % 11.2 % 11.2 %
Estimated cost of total uncompensated care
Same facility uninsured admissions declined by 2,044 admissions, or 5.1%, in the
second quarter of 2022, compared to the second quarter of 2021. Same facility
uninsured admissions declined 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 approximate percentages of our admissions related to Medicare, managed
Medicare, Medicaid, managed Medicaid, managed care and insurers and the
uninsured for the quarters and six months ended
forth in the following table.
Quarter Six Months
2022 2021 2022 2021
Medicare 22 % 23 % 22 % 23 %
Managed Medicare 23 21 23 22
Medicaid 5 5 5 5
Managed Medicaid 13 13 13 13
Managed care and insurers 30 30 30 30
Uninsured 7 8 7 7
100 % 100 % 100 % 100 %
The approximate percentages of our inpatient revenues related to Medicare,
managed Medicare, Medicaid, managed Medicaid, managed care and insurers for the
quarters and six months ended June 30, 2022 and 2021 are set forth in the
following table.
Quarter Six Months
2022 2021 2022 2021
Medicare 23 % 24 % 24 % 24 %
Managed Medicare 18 17 18 17
Medicaid 7 5 6 5
Managed Medicaid 7 7 8 6
Managed care and insurers 45 47 44 48
100 % 100 % 100 % 100 %
20
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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)
At
the quarter ended
were generated by these hospitals. Uninsured admissions in
represented 73% of our uninsured admissions during the quarter ended
2022
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. Some state Medicaid programs use,
or have applied to use, waivers granted by the
Services
or enrollment restrictions, or otherwise implement programs that vary from
federal standards. For example, the Texas Healthcare Transformation and Quality
Improvement Program ("Texas Waiver Program") currently operates pursuant to a
Medicaid waiver that has been extended through
Medicaid revenues included Texas Waiver Program supplemental revenues of
million
respectively, and
2022 and 2021, respectively. We receive supplemental payments in several other
states. We 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.
21
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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
and six months ended
Quarter
2022 2021
Amount Ratio Amount Ratio
Revenues $ 14,820 100.0 $ 14,435 100.0
Salaries and benefits 6,792 45.8 6,385 44.2
Supplies 2,301 15.5 2,380 16.5
Other operating expenses 2,693 18.3 2,473 17.2
Equity in earnings of affiliates (8 ) (0.1 ) (22 ) (0.2 )
Depreciation and amortization 738 5.0 712 4.9
Interest expense 434 2.9 386 2.7
Losses (gains) on sales of facilities 32 0.2 (8 ) (0.1 )
Losses on retirement of debt 78 0.5 12 0.1
13,060 88.1 12,318 85.3
Income before income taxes 1,760 11.9 2,117 14.7
Provision for income taxes 381 2.6 453 3.2
Net income 1,379 9.3 1,664 11.5
Net income attributable to
noncontrolling interests 224 1.5 214 1.5
Net income attributable to HCA
Healthcare, Inc. $ 1,155 7.8 $ 1,450 10.0
% changes from prior year:
Revenues 2.7 % 30.4 %
Income before income taxes (16.9 ) 35.7
Net income attributable to HCA
Healthcare, Inc. (20.3 ) 34.3
Admissions(a) (3.2 ) 17.5
Equivalent admissions(b) (1.5 ) 26.7
Revenue per equivalent admission 4.2 2.9
Same facility % changes from prior
year(c):
Revenues 4.0 30.1
Admissions(a) (1.2 ) 17.5
Equivalent admissions(b) 0.5 26.8
Revenue per equivalent admission 3.5 2.6
22
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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 (continued)
Six Months
2022 2021
Amount Ratio Amount Ratio
Revenues $ 29,765 100.0 $ 28,412 100.0
Salaries and benefits 13,731 46.1 12,686 44.6
Supplies 4,622 15.5 4,604 16.2
Other operating expenses 5,445 18.4 4,894 17.3
Equity in earnings of affiliates (19 ) (0.1 ) (43 ) (0.2 )
Depreciation and amortization 1,470 4.9 1,409 5.0
Interest expense 842 2.8 770 2.7
Losses (gains) on sales of facilities 22 0.1 (10 ) -
Losses on retirement of debt 78 0.3 12 -
26,191 88.0 24,322 85.6
Income before income taxes 3,574 12.0 4,090 14.4
Provision for income taxes 730 2.4 846 3.0
Net income 2,844 9.6 3,244 11.4
Net income attributable to
noncontrolling interests 416 1.4 371 1.3
Net income attributable to HCA
Healthcare, Inc. $ 2,428 8.2 $ 2,873 10.1
% changes from prior year:
Revenues 4.8 % 18.7 %
Income before income taxes (12.6 ) 72.5
Net income attributable to HCA
Healthcare, Inc. (15.5 ) 73.0
Admissions(a) (1.6 ) 5.8
Equivalent admissions(b) 0.8 8.5
Revenue per equivalent admission 4.0 9.5
Same facility % changes from prior
year(c):
Revenues 5.9 18.8
Admissions(a) 0.4 5.8
Equivalent admissions(b) 2.7 8.5
Revenue per equivalent admission 3.1 9.5
(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.
23
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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
Healthcare, Inc.
quarter ended
share, for the quarter ended
2021 include losses on sales of facilities of
share, and gains on sales of facilities of
share, respectively. Second quarter results for 2022 and 2021 also include
losses on retirement of debt of
million
disclosures are based upon amounts net of the applicable income taxes. Shares
used for diluted earnings per share were 296.061 million shares for the quarter
ended
2021
million shares and 20.605 million shares, respectively, of our common stock.
Revenues increased 2.7% on a consolidated basis and 4.0% on a same facility
basis for the quarter ended
30, 2021
impact of a 4.2% increase in revenue per equivalent admission and a 1.5% decline
in equivalent admissions. The same facility revenues increase resulted from the
combined impact of a 3.5% increase in same facility revenue per equivalent
admission and a 0.5% increase in same facility equivalent admissions.
Salaries and benefits, as a percentage of revenues, were 45.8% in the second
quarter of 2022 and 44.2% in the second quarter of 2021. Salaries and benefits
per equivalent admission increased 8.0% in the second quarter of 2022, compared
to the second quarter of 2021. Same facility salaries and benefits per full time
equivalent increased 5.9% for the second quarter of 2022, compared to the second
quarter of 2021 as inflation has impacted our labor costs and as we continue to
utilize certain contract, overtime and other premium rate labor costs to support
our clinical staff and patients. We intend to continue reducing 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 second quarter of 2022
and 16.5% in the second quarter of 2021. Supply costs per equivalent admission
declined 1.9% in the second quarter of 2022, compared to the second quarter of
2021. Supply costs per equivalent admission declined 0.5% for medical devices,
11.0% for pharmacy supplies and 0.4% for general medical and surgical items in
the second quarter of 2022, compared to the second quarter of 2021. The decline
in pharmacy supplies is primarily related to higher utilization of certain
COVID-19 therapies during the second quarter of 2021.
Other operating expenses, as a percentage of revenues, were 18.3% in the second
quarter of 2022 and 17.2% in the second 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 second quarters of 2022 and 2021, respectively.
Equity in earnings of affiliates was
quarters of 2022 and 2021, respectively.
Depreciation and amortization increased
second quarter of 2021 to
increase in depreciation relates primarily to capital expenditures at our
existing facilities.
Interest expense was
in the second quarter of 2021. Our average debt balance was
the second quarter of 2022, compared to
of 2021. The average effective interest rate for our debt was 4.5% and 4.9%,
respectively, for the quarters ended
During the second quarters of 2022 and 2021, we recorded losses on sales of
facilities of
respectively.
24
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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
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. During
principal amount of our 5.875% senior notes due 2023. The aggregate pretax loss
on retirement of debt for these two redemptions was
2021
notes comprised of
2031 and
"
credit facility and our senior secured asset-based revolving credit facility,
including increasing availability under the asset-based revolving credit
facility to
new
used the net proceeds from the
Transactions to retire
on retirement of debt was
The effective tax rates were 24.8% and 23.8% for the second quarters of 2022 and
2021, respectively. The effective tax rate computations exclude net income
attributable to noncontrolling interests as it relates to consolidated
partnerships.
Net income attributable to noncontrolling interests increased from
for the second quarter of 2021 to
The increase in net income attributable to noncontrolling interests related
primarily to the operations of one of our
Six Months Ended
Revenues increased to
Healthcare, Inc.
months ended
share, for the six months ended
of 2022 and 2021 include losses on sales of facilities of
per diluted share, and gains on sales of facilities of
diluted share, respectively. Results for the first six months of 2022 and 2021
also include losses on retirement of debt of
share, and
for income taxes for the first six months of 2022 and 2021 included tax benefits
of
diluted share, respectively, related to employee equity award settlements. All
"per diluted share" disclosures are based upon amounts net of the applicable
income taxes. Shares used for diluted earnings per share were 301.690 million
shares for the six months ended
six months ended
repurchased 37.812 million shares and 20.605 million shares, respectively, of
our common stock.
Revenues increased 4.8% on a consolidated basis and 5.9% on a same facility
basis for the six months ended
combined impact of a 4.0% increase in revenue per equivalent admission and a
0.8% increase in equivalent admissions. The same facility revenues increase
primarily resulted from the combined impact of a 3.1% increase in same facility
revenue per equivalent admission and a 2.7% increase in same facility equivalent
admissions.
Salaries and benefits, as a percentage of revenues, were 46.1% in the first six
months of 2022 and 44.6% in the first six months of 2021. Salaries and benefits
per equivalent admission increased 7.4% in the first six months of 2022,
compared to the first six months of 2021. Same facility salaries and benefits
per full time equivalent increased 6.8% for the first six months of 2022,
compared to the first six months of 2021 as inflation has impacted our labor
costs and as we continue to utilize certain contract, overtime and other premium
rate labor costs to support our clinical staff and patients. We intend to
continue reducing 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.
25
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Six Months Ended
Supplies, as a percentage of revenues, were 15.5% in the first six months of
2022 and 16.2% in the first six months of 2021. Supply costs per equivalent
admission declined 0.4% in the first six months of 2022, compared to the first
six months of 2021. Supply costs per equivalent admission increased 2.5% for
medical devices and 1.1% for general medical and surgical items and declined
10.8% for pharmacy supplies in the first six months of 2022, compared to the
first six months of 2021. The decline in pharmacy supplies is primarily related
to higher utilization of certain COVID-19 therapies during the first six months
of 2021.
Other operating expenses, as a percentage of revenues, were 18.4% in the first
six months of 2022 and 17.3% in the first six months 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 six months of 2022 and 2021, respectively.
Equity in earnings of affiliates was
six months of 2022 and 2021, respectively.
Depreciation and amortization increased
first six months of 2021 to
increase in depreciation relates primarily to capital expenditures at our
existing facilities.
Interest expense was
million
billion
first six months of 2021. The average effective interest rate for our debt was
4.6% and 4.9%, respectively, for the six months ended
During the first six months of 2022 and 2021, we recorded losses on sales of
facilities of
respectively.
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. During
principal amount of our 5.875% senior notes due 2023. The aggregate pretax loss
on retirement of debt for these two redemptions was
2021
notes comprised of
2031 and
"
credit facility and our senior secured asset-based revolving credit facility,
including increasing availability under the asset-based revolving credit
facility to
new
used the net proceeds from the
Transactions to retire
on retirement of debt was
The effective tax rates were 23.1% and 22.7% for the first six months 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 six months of 2022
and 2021 included tax benefits of
related to employee equity award settlements. Excluding the effect of these
adjustments, the effective tax rate for the first six months of 2022 and 2021
would have been 25.2% and 25.0%, respectively.
Net income attributable to noncontrolling interests increased from
for the first six months of 2021 to
The increase in net income attributable to noncontrolling interests related
primarily to the operations of one of our
organization and our surgery centers.
26
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
Cash provided by operating activities totaled
months of 2022 compared to
six months of 2022 compared to the first six months of 2021, related primarily
to the net impact of negative changes in working capital items of
billion
2020. The combination of interest payments and net income tax payments in the
first six months of 2022 and 2021 totaled
respectively. Working capital totaled
billion
Cash used in investing activities was
2022 compared to
acquisitions, capital expenditures were
of 2022 and
expenditures are expected to approximate
there were projects under construction which had estimated additional costs to
complete and equip over the next five years of approximately
expect to finance capital expenditures with internally generated and borrowed
funds.
Cash used in financing activities totaled
of 2022, compared to
first six months of 2022, net cash flows used in financing activities included a
net increase of
million
noncontrolling interests of
net cash flows used in financing activities included a net increase of
billion
common stock of
We are a highly leveraged company with significant debt service requirements.
Our debt totaled
million
months 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.
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. During
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.
27
--------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
primary obligor under a substantial portion of our indebtedness, including our
senior secured credit facilities and senior notes. The senior secured credit
facilities 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 further information regarding the senior secured
credit facilities and the related subsidiary guarantees, refer to the discussion
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" in Part II, Item 7
of our annual report on Form 10-K for the year ended
25, 2022
investment grade rating with respect to the issuer credit rating of
Healthcare, Inc.
previously disclosed events, constituted an "Investment Grade Rating Event" or a
"Ratings Event," as applicable, under the terms of the indentures governing
Inc.'s
senior secured indentures to permit the permanent release of the subsidiary
guarantees and all collateral securing the senior secured notes were met. The
subsidiary guarantees and collateral securing our senior secured credit
facilities are not affected. Following this release of the subsidiary guarantees
and collateral securing the senior secured notes, the subsidiary guarantors
deregistered with the
summarized financial information for
subsidiary guarantors, and information about the subsidiary guarantees and
affiliates whose securities were pledged as collateral will no longer be
presented.
All of the senior notes issued by
and unconditionally guaranteed on an unsecured basis by
combined assets, liabilities, and results of operations of
and
presented in the consolidated financial statements of
result, summarized financial information of
not required to be presented under Rule 13-01 of Regulation S-X.
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
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. With
respect to our interest-bearing liabilities, approximately
debt at
remaining debt balance of
rates of interest. Both the general level of interest 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 debt was 4.6% and 4.9% for
the six months ended
The estimated fair value of our debt was
estimates of fair value are based upon the quoted market prices for the same or
similar issues of 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
fluctuations in interest rates, we generally 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.
28
--------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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.
29
--------------------------------------------------------------------------------
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 30 182 187
September 30 183
December 31 182
Number of freestanding outpatient surgical centers in
operation at:
March 31 124 121
June 30 126 122
September 30 123
December 31 125
Licensed hospital beds at(a):
March 31 48,892 49,561
June 30 48,979 49,693
September 30 48,950
December 31 48,803
Weighted average beds in service(b):
Quarter:
First 41,818 42,363
Second 41,930 42,464
Third 42,088
Fourth 41,685
Year 42,148
Average daily census(c):
Quarter:
First 29,797 29,678
Second 28,256 28,901
Third 31,144
Fourth 29,273
Year 29,752
Admissions(d):
Quarter:
First 506,956 506,380
Second 515,113 532,041
Third 536,848
Fourth 514,706
Year 2,089,975
Equivalent admissions(e):
Quarter:
First 859,290 832,489
Second 902,757 916,212
Third 905,627
Fourth 881,910
Year 3,536,238
Average length of stay (days)(f):
Quarter:
First 5.3 5.3
Second 5.0 4.9
Third 5.3
Fourth 5.2
Year 5.2
30
--------------------------------------------------------------------------------
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 2,223,999 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 258,182 262,107
Third 249,192
Fourth 265,709
Year 1,008,236
Inpatient surgeries(i):
Quarter:
First 126,880 127,590
Second 130,961 136,460
Third 126,436
Fourth 131,583
Year 522,069
Days revenues in accounts receivable(j):
Quarter:
First 51 48
Second 53 48
Third 51
Fourth 49
Outpatient revenues as a % of patient revenues(k):
Quarter:
First 37 % 36 %
Second 39 % 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.
31
--------------------------------------------------------------------------------
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