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TENET HEALTHCARE CORP – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION TO MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of this section, Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A"), is to provide a narrative
explanation of our financial statements that enables investors to better
understand our business, to enhance our overall financial disclosures, to give
context to the analysis of our financial information, and to provide information
about the quality of, and potential variability of, our financial condition,
results of operations and cash flows. MD&A, which should be read in conjunction
with the accompanying Condensed Consolidated Financial Statements, includes the
following sections:
•Management Overview
•Forward-Looking Statements
•Sources of Revenue for Our Hospital Operations Segment
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
Our business consists of our Hospital Operations and other ("Hospital
Operations") segment, our Ambulatory Care segment and our Conifer segment. Our
Hospital Operations segment is comprised of our acute care and specialty
hospitals, imaging centers, ancillary outpatient facilities, microhospitals and
physician practices. At March 31, 2023 , our subsidiaries operated 61 hospitals
serving primarily urban and suburban communities in nine states. Our Hospital
Operations segment also included 109 other outpatient facilities at
March 31, 2023 , the majority of which are providerbased and freestanding
imaging centers, offcampus hospital emergency departments and micro-hospitals,
and providerbased ambulatory surgery centers (each, an "ASC").
Our Ambulatory Care segment, through our USPI Holding Company, Inc. subsidiary
("USPI"), held ownership interests in 445 ASCs (305 consolidated) and
24 surgical hospitals (eight consolidated) in 35 states at March 31, 2023 .
USPI's facilities offer a range of procedures and service lines, including,
among other specialties: orthopedics, total joint replacement, and spinal and
other musculoskeletal procedures; gastroenterology; and urology. Effective
June 30, 2022 , we purchased all of the shares in USPI that Baylor University
Medical Center ("Baylor") held on that date for $406 million , which increased
our ownership interest in USPI's voting shares from 95% to 100%.
Our Conifer segment provides revenue cycle management and value-based care
services to hospitals, health systems, physician practices, employers and other
clients through our Conifer Holdings, Inc. subsidiary ("Conifer"). At
March 31, 2023 , Conifer provided services to approximately 665 Tenet and
nonTenet hospitals and other clients nationwide. Almost all of the services
comprising the operations of our Conifer segment are provided by Conifer Health
Solutions, LLC , in which we own an interest of approximately 76%, or by one of
its direct or indirect wholly owned subsidiaries.
Unless otherwise indicated, all financial and statistical information included
in MD&A relates to our continuing operations, with dollar amounts expressed in
millions (except peradjustedadmission and peradjustedpatientday amounts).
Continuing operations information includes, with respect to our Hospital
Operations segment, the results of our same 60 hospitals operated throughout the
three months ended March 31, 2023 and 2022, as well as the results of Piedmont
Medical Center Fort Mill ("PMC Fort Mill Hospital "), the new acute care hospital
we opened in South Carolina in September 2022 . Continuing operations information
excludes the results of our hospitals and other businesses classified as
discontinued operations for accounting purposes. We believe this presentation is
useful to investors because it includes the operations of all facilities in
continuing operations for the entire time that we owned and operated them during
the relevant period. In addition, continuing operations information reflects the
impact of the addition or disposition of individual hospitals and other
operations on our volumes, revenues and expenses. We present certain metrics as
a percentage of net operating revenues because a significant portion of our
operating expenses are variable, and we present certain metrics on a
peradjustedadmission and peradjustedpatientday basis to show trends other
than volume.
In certain cases, information presented in MD&A for our Hospital Operations
segment is described as presented on a samehospital basis, which includes the
results of our same 60 hospitals operated throughout the three months ended
March 31, 2023 and 2022, and excludes the results of our PMC Fort Mill Hospital .
We present samehospital data because we believe it provides investors with
useful information regarding the performance of our current portfolio of
hospitals and other operations that are comparable for the periods presented.
Furthermore, samehospital data may more clearly reflect recent
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trends we are experiencing with respect to volumes, revenues and expenses
exclusive of variations caused by the addition or disposition of individual
hospitals and other operations.
MANAGEMENT OVERVIEW
OPERATING ENVIRONMENT AND TRENDS
Ongoing Impact of the COVID-19 Pandemic-The COVID19 pandemic continued to adversely impact various aspects of our operations during the three months endedMarch 31, 2023 , although to a lesser extent than previously experienced. Regional changes in the prevalence of COVID19 infections and related patient acuity impact our patient volumes, service mix, revenue mix, operating expenses and net operating revenues. We have taken a number of actions over the past several years to increase our liquidity and mitigate the impact of fluctuations in our patient volumes and in our service mix and revenue mix. Staffing and Labor Trends-We compete with other healthcare providers in recruiting and retaining qualified personnel responsible for the operation of our facilities. There is limited availability of experienced medical support personnel nationwide, which drives up the wages and benefits required to recruit and retain employees. In particular, like others in the healthcare industry, we continue to experience a shortage of advanced practice providers and criticalcare nurses in certain disciplines and geographic areas. The COVID19 pandemic exacerbated this shortage as more employees chose to retire early, leave the workforce or take travel assignments. Over the past several years, we have had to rely on higher-cost contract labor, which we compete with other healthcare providers to secure, and pay premiums above standard compensation for essential workers. We also depend on the available labor pool of semiskilled and unskilled workers in each of the areas where we operate. In some of our communities, employers across various industries have increased their minimum wage, which has created more competition and, in some cases, higher labor costs for this sector of employees. Although we continue to incur a higher level of contract labor expense than we have historically, our recruitment and retention efforts drove a reduction in this expense during the three months endedMarch 31, 2023 . Inflation and Other General Economic Conditions-Our business has been impacted by the rise in inflation and its effect on salaries, wages and benefits, as well as other costs. Additional economic factors, including unemployment rates and consumer spending, affect our patient volumes, service mix and revenue mix. Business closings and layoffs in the areas we operate may lead to increases in the uninsured and underinsured populations and adversely affect demand for our services, as well as the ability of patients to pay for services. Any deterioration in the collectability of patient accounts receivable could adversely affect our cash flows and results of operations. We have also experienced significant price increases in medical supplies, and we have encountered supply-chain disruptions, including shortages and delays, caused by current economic conditions. In addition, our Ambulatory Care segment has been impacted by shipment delays in construction materials and capital equipment with respect to its de novo facility development efforts, which are a key part of our portfolio expansion strategy. Industry Trends-We believe that several key trends are continuing to shape the demand for healthcare services: (1) consumers, employers and insurers are actively seeking lowercost solutions and better value as they focus more on healthcare spending; (2) patient volumes are shifting from inpatient to outpatient settings due to technological advancements and demand for care that is more convenient, affordable and accessible; (3) the growing aging population requires greater chronic disease management and higheracuity treatment; and (4) consolidation continues across the entire healthcare sector. Furthermore, the healthcare industry, in general, and the acute care hospital business, in particular, continue to be subject to significant regulatory uncertainty. Changes in federal or state healthcare laws, regulations, funding policies or reimbursement practices, especially those involving reductions to government payment rates, could have a significant impact on our future revenues and operations.
STRATEGIES
Expanding Our Ambulatory Care Segment-We continue to focus on opportunities to
expand our Ambulatory Care segment through acquisitions, organic growth,
construction of new outpatient centers and strategic partnerships. We believe
USPI's ASCs and surgical hospitals offer many advantages to patients and
physicians, including greater affordability, predictability, flexibility and
convenience. Moreover, due in part to advancements in surgical techniques,
medical technology and anesthesia, as well as the lower cost structure and
greater efficiencies that are attainable at a specialized outpatient site, we
believe the volume and complexity of surgical cases performed in an outpatient
setting will continue to increase over time. Historically, our outpatient
services have generated significantly higher margins for us than inpatient
services.
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During the years endedDecember 31, 2022 and 2021, we invested$264 million and$1.315 billion , respectively, to acquire ownership interests in new ASCs, increase our ownership interests in existing facilities and invest in de novo facilities. During the three months endedMarch 31, 2023 , we acquired controlling ownership interests in three ASCs in which we did not have a previous investment, and we opened two de novo ASCs. We also continue to prioritize increasing our investment in our unconsolidated facilities. During the three months endedMarch 31, 2023 , we acquired controlling ownership interests in four of our unconsolidated ASCs, allowing us to consolidate them. Driving Growth in Our Hospital Systems-We remain committed to better positioning our hospital systems and competing more effectively in the everevolving healthcare environment by focusing on driving performance through operational effectiveness, increasing capital efficiency and margins, investing in our physician enterprise, particularly our specialist network, enhancing patient and physician satisfaction, growing our higherdemand and higheracuity clinical service lines (including outpatient lines), expanding patient and physician access, and optimizing our portfolio of assets. Over the past several years, we have undertaken enterprisewide costefficiency measures, and we continue to transition certain support operations to ourGlobal Business Center ("GBC") inthe Philippines . We incurred restructuring charges in conjunction with these initiatives in the three months endedMarch 31, 2023 , and we could incur additional restructuring charges in the future. We regularly review the marginal costs of providing certain services, and we use analytics to manage our operations and make staffing decisions. We also exit service lines, businesses and markets that we believe are no longer a core part of our longterm growth and synergy strategies. InJanuary 2023 , we entered into a definitive agreement to sell our 51% ownership interest inSan Ramon Regional Medical Center and certain related operations to our joint venture partner. We expect the transaction to be completed in 2023, subject to regulatory review and customary closing conditions. We intend to further refine our portfolio of hospitals and other healthcare facilities when we believe such refinements will help us improve profitability, allocate capital more effectively in areas where we have a stronger presence, deploy proceeds on higherreturn investments across our business, enhance cash flow generation, reduce our debt and lower our ratio of debttoAdjusted EBITDA. We also seek advantageous opportunities to grow our portfolio of hospitals and other healthcare facilities. InSeptember 2022 , we openedPMC Fort Mill Hospital , a new acute care hospital located inSouth Carolina . This 100-bed facility includes an emergency department, multi-specialty operating rooms, an intensive care unit, and labor and delivery rooms. Improving the Customer Care Experience-As consumers continue to become more engaged in managing their health, we recognize that understanding what matters most to them and earning their loyalty is imperative to our success. As such, we have enhanced our focus on treating our patients as traditional customers by: (1) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (2) expanding service lines aligned with growing community demand, including a focus on aging and chronic disease patients; (3) offering greater affordability and predictability, including simplified registration and discharge procedures, particularly in our outpatient centers; (4) improving our culture of service; and (5) creating health and benefit programs, patient education and health literacy materials that are customized to the needs of the communities we serve. Through these efforts, we intend to improve the customer care experience in every part of our operations. Driving Conifer's Growth-Conifer serves approximately 665 Tenet and nonTenet hospitals and other clients nationwide. In addition to providing revenue cycle management services to health systems and physicians, Conifer provides support to both providers and selfinsured employers seeking assistance with clinical integration, financial risk management and population health management. We believe that our success in growing Conifer and increasing its profitability depends in part on our success in executing the following strategies: (1) attracting hospitals and other healthcare providers that currently handle their revenue cycle management processes internally as new clients; (2) generating new client relationships through opportunities from USPI and Tenet's acute care hospital acquisition and divestiture activities; (3) expanding revenue cycle management and valuebased care service offerings through organic development and small acquisitions; (4) leveraging data from tens of millions of patient interactions for continued enhancement of the valuebased care environment to drive competitive differentiation; and (5) maximizing opportunities through automation and offshoring to improve the effectiveness and efficiency of Conifer's services. Improving Profitability-We continue to focus on growing patient volumes and effective cost management as a means to improve profitability. Our inpatient admissions have been constrained in recent years by the COVID19 pandemic, increased competition, utilization pressure by managed care organizations, new delivery models that are designed to lower the utilization of acute care hospital services, the effects of higher patient copays, coinsurance amounts and deductibles, changing consumer behavior, and adverse economic conditions and demographic trends in certain areas where we operate. Our business has also been impacted by the rise in inflation and its effects on elective procedures, wages and costs. However, we also believe that emphasis on higherdemand clinical service lines (including outpatient services), focus on expanding our ambulatory care business, cultivation of our culture of service, participation in Medicare Advantage health plans that have been experiencing 27
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higher growth rates than traditional Medicare, and contracting strategies that create shared value with payers should help us grow our patient volumes over time. We are also continuing to pursue new opportunities to enhance efficiency, including further integration of enterprisewide centralized support functions, outsourcing additional functions unrelated to direct patient care, and reducing clinical and vendor contract variation. Reducing Our Leverage Over Time-All of our longterm debt has a fixed rate of interest, except for outstanding borrowings under our senior secured revolving credit facility (as amended to date, the "Credit Agreement"), of which we currently have none. In addition, the maturity dates of our notes are staggered from 2024 through 2031. We believe that our capital structure helps to minimize the nearterm impact of increased interest rates, and the staggered maturities of our debt allow us to retire or refinance our debt over time. It remains our longterm objective to reduce our debt and lower our ratio of debttoAdjusted EBITDA, primarily through more efficient capital allocation and Adjusted EBITDA growth, which should lower our refinancing risk. Repurchasing Stock-InOctober 2022 , our board of directors authorized the repurchase of up to$1 billion of our common stock through a share repurchase program. Repurchases will be made in accordance with applicable securities laws and may be made at management's discretion from time to time in open-market or privately negotiated transactions, subject to market conditions and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time before its scheduled expiration date ofDecember 31, 2024 . We paid approximately$50 million to repurchase a total of 906,346 shares during the three months endedMarch 31, 2023 , or an average of$55.03 per share. Our ability to execute on our strategies and respond to the aforementioned trends in the current operating environment is subject to numerous risks and uncertainties, all of which may cause actual results to be materially different from expectations. For information about risks and uncertainties that could affect our results of operations, see the ForwardLooking Statements and Risk Factors sections in Part I of our Annual Report on Form 10K for the year endedDecember 31, 2022 (our "Annual Report"). 28
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RECENT RESULTS OF OPERATIONS
The following table presents selected operating statistics for our Hospital
Operations and Ambulatory Care segments on a continuing operations basis:
Three Months Ended March 31, Increase
2023 2022 (Decrease)
Hospital Operations - hospitals and related
outpatient facilities:
Number of hospitals (at end of period) 61 60 1 (1)
Total admissions 133,960 127,781 4.8 %
Adjusted admissions(2) 244,973 227,933 7.5 %
Paying admissions (excludes charity and uninsured) 128,094 121,802 5.2 %
Charity and uninsured admissions 5,866 5,979 (1.9) %
Admissions through emergency department 101,451 97,688 3.9 %
Emergency department visits, outpatient 531,328 500,659 6.1 %
Total emergency department visits 632,779 598,347 5.8 %
Total surgeries 86,590 84,166 2.9 %
Patient days - total 703,723 705,627 (0.3) %
Adjusted patient days(2) 1,236,417 1,224,824 0.9 %
Average length of stay (days) 5.25 5.52 (4.9) %
Average licensed beds 15,472 15,395 0.5 %
Utilization of licensed beds(3) 50.5 % 50.9 % (0.4) % (1)
Total visits 1,380,062 1,373,188 0.5 %
Paying visits (excludes charity and uninsured) 1,308,135 1,295,352 1.0 %
Charity and uninsured visits 71,927 77,836 (7.6) %
Ambulatory Care:
Total consolidated facilities (at end of period) 313 261 52 (1)
Total consolidated cases 370,829 300,320 23.5 %
(1) The change is the difference between the 2023 and 2022 amounts presented.
(2) Adjusted admissions/patient days represents actual admissions/patient days adjusted to
include outpatient services provided by facilities in our Hospital Operations segment by
multiplying actual admissions/patient days by the sum of gross inpatient revenues and
outpatient revenues and dividing the results by gross inpatient revenues.
(3) Utilization of licensed beds represents patient days divided by the number of days in the
period divided by average licensed beds.
Total admissions increased by 6,179, or 4.8%, and total surgeries increased by 2,424, or 2.9%, in the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . Total emergency department visits increased by 5.8% during the threemonth period in 2023 compared to the same period in 2022. The increase in our Ambulatory Care segment's total consolidated cases of 23.5% in the three months endedMarch 31, 2023 , as compared to the same period in 2022, is primarily attributable to incremental case volume from our recently acquired facilities and samefacility case growth, partially offset by the impact of the closure and deconsolidation of certain facilities. The following table presents net operating revenues by segment on a continuing operations basis: Three Months Ended March 31, Increase Revenues 2023 2022 (Decrease) Hospital Operations prior to inter-segment$ 3,899 $ 3,798 2.7 % eliminations Ambulatory Care 905 738 22.6 % Conifer 324 324 - % Inter-segment eliminations (107) (115) (7.0) % Total$ 5,021 $ 4,745 5.8 % Consolidated net operating revenues increased by$276 million , or 5.8%, in the three months endedMarch 31, 2023 compared to the same period in 2022. The increase of$101 million , or 2.7%, in our Hospital Operations segment's net operating revenues prior to intersegment eliminations for the threemonth period in 2023 compared to the same period in 2022 was primarily due to the opening of ourPMC Fort Mill Hospital inSeptember 2022 , higher patient and surgical volumes, and negotiated commercial rate increases. Net operating revenues in our Ambulatory Care segment increased$167 million , or 22.6%, in the three months endedMarch 31, 2023 compared to the same period in 2022. This increase was driven by our recently acquired ASCs, an increase in case volume and higher net revenue per case, partially offset by the impact of the closure and deconsolidation of certain facilities. Conifer's revenues, net of intersegment eliminations, increased$8 million , or 3.8%, 29
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during the three months ended
2022, primarily due to contractual rate increases and new business expansion.
During the three months ended
income of
included in net operating revenues.
Our accounts receivable days outstanding ("AR Days") from continuing operations
were 56.1 days at March 31, 2023 and 58.3 days at December 31, 2022 . Our AR Days
target is less than 55 days. AR Days are calculated as our accounts receivable
from continuing operations on the last date in the quarter divided by our net
operating revenues from continuing operations for the quarter ended on that date
divided by the number of days in the quarter. The AR Days calculation includes
our Hospital Operations segment's contract assets and excludes our California
provider fee revenues.
The following table provides information about selected operating expenses by
segment on a continuing operations basis:
Three Months Ended March 31, Increase
2023 2022 (Decrease)
Hospital Operations:
Salaries, wages and benefits $ 1,850 $ 1,820 1.6 %
Supplies 633 583 8.6 %
Other operating expenses 910 774 17.6 %
Total $ 3,393 $ 3,177 6.8 %
Ambulatory Care:
Salaries, wages and benefits $ 235 $ 194 21.1 %
Supplies 257 201 27.9 %
Other operating expenses 120 105 14.3 %
Total $ 612 $ 500 22.4 %
Conifer:
Salaries, wages and benefits $ 173 $ 168 3.0 %
Supplies 1 1 - %
Other operating expenses 63 63 - %
Total $ 237 $ 232 2.2 %
Total:
Salaries, wages and benefits $ 2,258 $ 2,182 3.5 %
Supplies 891 785 13.5 %
Other operating expenses 1,093 942 16.0 %
Total $ 4,242 $ 3,909 8.5 %
Rent/lease expense(1):
Hospital Operations $ 66 $ 70 (5.7) %
Ambulatory Care 30 27 11.1 %
Conifer 3 3 - %
Total $ 99 $ 100 (1.0) %
(1) Included in other operating expenses.
The following table provides information about our Hospital Operations segment's
selected operating expenses per adjusted admission on a continuing operations
basis:
Three Months Ended March 31, Increase
2023 2022 (Decrease)
Hospital Operations:
Salaries, wages and benefits per adjusted admission(1) $ 7,553
(5.4) % Supplies per adjusted admission(1) 2,585 2,557 1.1 % Other operating expenses per adjusted admission(1) 3,712 3,393 9.4 % Total per adjusted admission$ 13,850 $ 13,935 (0.6) %
(1) Adjusted admissions represents actual admissions adjusted to include outpatient
services provided by facilities in our Hospital Operations segment by multiplying
actual admissions by the sum of gross inpatient revenues and outpatient revenues and
dividing the results by gross inpatient revenues.
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Salaries, wages and benefits expense for our Hospital Operations segment increased$30 million , or 1.6%, in the three months endedMarch 31, 2023 compared to the same period in 2022. This increase was primarily attributable to higher patient and surgical volumes and annual merit increases for certain of our employees, partially offset by a decrease in contract labor expense and lower incentive compensation. On a peradjustedadmission basis, salaries, wages and benefits expense decreased by 5.4% in the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , primarily due to higher patient volumes and lower contract labor and incentive compensation expense during the 2023 period. Supplies expense for our Hospital Operations segment increased$50 million , or 8.6%, during the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . This increase was driven by higher patient volumes and acuity, as well as the impact of general market conditions and inflation, partially offset by our costefficiency measures. On a peradjustedadmission basis, supplies expense increased by 1.1% in the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . Other operating expenses for our Hospital Operations segment increased$136 million , or 17.6%, in the three months endedMarch 31, 2023 compared to the same period in 2022. Other operating expenses for the three months endedMarch 31, 2022 were reduced by a gain of$69 million from the sale of several office buildings; whereas net gains recognized during the same period in 2023 were$9 million . Higher medical fees during the three months endedMarch 31, 2023 also contributed to the year-over-year increase in other operating expenses. On a peradjustedadmission basis, other operating expenses in the three months endedMarch 31, 2023 increased by 9.4% compared to the same period in 2022, primarily due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES OVERVIEW
Cash and cash equivalents were$766 million atMarch 31, 2023 compared to$858 million atDecember 31, 2022 . Significant cash flow items in the three months endedMarch 31, 2023 included: •Net cash provided by operating activities before interest, taxes, discontinued operations, and restructuring charges, acquisitionrelated costs, and litigation costs and settlements of$650 million ;
•Capital expenditures of
•Interest payments of
•$134 million of distributions paid to noncontrolling interests;
•$50 million of payments to repurchase a total of 906,346 shares of our common
stock under the share repurchase program;
•$48 million of payments for purchases of businesses or joint venture interests;
and
•Debt payments of
Net cash provided by operating activities was$449 million in the three months endedMarch 31, 2023 compared to$228 million in the three months endedMarch 31, 2022 . This increase was primarily attributable to Medicare advances recouped or repaid of$194 million in the 2022 period compared to no amounts recouped or repaid in the 2023 period, as well as the timing of other working capital items. FORWARD-LOOKING STATEMENTS This report includes "forwardlooking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, target, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forwardlooking statements, including (but not limited to) disclosure regarding (1) the impact of the COVID-19 pandemic, (2) our future earnings, financial position, and operational and strategic initiatives, and (3) developments in the healthcare industry. Forwardlooking statements represent management's expectations, based on currently available information, as to the outcome and timing of future events, but, by their nature, address matters that are indeterminate. They involve known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements to be materially different from those expressed or implied by forwardlooking statements. Such factors include, but are not limited to, the risks described in the ForwardLooking Statements and Risk Factors sections in Part I of our Annual Report. 31
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When considering forwardlooking statements, you should keep in mind the risk factors and other cautionary statements in our Annual Report and in this report. Should one or more of the risks and uncertainties described in these reports occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forwardlooking statement. We specifically disclaim any obligation to update any information contained in a forwardlooking statement or any forwardlooking statement in its entirety except as required by law.
All forwardlooking statements attributable to us are expressly qualified in
their entirety by this cautionary information.
SOURCES OF REVENUE FOR OUR HOSPITAL OPERATIONS SEGMENT
We earn revenues for patient services from a variety of sources, primarily
managed care payers and the federal Medicare program, as well as state Medicaid
programs, indemnitybased health insurance companies and uninsured patients
(that is, patients who do not have health insurance and are not covered by some
other form of thirdparty arrangement).
The following table presents the sources of net patient service revenues for our
hospitals and related outpatient facilities, expressed as percentages of net
patient service revenues from all sources:
Three Months Ended March 31, Increase
2023 2022 (Decrease)(1)
Medicare 17.2 % 17.6 % (0.4) %
Medicaid 7.8 % 7.1 % 0.7 %
Managed care(2) 70.2 % 69.5 % 0.7 %
Uninsured 0.9 % 1.1 % (0.2) %
Indemnity and other 3.9 % 4.7 % (0.8) %
(1) The change is the difference between the 2023 and 2022 percentages presented.
(2) Includes Medicare and Medicaid managed care programs.
Revenues related to the Texas Comprehensive Hospital Increase Reimbursement
Program ("CHIRP") are presented in managed care net patient service revenues in
the table above. Amounts we were assessed to support CHIRP following its
approval in 2022 were presented in Medicaid revenues in prior periods but have
been reclassified to conform to the currentyear presentation in the same payer
group as the revenues to more clearly reflect the results of our participation
in this program. Assessments to support CHIRP totaled $26 million and $57
million for the three months ended March 31, 2023 and 2022, respectively.
Our payer mix on an admissions basis for our hospitals, expressed as a
percentage of total admissions from all sources, is presented below:
Three Months Ended March 31, Increase
Admissions from: 2023 2022 (Decrease)(1)
Medicare 20.7 % 21.5 % (0.8) %
Medicaid 4.8 % 5.6 % (0.8) %
Managed care(2) 66.8 % 64.8 % 2.0 %
Charity and uninsured 4.4 % 4.7 % (0.3) %
Indemnity and other 3.3 % 3.4 % (0.1) %
(1) The change is the difference between the 2023 and 2022 percentages presented.
(2) Includes Medicare and Medicaid managed care programs.
GOVERNMENT PROGRAMS
TheCenters for Medicare & Medicaid Services ("CMS") is an agency of theU.S. Department of Health and Human Services that administers a number of government programs authorized by federal law; it is the single largest payer of healthcare services inthe United States . Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, as well as some younger people with certain disabilities and conditions, and is provided without regard to income or assets. Medicaid is coadministered by the states and is jointly funded by the federal government and state governments. Medicaid is the nation's main public health insurance program for people with low incomes and is the largest source of health coverage inthe United States . TheChildren's Health Insurance Program ("CHIP"), which is also coadministered by the states and jointly funded, provides health coverage to children in families with incomes too high to 32
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qualify for Medicaid, but too low to afford private coverage. Unlike Medicaid,
the CHIP is limited in duration and requires the enactment of reauthorizing
legislation. Funding for the CHIP has been reauthorized through federal fiscal
year ("FFY") 2029.
Medicare
Medicare offers its beneficiaries different ways to obtain their medical
benefits. One option, the Original Medicare Plan (which includes "Part A" and
"Part B"), is a feeforservice ("FFS") payment system. The other option, called
Medicare Advantage (sometimes called "Part C" or "MA Plans"), includes health
maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"),
private FFS Medicare special needs plans and Medicare medical savings account
plans. Our total net patient service revenues from continuing operations of the
hospitals and related outpatient facilities in our Hospital Operations segment
for services provided to patients enrolled in the Original Medicare Plan were
$613 million and $619 million for the three months ended March 31, 2023 and
2022, respectively.
A general description of the types of payments we receive for services provided
to patients enrolled in the Original Medicare Plan is provided in our Annual
Report. Recent regulatory and legislative updates to the terms of these payment
systems and their estimated effect on our revenues can be found under
"Regulatory and Legislative Changes" below.
Medicaid
Medicaid programs and the corresponding reimbursement methodologies vary from statetostate and from yeartoyear. Estimated revenues under various state Medicaid programs, including statefunded Medicaid managed care programs, constituted approximately 18.8% of the total net patient service revenues of our acute care hospitals and related outpatient facilities for both of the threemonth periods endedMarch 31, 2023 and 2022. We also receive disproportionate share hospital ("DSH") and other supplemental revenues under various state Medicaid programs. For the three months endedMarch 31, 2023 and 2022, our total Medicaid revenues attributable to DSH and other supplemental revenues were approximately$205 million and$176 million , respectively. Even prior to the COVID19 pandemic, several states in which we operate faced budgetary challenges that resulted in reduced Medicaid funding levels to hospitals and other providers. Because most states must operate with balanced budgets, and the Medicaid program is generally a significant portion of a state's budget, states can be expected to adopt or consider adopting future legislation designed to reduce or not increase their Medicaid expenditures. In addition, some states delay issuing Medicaid payments to providers to manage state expenditures. As an alternative means of funding provider payments, many of the states in which we operate have adopted supplemental payment programs authorized under the Social Security Act. Continuing pressure on state budgets and other factors, including legislative and regulatory changes, could result in future reductions to Medicaid payments, payment delays or changes to Medicaid supplemental payment programs. Federal government denials or delayed approvals of waiver applications or extension requests by the states where we operate could materially impact our Medicaid funding levels. Total Medicaid and Medicaid managed care net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment for the three months endedMarch 31, 2023 and 2022 were$672 million and$659 million , respectively. During the three months endedMarch 31, 2023 , Medicaid and Medicaid managed care revenues comprised 42% and 58%, respectively, of our Medicaidrelated net patient service revenues from continuing operations recognized by the hospitals and related outpatient facilities in our Hospital Operations segment. All Medicaid and Medicaid managed care patient service revenues are presented net of provider taxes or assessments paid by our hospitals. Because we cannot predict what actions the federal government or the states may take under existing or future legislation and/or regulatory changes to address budget gaps, deficits, Medicaid expansion, provider fee programs or Medicaid Section 1115 waivers, we are unable to assess the effect that any such legislation or regulatory action might have on our business; however, the impact on our future financial position, results of operations or cash flows could be material. 33
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Regulatory and Legislative Changes
Material updates to the information set forth in our Annual Report about the
Medicare and Medicaid payment systems, as well as other government programs
impacting our business, are provided below.
Proposed Payment and Policy Changes to the Medicare Inpatient Prospective
Payment Systems-Section 1886(d) of the Social Security Act requires CMS to
update Medicare inpatient FFS payment rates for hospitals reimbursed under the
inpatient prospective payment systems ("IPPS") annually. The updates generally
become effective October 1 , the beginning of the FFY. In April 2023 , CMS issued
proposed changes to the Hospital Inpatient Prospective Payment Systems for Acute
Care Hospitals and Fiscal Year 2024 Rates ("Proposed IPPS Rule"). The Proposed
IPPS Rule includes the following proposed payment and policy changes, among
others:
•A market basket increase of 3.0% for Medicare severityadjusted
diagnosisrelated group ("MSDRG") operating payments for hospitals reporting
specified quality measure data and that are meaningful users of electronic
health record technology; CMS also proposed a 0.2% multifactor productivity
reduction required by the Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act of 2010 (the "Affordable
Care Act"), that results in a net operating payment update of 2.8% before budget
neutrality adjustments;
•An increase in the cost outlier threshold from
•A 4.5% net increase in the capital federal MSDRG rate;
•Updates to the three factors used to determine the amount and distribution of
Medicare uncompensated care disproportionate share hospital payments ("UCDSH
Amounts"); and
•The inclusion of certain rural reclassified hospitals with geographically rural
hospitals in the calculation of the rural wage index and the calculation of the
wage index floor for urban hospitals in the same state.
According to CMS, the combined impact of the proposed payment and policy changes
in the Proposed IPPS Rule for operating costs will yield an average 2.8%
increase in Medicare operating MSDRG FFS payments for hospitals in urban areas
and an average 2.8% increase in such payments for proprietary hospitals in
FFY 2024. We estimate that all of the proposed payment and policy changes
affecting operating MSDRG and UCDSH Amounts will result in a 3.7% increase in
our annual Medicare FFS IPPS payments, which yields an estimated increase of
approximately $59 million . Because of the uncertainty associated with various
factors that may influence our future IPPS payments by individual hospital,
including legislative, regulatory or legal actions, admission volumes, length of
stay and case mix, as well as potential changes to the Proposed IPPS Rule, we
cannot provide any assurances regarding our estimate of the impact of the
proposed payment and policy changes.
Public Health and Social Services Emergency Fund-During the three months ended
March 31, 2023 and 2022, our Hospital Operations and Ambulatory Care segments
recognized a combined total of $3 million and $6 million , respectively, of grant
income from federal and state programs associated with lost revenues and
COVIDrelated costs. Grant income recognized by our Hospital Operations and
Ambulatory Care segments is presented in grant income in our condensed
consolidated statements of operations. We cannot predict whether additional
distributions of grant funds will be authorized, and we cannot provide any
assurances regarding the amount of grant income, if any, to be recognized in the
future.
PRIVATE INSURANCE
Managed Care
We currently have thousands of managed care contracts with various HMOs and
PPOs. HMOs generally maintain a fullservice healthcare delivery network
comprised of physician, hospital, pharmacy and ancillary service providers that
HMO members must access through an assigned "primary care" physician. The
member's care is then managed by his or her primary care physician and other
network providers in accordance with the HMO's quality assurance and utilization
review guidelines so that appropriate healthcare can be efficiently delivered in
the most costeffective manner. HMOs typically provide reduced benefits or
reimbursement (or none at all) to their members who use noncontracted
healthcare providers for nonemergency care.
PPOs generally offer limited benefits to members who use noncontracted
healthcare providers. PPO members who use contracted healthcare providers
receive a preferred benefit, typically in the form of lower copays,
coinsurance or deductibles. As employers and employees have demanded more
choice, managed care plans have developed hybrid products that combine elements
of both HMO and PPO plans, including highdeductible healthcare plans that may
have limited benefits, but cost the employee less in premiums.
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The amount of our managed care net patient service revenues, including Medicare and Medicaid managed care programs, from our hospitals and related outpatient facilities during the three months endedMarch 31, 2023 and 2022 was$2.503 billion and$2.438 billion , respectively. Our top 10 managed care payers generated 64% of our managed care net patient service revenues for the three months endedMarch 31, 2023 . During the same period, national payers generated 44% of our managed care net patient service revenues; the remainder came from regional or local payers. AtMarch 31, 2023 andDecember 31, 2022 , 67% and 66%, respectively, of our net accounts receivable for our Hospital Operations segment were due from managed care payers. Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, perdiem rates, discounted FFS rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient's bill is subject to adjustment on a patientbypatient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. We believe it is reasonably likely for there to be an approximately 3% increase or decrease in the estimated contractual allowances related to managed care plans. Based on reserves atMarch 31, 2023 , a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately$18 million . Some of the factors that can contribute to changes in the contractual allowance estimates include: (1) changes in reimbursement levels for procedures, supplies and drugs when threshold levels are triggered; (2) changes in reimbursement levels when stoploss or outlier limits are reached; (3) changes in the admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (4) final coding of inhouse and dischargednotfinalbilled patients that change reimbursement levels; (5) secondary benefits determined after primary insurance payments; and (6) reclassification of patients among insurance plans with different coverage and payment levels. Contractual allowance estimates are periodically reviewed for accuracy by taking into consideration known contract terms, as well as payment history. We believe our estimation and review process enables us to identify instances on a timely basis where such estimates need to be revised. We do not believe there were any adjustments to estimates of patient bills that were material to our revenues during the three months endedMarch 31, 2023 . In addition, on a corporatewide basis, we do not record any general provision for adjustments to estimated contractual allowances for managed care plans. Managed care accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for these payers and other factors that affect the estimation process. We expect managed care governmental admissions to continue to increase as a percentage of total managed care admissions over the near term. However, the managed Medicare and Medicaid insurance plans typically generate lower yields than commercial managed care plans, which have been experiencing an improved pricing trend. Although we have benefited from solid yearoveryear aggregate managed care pricing improvements for some time, we have seen these improvements moderate in recent years, and we believe this moderation could continue into the future, subject to incremental pricing improvements to address inflationary pressures. In the three months endedMarch 31, 2023 , our commercial managed care net inpatient revenue per admission from the hospitals in our Hospital Operations segment was approximately 101% higher than our aggregate yield on a peradmission basis from government payers, including managed Medicare and Medicaid insurance plans.
Indemnity
An indemnitybased agreement generally requires the insurer to reimburse an insured patient for healthcare expenses after those expenses have been incurred by the patient, subject to policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her utilization of healthcare and selection of healthcare providers.
UNINSURED PATIENTS
Uninsured patients are patients who do not qualify for government programs
payments, such as Medicare and Medicaid, do not have some form of private
insurance and, therefore, are responsible for their own medical bills. A
significant number of our uninsured patients are admitted through our hospitals'
emergency departments and often require highacuity treatment that is more
costly to provide and, therefore, results in higher billings, which are the
least collectible of all accounts.
Selfpay accounts receivable, which include amounts due from uninsured patients, as well as copays, coinsurance amounts and deductibles owed to us by patients with insurance, pose significant collectability problems. At bothMarch 31, 2023 andDecember 31, 2022 , 5% of our net accounts receivable for our Hospital Operations segment was selfpay. Further, a significant portion of our implicit price concessions relates to selfpay amounts. We provide revenue cycle management services through Conifer, which is subject to various statutes and regulations regarding consumer protection in 35
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areas including finance, debt collection and credit reporting activities. For
additional information, see Item 1, Business - Laws and Regulations Affecting
Conifer's Operations, of Part I of our Annual Report.
Conifer has performed systematic analyses to focus our attention on the drivers
of bad debt expense for each hospital. While emergency department use is the
primary contributor to our implicit price concessions in the aggregate, this is
not the case at all hospitals. As a result, we have increased our focus on
targeted initiatives that concentrate on nonemergency department patients as
well. These initiatives are intended to promote process efficiencies in
collecting selfpay accounts, as well as copay, coinsurance and deductible
amounts owed to us by patients with insurance, that we deem highly collectible.
We leverage a statisticalbased collections model that aligns our operational
capacity to maximize our collections performance. We are dedicated to modifying
and refining our processes as needed, enhancing our technology and improving
staff training throughout the revenue cycle process in an effort to increase
collections and reduce accounts receivable.
Over the longer term, several other initiatives we have previously announced
should also help address the challenges associated with serving uninsured
patients. For example, our Compact with Uninsured Patients ("Compact") is
designed to offer managed carestyle discounts to certain uninsured patients,
which enables us to offer lower rates to those patients who historically had
been charged standard gross charges. Under the Compact, the discount offered to
uninsured patients is recognized as a contractual allowance, which reduces net
operating revenues at the time the selfpay accounts are recorded. The uninsured
patient accounts, net of contractual allowances recorded, are further reduced to
their net realizable value through implicit price concessions based on
historical collection trends for selfpay accounts and other factors that affect
the estimation process.
We also provide financial assistance through our charity and uninsured discount
programs to uninsured patients who are unable to pay for the healthcare services
they receive. Our policy is not to pursue collection of amounts determined to
qualify for financial assistance; therefore, we do not report these amounts in
net operating revenues. Most states include an estimate of the cost of charity
care in the determination of a hospital's eligibility for Medicaid DSH payments.
These payments are intended to mitigate our cost of uncompensated care. Some
states have also developed provider fee or other supplemental payment programs
to mitigate the shortfall of Medicaid reimbursement compared to the cost of
caring for Medicaid patients.
The initial expansion of health insurance coverage under the Affordable Care Act
resulted in an increase in the number of patients using our facilities with
either private or public program coverage and a decrease in uninsured and
charity care admissions, along with reductions in Medicare and Medicaid
reimbursement to healthcare providers, including us. However, we continue to
have to provide uninsured discounts and charity care due to the failure of
certain states to expand Medicaid coverage and for persons living in the country
who are not permitted to enroll in a health insurance exchange or government
healthcare insurance program.
The following table presents our estimated costs (based on selected operating
expenses, which include salaries, wages and benefits, supplies and other
operating expenses) of caring for our uninsured and charity patients:
Three Months Ended March 31,
2023 2022
Uninsured patients $ 123 $ 122
Charity care patients 24 21
Total $ 147 $ 143
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RESULTS OF OPERATIONS
The following tables present our consolidated net operating revenues, operating
expenses and operating income, both in dollar amounts and as percentages of net
operating revenues, on a continuing operations basis:
Three Months Ended March 31, Increase
2023 2022 (Decrease)
Net operating revenues:
Hospital Operations $ 3,899 $ 3,798 $ 101
Ambulatory Care 905 738 167
Conifer 324 324 -
Inter-segment eliminations (107) (115) 8
Net operating revenues 5,021 4,745 276
Grant income 3 6 (3)
Equity in earnings of unconsolidated affiliates 50 46 4
Operating expenses:
Salaries, wages and benefits 2,258 2,182 76
Supplies 891 785 106
Other operating expenses, net 1,093 942 151
Depreciation and amortization 217 203 14
Impairment and restructuring charges, and acquisition-related 21 16 5
costs
Litigation and investigation costs 4 20 (16)
Net losses (gains) on sales, consolidation and deconsolidation of
(13) 1 (14) facilities Operating income $ 603$ 648 $ (45) Three Months Ended March 31, Increase 2023 2022 (Decrease)(1) Net operating revenues 100.0 % 100.0 % - % Grant income 0.1 % 0.1 % - % Equity in earnings of unconsolidated affiliates 1.0 % 1.0 % - % Operating expenses: Salaries, wages and benefits 45.0 % 46.0 % (1.0) % Supplies 17.7 % 16.5 % 1.2 % Other operating expenses, net 21.9 % 19.9 % 2.0 % Depreciation and amortization 4.3 % 4.3 % - % Impairment and restructuring charges, and acquisition-related 0.4 % 0.3 % 0.1 %
costs
Litigation and investigation costs 0.1 % 0.4 % (0.3) %
Net losses (gains) on sales, consolidation and deconsolidation of
(0.3) % - % (0.3) % facilities Operating income 12.0 % 13.7 % (1.7) %
(1) The change is the difference between the 2023 and 2022 percentages presented.
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The following tables present our net operating revenues, operating expenses and
operating income, both in dollar amounts and as percentages of net operating
revenues, by operating segment on a continuing operations basis:
Three Months Ended
Hospital
Operations Ambulatory Care Conifer
Net operating revenues $ 3,792 $ 905 $ 324
Grant income 3 - -
Equity in earnings of unconsolidated affiliates 3 47 -
Operating expenses:
Salaries, wages and benefits 1,850 235 173
Supplies 633 257 1
Other operating expenses, net 910 120 63
Depreciation and amortization 181 27 9
Impairment and restructuring charges, and acquisition-related 14 3 4
costs
Litigation and investigation costs 3 1 - Net gains on sales, consolidation and deconsolidation of - (13) - facilities Operating income$ 207 $ 322$ 74 Net operating revenues 100.0 % 100.0 % 100.0 % Grant income 0.1 % - % - % Equity in earnings of unconsolidated affiliates 0.1 % 5.2 % - % Operating expenses: Salaries, wages and benefits 48.8 % 26.0 % 53.4 % Supplies 16.7 % 28.4 % 0.3 % Other operating expenses, net 23.9 % 13.2 % 19.5 % Depreciation and amortization 4.8 % 3.0 % 2.8 % Impairment and restructuring charges, and acquisition-related 0.4 % 0.3 % 1.2 %
costs
Litigation and investigation costs 0.1 % 0.1 % - %
Net gains on sales, consolidation and deconsolidation of - % (1.4) % - %
facilities
Operating income 5.5 % 35.6 % 22.8 %
Three Months Ended March 31, 2022
Hospital
Operations Ambulatory Care Conifer
Net operating revenues $ 3,683 $ 738 $ 324
Grant income 4 2 -
Equity in earnings of unconsolidated affiliates 4 42 -
Operating expenses:
Salaries, wages and benefits 1,820 194 168
Supplies 583 201 1
Other operating expenses, net 774 105 63
Depreciation and amortization 167 27 9
Impairment and restructuring charges, and 12 3 1
acquisition-related costs
Litigation and investigation costs 8 - 12
Net losses on sales, consolidation and deconsolidation 1 - -
of facilities
Operating income $ 326 $ 252 $ 70
Net operating revenues 100.0 % 100.0 % 100.0 %
Grant income 0.1 % 0.3 % - %
Equity in earnings of unconsolidated affiliates 0.1 % 5.7 % - %
Operating expenses:
Salaries, wages and benefits 49.4 % 26.3 % 51.9 %
Supplies 15.8 % 27.2 % 0.3 %
Other operating expenses, net 21.1 % 14.3 % 19.4 %
Depreciation and amortization 4.5 % 3.7 % 2.8 %
Impairment and restructuring charges, and 0.3 % 0.4 % 0.3 %
acquisition-related costs
Litigation and investigation costs 0.2 % - % 3.7 %
Net losses on sales, consolidation and deconsolidation - % - % - %
of facilities
Operating income 8.9 % 34.1 % 21.6 %
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Consolidated net operating revenues increased by$276 million , or 5.8%, for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . Our Hospital Operations segment's net operating revenues net of intersegment eliminations increased by$109 million , or 3.0%, for the three months endedMarch 31, 2023 compared to the same period in 2022. This increase was primarily attributable to the opening of ourPMC Fort Mill Hospital inSeptember 2022 , higher patient and surgical volumes, and negotiated commercial rate increases. Our Hospital Operations segment also recognized income from state grants totaling$3 million during the three months endedMarch 31, 2023 and$4 million from federal and state grants during the three months endedMarch 31, 2022 , which are not included in net operating revenues. Our Ambulatory Care segment's net operating revenues increased by$167 million , or 22.6%, for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . The change was driven by an increase from acquisitions of$98 million , as well as higher samefacility net operating revenues of$85 million due primarily to increases in case volume and net revenue per case. These increases were partially offset by a decrease of$16 million due to the closure and deconsolidation of certain facilities. Our Ambulatory Care segment did not recognize any grant revenue during the three months endedMarch 31, 2023 compared to$2 million of grant revenue during the three months endedMarch 31, 2022 . Conifer's revenues from thirdparty clients, which revenues are not eliminated in consolidation, increased$8 million , or 3.8%, for the three months endedMarch 31, 2023 compared to the same period in 2022. This increase was primarily due to contractual rate increases and new business expansion.
RESULTS OF OPERATIONS BY SEGMENT
Our operations are reported in three segments:
•Hospital Operations, which is comprised of our acute care and specialty
hospitals, imaging centers, ancillary outpatient facilities, microhospitals and
physician practices;
•Ambulatory Care, which is comprised of USPI's ASCs and surgical hospitals; and
•Conifer, which provides revenue cycle management and value-based care services
to hospitals, health systems, physician practices, employers and other clients.
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Hospital Operations Segment
The following tables present operating statistics, revenues and expenses of our
hospitals and related outpatient facilities on a samehospital basis, unless
otherwise indicated:
Same-Hospital
Three Months Ended March 31, Increase
Admissions, Patient Days and Surgeries 2023 2022
(Decrease)
Number of hospitals (at end of period) 60 60 - (1) Total admissions 133,213 127,782 4.3 % Adjusted admissions(2) 243,243 227,933 6.7 % Paying admissions (excludes charity and uninsured) 127,407 121,797 4.6 % Charity and uninsured admissions 5,806 5,985 (3.0) % Admissions through emergency department 100,728 97,684 3.1 % Paying admissions as a percentage of total admissions 95.6 % 95.3 % 0.3 % (1) Charity and uninsured admissions as a percentage of total admissions 4.4 % 4.7 % (0.3) % (1) Emergency department admissions as a percentage of total admissions 75.6 % 76.4 % (0.8) % (1) Surgeries - inpatient 33,848 32,908 2.9 % Surgeries - outpatient 52,253 51,258 1.9 % Total surgeries 86,101 84,166 2.3 % Patient days - total 700,973 705,623 (0.7) % Adjusted patient days(2) 1,230,048 1,224,824 0.4 % Average length of stay (days) 5.26 5.52 (4.7) % Licensed beds (at end of period) 15,372 15,395 (0.1) % Average licensed beds 15,372 15,395 (0.1) % Utilization of licensed beds(3) 50.7 % 50.9 %
(0.2) % (1)
(1) The change is the difference between the 2023 and 2022 amounts presented.
(2) Adjusted admissions/patient days represents actual admissions/patient days adjusted to
include outpatient services provided by facilities in our Hospital Operations segment by
multiplying actual admissions/patient days by the sum of gross inpatient revenues and
outpatient revenues and dividing the results by gross inpatient revenues.
(3) Utilization of licensed beds represents patient days divided by number of days in the
period divided by average licensed beds.
Same-Hospital
Three Months Ended March 31, Increase
Outpatient Visits 2023 2022 (Decrease)
Total visits 1,373,831 1,373,188 - %
Paying visits (excludes charity and uninsured) 1,302,493 1,295,450 0.5 %
Charity and uninsured visits 71,338 77,738 (8.2) %
Emergency department visits 526,530 500,665 5.2 %
Surgery visits 52,253 51,258 1.9 %
Paying visits as a percentage of total visits 94.8 % 94.3 % 0.5 % (1)
Charity and uninsured visits as a percentage of total visits 5.2 % 5.7 % (0.5) % (1)
(1) The change is the difference between the 2023 and 2022 amounts presented.
Same-Hospital
Three Months Ended March 31, Increase
Revenues 2023 2022 (Decrease)
Total segment net operating revenues $ 3,772 $ 3,682 2.4 %
Selected revenue data - hospitals and related outpatient
facilities:
Net patient service revenues
$ 3,547$ 3,507 1.1 %
Net patient service revenue per adjusted admission(1)
(5.2) %
Net patient service revenue per adjusted patient day(1) $ 2,884
0.7 %
(1) Adjusted admissions/patient days represents actual admissions/patient days adjusted to
include outpatient services provided by facilities in our Hospital Operations segment by
multiplying actual admissions/patient days by the sum of gross inpatient revenues and
outpatient revenues and dividing the results by gross inpatient revenues.
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Same-Hospital
Three Months Ended March 31,
Selected Operating Expenses 2023 2022 Increase
Salaries, wages and benefits $ 1,843 $ 1,822 1.2 %
Supplies 631 584 8.0 %
Other operating expenses 903 773 16.8 %
$ 3,377 $ 3,179 6.2 %
Same-Hospital
Three Months Ended March 31,
Selected Operating Expenses as a Percentage of Net 2023 2022 Increase
Operating Revenues (Decrease)(1)
Salaries, wages and benefits as a percentage of net 48.9 % 49.5 % (0.6) %
operating revenues
Supplies as a percentage of net operating revenues 16.7 % 15.9 % 0.8 %
Other operating expenses as a percentage of net 23.9 % 21.0 % 2.9 %
operating revenues
(1) The change is the difference between the 2023 and 2022 amounts presented.
Revenues Samehospital net operating revenues increased by$90 million , or 2.4%, during the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , primarily due to higher patient and surgical volumes, as well as negotiated commercial rate increases. Our Hospital Operations segment also recognized income totaling$3 million and$4 million from federal and state grants in the three months endedMarch 31, 2023 and 2022, respectively, which is not included in net operating revenues. Samehospital admissions increased 4.3% in the three months endedMarch 31, 2023 compared to the same period in 2022. The following table presents our consolidated net accounts receivable by payer: December 31, March 31, 2023 2022 Medicare $ 164$ 166 Medicaid 43 44 Net cost report settlements receivable and valuation 44 48 allowances Managed care 1,653 1,661 Self-pay uninsured 36 35 Self-pay balance after insurance 93 92 Estimated future recoveries 150 149 Other payers 291 315 Total Hospital Operations 2,474 2,510 Ambulatory Care 409 433 Accounts receivable, net$ 2,883 $ 2,943 The collection of accounts receivable is a key area of focus for our business. AtMarch 31, 2023 , our Hospital Operations segment collection rate on selfpay accounts was approximately 29.6%. Our selfpay collection rate includes payments made by patients, including copays, coinsurance amounts and deductibles paid by patients with insurance. Based on our accounts receivable from uninsured patients and copays, coinsurance amounts and deductibles owed to us by patients with insurance atMarch 31, 2023 , a 10% decrease or increase in our selfpay collection rate, or approximately 3.0%, which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to patient accounts receivable of approximately$11 million . There are various factors that can impact collection trends, such as changes in the economy and inflation, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, the volume of patients through our emergency departments, the increased burden of copays and deductibles to be made by patients with insurance, and business practices related to collection efforts. These factors, many of which were affected by the pandemic, continuously change and can have an impact on collection trends and our estimation process. We also typically experience ongoing managed care payment delays and disputes; however, we continue to work with these payers to obtain adequate and timely reimbursement for our services. Our estimated Hospital Operations segment collection rate from managed care payers was approximately 95.8% atMarch 31, 2023 . 41
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We manage our implicit price concessions using hospitalspecific goals and benchmarks such as (1) total cash collections, (2) pointofservice cash collections, (3) AR Days and (4) accounts receivable by aging category. The following table presents the approximate aging by payer of our net accounts receivable from the continuing operations of our Hospital Operations segment of$2.430 billion and$2.462 billion atMarch 31, 2023 andDecember 31, 2022 , respectively. Cost report settlements receivable, net of payables and valuation allowances, of$44 million and$48 million atMarch 31, 2023 andDecember 31, 2022 , respectively, are excluded from the table. Indemnity, Managed Self-Pay Medicare Medicaid Care and Other Total AtMarch 31, 2023 : 0-60 days 92 % 37 % 57 % 22 % 52 % 61-120 days 4 % 26 % 17 % 14 % 15 % 121-180 days 1 % 15 % 9 % 9 % 9 % Over 180 days 3 % 22 % 17 % 55 % 24 % Total 100 % 100 % 100 % 100 % 100 % AtDecember 31, 2022 : 0-60 days 90 % 34 % 56 % 22 % 50 % 61-120 days 5 % 28 % 16 % 15 % 15 % 121-180 days 2 % 16 % 9 % 7 % 9 % Over 180 days 3 % 22 % 19 % 56 % 26 % Total 100 % 100 % 100 % 100 % 100 % Conifer continues to implement revenue cycle initiatives intended to improve our cash flow. These initiatives are focused on standardizing and improving patient access processes, including preregistration, registration, verification of eligibility and benefits, liability identification and collections at pointofservice, and financial counseling. These initiatives are intended to reduce denials, improve service levels to patients and increase the quality of accounts that end up in accounts receivable. Although we continue to focus on improving our methodology for evaluating the collectability of our accounts receivable, we may incur future charges if there are unfavorable changes in the trends affecting the net realizable value of our accounts receivable. Patient advocates from Conifer's Eligibility and Enrollment Services program ("EES") screen patients in the hospital to determine whether those patients meet eligibility requirements for financial assistance programs. They also expedite the process of applying for these government programs. Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending, under the EES, net of appropriate implicit price concessions. Based on recent trends, approximately 98% of all accounts in the EES are ultimately approved for benefits under a government program, such as Medicaid. The following table presents the approximate amount of accounts receivable in the EES still awaiting determination of eligibility under a government program by aging category: March 31, 2023 December 31, 2022 0-60 days $ 65 $ 79 61-120 days 10 18 121-180 days 5 3 Over 180 days 6 6 Total $ 86 $ 106
Salaries, Wages and Benefits
Samehospital salaries, wages and benefits expense increased by$21 million , or 1.2%, in the three months endedMarch 31, 2023 compared to the same period in 2022. This increase was primarily attributable to higher patient and surgical volumes and annual merit increases for certain of our employees. A decrease in contract labor expense, driven by our focus on recruiting initiatives, and lower incentive compensation partially mitigated the year-over-year increase in samehospital salaries, wages and benefits expense. As a percentage of net operating revenues, samehospital salaries, wages and benefits decreased by 60 basis points to 48.9% in the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , primarily due to higher patient volumes and lower contract labor and incentive compensation expense during the 2023 period. 42
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Salaries, wages and benefits expense for the three months ended
and 2022 included stockbased compensation expense of
Supplies
Samehospital supplies expense increased by$47 million , or 8.0%, in the three months endedMarch 31, 2023 compared to the same period in 2022. This increase was driven by higher patient and surgical volumes during the threemonth period in 2023, as well as the impact of general market conditions and inflation, and was partially offset by our costefficiency measures, including those described below. Samehospital supplies expense as a percentage of net operating revenues increased by 80 basis points to 16.7% in the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . We strive to control supplies expense through product standardization, consistent contract terms and endtoend contract management, improved utilization, bulk purchases, focused spending with a smaller number of vendors and operational improvements.
Other Operating Expenses, Net
Samehospital other operating expenses increased by$130 million , or 16.8%, in the three months endedMarch 31, 2023 compared to the same period in 2022. Other operating expenses for the three months endedMarch 31, 2022 were reduced by a gain of$69 million from the sale of several office buildings; whereas net gains recognized during the same period in 2023 were$9 million . The changes in other operating expenses also included:
•increased medical fees of
•increased repair and maintenance costs of
Samehospital other operating expenses as a percentage of net operating revenues increased by 290 basis points to 23.9% for the three months endedMarch 31, 2023 compared to 21.0% for the three months endedMarch 31, 2022 due to the items described above. Ambulatory Care Segment Our Ambulatory Care segment is comprised of USPI's ASCs and surgical hospitals. USPI operates its surgical facilities in partnership with local physicians and, in many of these facilities, a health system partner. In most cases, we hold ownership interests in the facilities and operate them through a separate legal entity. USPI operates facilities on a daytoday basis through management services contracts. Our sources of earnings from each facility consist of:
•management and administrative services revenues from the facilities USPI
operates through management services contracts, computed as a percentage of each
facility's net revenues; and
•our share of each facility's net income (loss), which is computed by
multiplying the facility's net income (loss) times the percentage of each
facility's equity interests owned by USPI.
Our role as an owner and daytoday manager provides us with significant influence over the operations of each facility. For many of the facilities our Ambulatory Care segment holds an ownership interest in (156 of 469 facilities atMarch 31, 2023 ), this influence does not represent control of the facility, so we account for our investment in the facility under the equity method for an unconsolidated affiliate. USPI controls 313 of the facilities our Ambulatory Care segment operates, and we account for these investments as consolidated subsidiaries. Our net earnings from a facility are the same under either method, but the classification of those earnings differs. For consolidated subsidiaries, our financial statements reflect 100% of the revenues and expenses of the subsidiaries. The net profit attributable to owners other than USPI is classified within net income available to noncontrolling interests. For unconsolidated affiliates, our statements of operations reflect our earnings in two line items: •equity in earnings of unconsolidated affiliates-our share of the net income (loss) of each facility, which is based on the facility's net income (loss) and the percentage of the facility's outstanding equity interests owned by USPI; and
•management and administrative services revenues, which is included in our net
operating revenues-income we earn in exchange for managing the daytoday
operations of each facility, usually quantified as a percentage of each
facility's net revenues.
Our Ambulatory Care segment's operating income is driven by the performance of
all facilities USPI operates and by USPI's ownership interests in those
facilities, but our individual revenue and expense line items contain only
consolidated businesses, which represent 67% of those facilities. This
translates to trends in consolidated operating income that often do not
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correspond with changes in consolidated revenues and expenses, which is why we disclose certain statistical and financial data on a pro forma systemwide basis that includes both consolidated and unconsolidated (equity method) facilities.
Results of Operations
The following table presents selected revenue and expense information for our
Ambulatory Care segment:
Three Months Ended March 31, Increase
2023 2022 (Decrease)
Net operating revenues $ 905 $ 738 22.6 %
Grant income $ - $ 2 (100.0) %
Equity in earnings of unconsolidated affiliates $ 47 $ 42 11.9 %
Salaries, wages and benefits $ 235 $ 194 21.1 %
Supplies $ 257 $ 201 27.9 %
Other operating expenses, net $ 120 $ 105 14.3 %
Revenues
Our Ambulatory Care segment's net operating revenues increased by $167 million ,
or 22.6%, during the three months ended March 31, 2023 compared to the same
period in 2022. The change was driven by an increase from acquisitions of
$98 million , as well as higher samefacility net operating revenues of
$85 million due primarily to increases in case volume and net revenue per case.
These increases were partially offset by a decrease of $16 million due to the
closure and deconsolidation of certain facilities.
Salaries, Wages and Benefits
Salaries, wages and benefits expense increased by$41 million , or 21.1%, during the three months endedMarch 31, 2023 compared to the same period in 2022. This change was driven by an increase from acquisitions of$20 million , as well as an increase in samefacility salaries, wages and benefits expense of$23 million , partially offset by a decrease of$2 million due to the closure and deconsolidation of certain facilities. As a percentage of net operating revenues, salaries, wages and benefits expense decreased to 26.0% for the three months endedMarch 31, 2023 from 26.3% for the same period in 2022. Salaries, wages and benefits expense included$4 million and$3 million of stockbased compensation expense in the three months endedMarch 31, 2023 and 2022, respectively.
Supplies
Supplies expense increased by$56 million , or 27.9%, during the three months endedMarch 31, 2023 compared to the same period in 2022. The change was driven by an increase from acquisitions of$33 million , as well as an increase in samefacility supplies expense of$25 million due primarily to higher case volume, partially offset by a decrease of$2 million attributable to the closure and deconsolidation of certain facilities. Supplies expense as a percentage of net operating revenues was 28.4% for the three months endedMarch 31, 2023 compared to 27.2% for the same period in 2022.
Other Operating Expenses, Net
Other operating expenses increased by$15 million , or 14.3%, during the three months endedMarch 31, 2023 compared to the same period in 2022. The change was driven by an increase from acquisitions of$15 million and an increase in samefacility other operating expenses of$1 million , partially offset by a decrease of$1 million attributable to the closure and deconsolidation of certain facilities. Other operating expenses as a percentage of net operating revenues decreased to 13.2% for the three months endedMarch 31, 2023 from 14.3% for the same period in 2022. 44
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Facility Growth
The following table presents the yearoveryear changes in our samefacility
revenue and cases on a pro forma systemwide basis, which includes both
consolidated and unconsolidated (equity method) facilities. While we do not
record the revenues of unconsolidated facilities, we believe this information is
important in understanding the financial performance of our Ambulatory Care
segment because these revenues are the basis for calculating our management
services revenues and, together with the expenses of our unconsolidated
facilities, are the basis for our equity in earnings of unconsolidated
affiliates.
Three Months Ended
March 31, 2023
Net revenues 9.3 %
Cases 7.9 %
Net revenue per case 1.3 %
Joint Ventures with
USPI's business model is to jointly own its facilities with local physicians and, in many of these facilities, a health system partner. Accordingly, as ofMarch 31, 2023 , the majority of facilities in our Ambulatory Care segment were operated in this model. The table below provides information about the ownership structure of the facilities operated by our Ambulatory Care segment:March 31, 2023 Owned with a health system partner 208 Owned without a health system partner 261 Total 469
Facility Acquisitions and Investment
The table below presents the aggregate amounts we paid to acquire various
ownership interests in ambulatory care facilities:
Three Months Ended March 31,
2023 2022
Controlling interests $ 48 $ 40
Equity investment in unconsolidated affiliates and consolidated
facilities 3 9
Total $ 51 $ 49
The table below reflects the change in the number of facilities operated by our
Ambulatory Care segment since
Three Months Ended
March 31, 2023
Acquisitions 3
De novo 2
Dispositions/Mergers (2)
Total increase in number of facilities operated 3
During the three months ended March 31, 2023 , we acquired controlling interests
in three ASCs, located in Arizona , California and Washington , in which we did
not have a previous investment. Two of these facilities are jointly owned with
physicians, and one is jointly owned with a health system partner and
physicians. We also acquired controlling ownership interests in four previously
unconsolidated ASCs, each located in a different state, during the three months
ended March 31, 2023 . We paid an aggregate of $48 million to acquire controlling
ownership interests in all of the aforementioned facilities.
We also regularly engage in the purchase of equity interests with respect to our
investments in unconsolidated affiliates and consolidated facilities that do not
result in a change in control. These transactions are primarily the acquisitions
of equity interests in ASCs and the investment of additional cash in facilities
that need capital for new acquisitions, new construction or other business
growth opportunities. During the three months ended March 31, 2023 , we invested
approximately $3 million in such transactions.
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Conifer Segment
The following table presents selected revenue and expense information for our
Conifer segment:
Three Months Ended March 31, Increase
2023 2022 (Decrease)
Revenue cycle and other services - Tenet $ 107 $ 115 (7.0) %
Revenue cycle and other services - other customers $ 217 $ 209 3.8 %
Salaries, wages and benefits $ 173 $ 168 3.0 %
Supplies $ 1 $ 1 - %
Other operating expenses $ 63 $ 63 - %
Revenues
Our Conifer segment's operating revenues from thirdparty clients, which
revenues are not eliminated in consolidation, increased by $8 million , or 3.8%,
for the three months ended March 31, 2023 compared to the same period in 2022.
This increase was primarily attributable to contractual rate increases and new
business expansion.
Salaries, Wages and Benefits
Salaries, wages and benefits expense for Conifer increased $5 million , or 3.0%,
in the three months ended March 31, 2023 compared to the same period in 2022,
primarily due to new business expansion, planned staffing increases and annual
merit increases for certain of our employees. Salaries, wages and benefits
expense included stockbased compensation expense of less than $1 million and
$1 million in the three months ended March 31, 2023 and 2022, respectively.
Supplies and Other Operating Expenses, Net
Conifer's supplies and other operating expenses during three months ended
Consolidated
Impairment and Restructuring Charges, and Acquisition-Related Costs
The following table presents information about our impairment and restructuring
charges, and acquisitionrelated costs:
Three Months Ended
2023 2022
Consolidated:
Impairment charges $ 1 $ 1
Restructuring charges 18 12
Acquisition-related costs 2 3
Total impairment and restructuring charges, and
acquisition-related costs $ 21 $ 16
By segment:
Hospital Operations $ 14 $ 12
Ambulatory Care 3 3
Conifer 4 1
Total impairment and restructuring charges, and
acquisition-related costs $
21
During the three months endedMarch 31, 2023 , restructuring charges included$4 million of employee severance costs,$4 million related to the transition of various administrative functions to our GBC,$3 million related to contract and lease termination fees, and$7 million of other restructuring costs. Restructuring charges for the three months endedMarch 31, 2022 consisted of employee severance costs of$5 million ,$2 million related to the transition of various administrative functions to our GBC and$5 million of other restructuring costs. Acquisitionrelated costs consisted entirely of transaction costs for both of the three-month periods endedMarch 31, 2023 and 2022.
Litigation and Investigation Costs
Litigation and investigation costs during the three months ended
and 2022 were
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Net Losses (Gains) on Sales, Consolidation and Deconsolidation of Facilities
During the three months endedMarch 31, 2023 and 2022, we recorded net gains of$13 million and net losses of$1 million , respectively, related to the sale, consolidation and deconsolidation of facilities.
Interest Expense
Interest expense for the three months ended
compared to
Loss from Early Extinguishment of Debt
During the three months endedMarch 31, 2022 , we incurred aggregate losses from the early extinguishment of debt of$43 million . These losses related to the redemption of our 7.500% senior secured first lien notes due 2025 ("2025 Senior Secured First Lien Notes") in advance of their maturity date and the repurchase of$103 million aggregate principal amount outstanding of our 6.750% senior unsecured notes due 2023 ("2023 Senior Unsecured Notes"). The losses incurred from these transactions primarily related to the difference between the purchase prices and the par values of the notes, as well as the writeoff of associated unamortized issuance costs. We did not complete any debt retirement transactions during the three months endedMarch 31, 2023 .
Income Tax Expense
During the three months endedMarch 31, 2023 , we recorded income tax expense of$84 million in continuing operations on pre-tax income of$380 million compared to$99 million on pre-tax income of$378 million during the prioryear period. During the three months endedMarch 31, 2023 and 2022, we recorded income tax expense of$19 million and$32 million , respectively, to increase the valuation allowance for interest expense carryforwards as a result of the limitation on business interest expense.
A reconciliation between the amount of reported income tax expense and the
amount computed by multiplying income from continuing operations before income
taxes by the statutory federal tax rate is presented below:
Three Months Ended
2023 2022
Tax expense at statutory federal rate of 21% $ 80 $ 79
State income taxes, net of federal income tax benefit 16 14
Tax benefit attributable to noncontrolling interests (32) (29)
Stock-based compensation tax benefit (2) (2)
Changes in valuation allowance 19 32
Other items 3 5
Income tax expense $ 84 $ 99
Net Income Available to Noncontrolling Interests
Net income available to noncontrolling interests was$153 million for the three months endedMarch 31, 2023 compared to$140 million for the three months endedMarch 31, 2022 . Net income available to noncontrolling interests for the 2023 period was comprised of$126 million related to our Ambulatory Care segment,$22 million related to our Conifer segment and$5 million related to our Hospital Operations segment.
ADDITIONAL SUPPLEMENTAL NON-GAAP DISCLOSURES
The financial information provided throughout this report, including our Condensed Consolidated Financial Statements and the notes thereto, has been prepared in conformity with accounting principles generally accepted inthe United States of America ("GAAP"). However, we use certain nonGAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements, some of which are recurring or involve cash payments. We use this information in our analysis of the performance of our business, excluding items we do not consider relevant to the performance of our continuing operations. In addition, we use these measures to define certain performance targets under our compensation programs. "Adjusted EBITDA" is a nonGAAP measure we define as net income available (loss attributable) toTenet Healthcare Corporation common shareholders before (1) the cumulative effect of changes in accounting principle, (2) net loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax, (4) income tax benefit 47
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(expense), (5) gain (loss) from early extinguishment of debt, (6) other nonoperating income (expense), net, (7) interest expense, (8) litigation and investigation (costs) benefit, net of insurance recoveries, (9) net gains (losses) on sales, consolidation and deconsolidation of facilities, (10) impairment and restructuring charges and acquisitionrelated costs, (11) depreciation and amortization, and (12) income (loss) from divested and closed businesses (i.e., health plan businesses). Litigation and investigation costs do not include ordinary course of business malpractice and other litigation and related expense. We believe the foregoing nonGAAP measure is useful to investors and analysts because it presents additional information about our financial performance. Investors, analysts, company management and our board of directors utilize this nonGAAP measure, in addition to GAAP measures, to track our financial and operating performance and compare that performance to peer companies, which utilize similar nonGAAP measures in their presentations. The human resources committee of our board of directors also uses certain nonGAAP measures to evaluate management's performance for the purpose of determining incentive compensation. We believe that Adjusted EBITDA is a useful measure, in part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to GAAP and other nonGAAP measures, as factors in determining the estimated fair value of shares of our common stock. Company management also regularly reviews the Adjusted EBITDA performance for each operating segment. We do not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance. The nonGAAP Adjusted EBITDA measure we utilize may not be comparable to similarly titled measures reported by other companies. Because this measure excludes many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly, investors are encouraged to use GAAP measures when evaluating our financial performance.
The following table presents the reconciliation of Adjusted EBITDA to net income
available to
comparable GAAP term):
Three Months Ended March 31,
2023 2022
Net income available to
$ 143$ 140 Less: Net income available to noncontrolling interests (153) (140) Income from discontinued operations, net of tax - 1 Income from continuing operations 296 279 Income tax expense (84) (99) Loss from early extinguishment of debt - (43) Other non-operating expense, net (2) - Interest expense (221) (227) Operating income 603 648 Litigation and investigation costs (4) (20)
Net gains (losses) on sales, consolidation and deconsolidation of facilities
13 (1)
Impairment and restructuring charges, and acquisition-related costs
(21) (16) Depreciation and amortization (217) (203) Adjusted EBITDA $ 832$ 888 Net operating revenues$ 5,021 $ 4,745
Net income available to
net operating revenues
2.8 % 3.0 %
Adjusted EBITDA as a % of net operating revenues (Adjusted EBITDA margin)
16.6 % 18.7 %
LIQUIDITY AND CAPITAL RESOURCES
CASH REQUIREMENTS
There have been no material changes to our obligations to make future cash
payments under scheduled contractual obligations, such as debt and lease
agreements, and under contingent commitments, such as standby letters of credit
and minimum revenue guarantees, as disclosed in our Annual Report, except for
the matters set forth below under "Other Contractual Obligations" and the
additional lease obligations disclosed in Note 1 to our accompanying Condensed
Consolidated Financial Statements.
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Long-term Debt
AtMarch 31, 2023 , using the last 12 months of Adjusted EBITDA, our ratio of total longterm debt, net of cash and cash equivalent balances, to Adjusted EBITDA was 4.19x. We anticipate this ratio will fluctuate from quarter to quarter based on earnings performance and other factors, including the use of our Credit Agreement as a source of liquidity and acquisitions that involve the assumption of longterm debt. We seek to manage this ratio and increase the efficiency of our balance sheet by following our business plan and managing our cost structure, including through possible asset divestitures, and through other changes in our capital structure. As part of our longterm objective to manage our capital structure, we continue to evaluate opportunities to retire, purchase, redeem and refinance outstanding debt subject to prevailing market conditions, our liquidity requirements, operating results, contractual restrictions and other factors. Our ability to achieve our leverage and capital structure objectives is subject to numerous risks and uncertainties, many of which are described in the ForwardLooking Statements and Risk Factors sections in Part I of our Annual Report.
Interest payments, net of capitalized interest, were
Share Repurchase Program
InOctober 2022 , our board of directors authorized a$1 billion share repurchase program. The timing and amounts of repurchases will be based on management's discretion, subject to market conditions and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended for periods or discontinued at any time before its scheduled expiration.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements that may have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, except for$212 million of standby letters of credit outstanding and guarantees atMarch 31, 2023 .
Other Cash Requirements
Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations), surgical hospital expansion focused on higher acuity services, equipment and information systems additions and replacements, introduction of new medical technologies (including robotics), design and construction of new facilities, and various other capital improvements. We continue to implement our portfolio diversification strategy into ambulatory surgery and have a baseline intention to invest$250 million annually in ambulatory business acquisitions and de novo facilities. Capital expenditures were$235 million and$155 million in the three months endedMarch 31, 2023 and 2022, respectively. We anticipate that our capital expenditures for continuing operations for the year endingDecember 31, 2023 will total approximately$625 million to$675 million , including$196 million that was accrued as a liability atDecember 31, 2022 . We made income tax payments, net of tax refunds, of less than$1 million during the three months endedMarch 31, 2023 compared to$8 million during the same period in 2022. SOURCES AND USES OF CASH Our liquidity for the three months endedMarch 31, 2023 was primarily derived from net cash provided by operating activities and cash on hand. We had$766 million of cash and cash equivalents on hand atMarch 31, 2023 to fund our operations and capital expenditures, and our borrowing availability under our Credit Agreement was$1.500 billion based on our borrowing base calculation atMarch 31, 2023 . Our primary source of operating cash is the collection of accounts receivable. As such, our operating cash flow is impacted by levels of cash collections, as well as levels of implicit price concessions, due to shifts in payer mix and other factors. Our Credit Agreement provides additional liquidity to manage fluctuations in operating cash caused by these factors. Net cash provided by operating activities was$449 million in the three months endedMarch 31, 2023 compared to$228 million in the three months endedMarch 31, 2022 . This increase was primarily attributable to Medicare advances recouped or repaid of$194 million in the 2022 period compared to no amounts recouped or repaid in the 2023 period, as well as the timing of other working capital items.
Net cash used in investing activities was
ended
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lower during the 2023 period, primarily due to the sale of the several medical office buildings in the three months endedMarch 31, 2022 . Additionally, capital expenditures increased$80 million in the three months endedMarch 31, 2023 compared to the same period in 2022. We used net cash of$255 million and$1.127 billion for financing activities during the three months endedMarch 31, 2023 and 2022, respectively. Repayments of borrowings decreased$834 million in the three months endedMarch 31, 2023 compared to the same period in 2022, which included$730 million paid to redeem all$700 million aggregate principal amount outstanding of our 2025 Senior Secured First Lien Notes and$107 million paid to repurchase$103 million aggregate principal amount outstanding of our 2023 Senior Unsecured Notes. In addition, financing activities during the threemonth period in 2023 included aggregate payments of$50 million to repurchase 906,346 shares of our common stock. We record our equity securities and our debt securities classified as availableforsale at fair market value. The majority of our investments are valued based on quoted market prices or other observable inputs. We have no investments that we expect will be negatively affected by the current economic conditions and materially impact our financial condition, results of operations or cash flows.
DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS
Credit Agreement-AtMarch 31, 2023 , our Credit Agreement provided for revolving loans in an aggregate principal amount of up to$1.500 billion with a$200 million subfacility for standby letters of credit. AtMarch 31, 2023 , we had no cash borrowings outstanding under the Credit Agreement, and we had less than$1 million of standby letters of credit outstanding. Based on our eligible receivables,$1.500 billion was available for borrowing under the Credit Agreement atMarch 31, 2023 . We were in compliance with all covenants and conditions in our Credit Agreement atMarch 31, 2023 . Letter of Credit Facility-We have a letter of credit facility (as amended to date, the "LC Facility") that provides for the issuance, from time to time, of standby and documentary letters of credit in an aggregate principal amount of up to$200 million . The scheduled maturity date of the LC Facility isSeptember 12, 2024 . The LC Facility is subject to an effective maximum secured debt covenant of 4.25 to 1.00. AtMarch 31, 2023 , we were in compliance with all covenants and conditions in the LC Facility, and we had$116 million of standby letters of credit outstanding thereunder.
Senior Unsecured Notes and Senior Secured Notes-At
outstanding senior unsecured notes and senior secured notes with aggregate
principal amounts outstanding of
interest rates and generally require semi-annual interest payments. The
principal and any accrued but unpaid interest is due upon the maturity date of
the respective notes, which dates are staggered from
For additional information regarding our long-term debt, see Note 6 to the
accompanying Condensed Consolidated Financial Statements and Note 8 to the
Consolidated Financial Statements included in our Annual Report.
LIQUIDITY
From time to time, we expect to engage in additional capital markets, bank
credit and other financing activities depending on our needs and financing
alternatives available at that time. We believe our existing debt agreements
provide flexibility for future secured or unsecured borrowings.
Our cash on hand fluctuates daytoday throughout the year based on the timing
and levels of routine cash receipts and disbursements, including our book
overdrafts, and required cash disbursements, such as interest payments and
income tax payments. Cash flows from operating activities in the first quarter
of the calendar year are usually lower than in subsequent quarters of the year,
primarily due to the timing of certain working capital requirements during the
first quarter, including our annual 401(k) matching contributions and annual
incentive compensation payments. These fluctuations can result in material
intra-quarter net operating and investing uses of cash that have caused, and in
the future may cause, us to use our Credit Agreement as a source of liquidity.
We believe that existing cash and cash equivalents on hand, borrowing
availability under our Credit Agreement and anticipated future cash provided by
our operating activities should be adequate to meet our current cash needs.
These sources of liquidity, in combination with any potential future debt
incurrence, should also be adequate to finance planned capital expenditures,
payments on the current portion of our long-term debt, payments to current and
former joint venture partners, including those related to our share purchase
agreement with Baylor, and other presently known operating needs.
Various aspects of our operations continue to experience adverse impacts of the
COVID19 pandemic, although to a lesser extent than previously experienced. If
new variants emerge and cause surges in COVID19 cases, the local economies of
areas we serve could be negatively affected. Any deterioration in the
collectability of patient accounts receivable could
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adversely affect our cash flows and results of operations. If general economic conditions deteriorate or remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be impacted. Long-term liquidity for debt service and other purposes will be dependent on the amount of cash provided by operating activities and, subject to favorable market and other conditions, the successful completion of future borrowings and potential refinancings. However, our cash requirements could be materially affected by the use of cash in acquisitions of businesses, repurchases of securities, the exercise of put rights or other exit options by our joint venture partners, and contractual or regulatory commitments to fund capital expenditures in, or intercompany borrowings to, businesses we own. In addition, liquidity could be adversely affected by a deterioration in our results of operations, including our ability to generate sufficient cash from operations, as well as by the various risks and uncertainties discussed in this section, other sections of this report and in our Annual Report, including any costs associated with legal proceedings and government investigations. We do not rely on commercial paper or other short-term financing arrangements nor do we enter into repurchase agreements or other short-term financing arrangements not otherwise reported in our balance sheet. In addition, we do not have significant exposure to floating interest rates given that all of our current long-term indebtedness has fixed rates of interest except for borrowings, if any, under our Credit Agreement.
CRITICAL ACCOUNTING ESTIMATES
In preparing our Condensed Consolidated Financial Statements in conformity with GAAP, we must use estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may vary from those estimates. We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different outcomes under different conditions or when using different assumptions. Our critical accounting estimates have not changed from the description provided in our Annual Report.
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