UNIVERSAL HEALTH SERVICES INC – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to promote an understanding of our
operating results and financial condition. The MD&A is provided as a supplement
to, and should be read in conjunction with, our consolidated financial
statements and the accompanying notes to the Consolidated Financial Statements,
as included in this Annual Report on Form 10-K. The MD&A contains
forward-looking statements that involve risks, uncertainties, and assumptions.
Actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including, but not
limited to, those presented under Item 1A. Risk Factors, and below in
Forward-Looking Statements and Risk Factors and as included elsewhere in this
Annual Report on Form 10-K. This section generally discusses our results of
operations for the year ended December 31, 2022, as compared to the year ended
December 31, 2021. For discussion of our result of operations and changes in our
financial condition for the year ended December 31, 2021 as compared to the year
ended December 31, 2020, please refer to Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the year ended December 31, 2021, as filed with
the Securities and Exchange Commission on February 24, 2022.

Overview

Our principal business is owning and operating, through our subsidiaries, acute
care hospitals and outpatient facilities and behavioral health care facilities.

As of February 27, 2023, we owned and/or operated 359 inpatient facilities and
39 outpatient and other facilities including the following located in 39 states,
Washington, D.C., the United Kingdom and Puerto Rico:

Acute care facilities located in the U.S.:

•

28 inpatient acute care hospitals;

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21 free-standing emergency departments, and;

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7 outpatient centers & 1 surgical hospital.

Behavioral health care facilities (331 inpatient facilities and 10 outpatient
facilities):

Located in the U.S.:

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185 inpatient behavioral health care facilities, and;

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8 outpatient behavioral health care facilities.

Located in the U.K.:

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143 inpatient behavioral health care facilities, and;

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2 outpatient behavioral health care facilities.

Located in Puerto Rico:

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3 inpatient behavioral health care facilities.

Net revenues from our acute care hospitals, outpatient facilities and commercial
health insurer accounted for 57% of our consolidated net revenues during 2022
and 56% during 2021. Net revenues from our behavioral health care facilities and
commercial health insurer accounted for 43% of our consolidated net revenues
during 2022 and 44% during 2021.

Our behavioral health care facilities located in the U.K. generated net revenues
of approximately $685 million in 2022 and $688 million in 2021. Total assets at
our U.K. behavioral health care facilities were approximately $1.235 billion as
of December 31, 2022 and $1.351 billion as of December 31, 2021.

Services provided by our hospitals include general and specialty surgery,
internal medicine, obstetrics, emergency room care, radiology, oncology,
diagnostic care, coronary care, pediatric services, pharmacy services and/or
behavioral health services. We provide capital resources as well as a variety of
management services to our facilities, including central purchasing, information
services, finance and control systems, facilities planning, physician
recruitment services, administrative personnel management, marketing and public
relations.

Forward-Looking Statements and Risk Factors

You should carefully review the information contained in this Annual Report, and
should particularly consider any risk factors that we set forth in this Annual
Report on Form 10-K for the year ended December 31, 2022, and in other reports
or documents that we file from time to time with the Securities and Exchange
Commission (the "SEC"). In this Annual Report, we state our beliefs of future
events and of our future financial performance. This Annual Report contains
"forward-looking statements" that reflect our current estimates, expectations
and projections about our future results, performance, prospects and
opportunities. Forward-looking statements include, among other things, the
information concerning our possible future results of operations, business and
growth

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strategies, financing plans, expectations that regulatory developments or other
matters will or will not have a material adverse effect on our business or
financial condition, our competitive position and the effects of competition,
the projected growth of the industry in which we operate, and the benefits and
synergies to be obtained from our completed and any future acquisitions, and
statements of our goals and objectives, and other similar expressions concerning
matters that are not historical facts. Words such as "may," "will," "should,"
"could," "would," "predicts," "potential," "continue," "expects," "anticipates,"
"future," "intends," "plans," "believes," "estimates," "appears," "projects" and
similar expressions, or the negative of those words and expressions, as well as
statements in future tense, identify forward-looking statements. In evaluating
those statements, you should specifically consider various factors, including
the risks related to healthcare industry trends and those set forth herein in
Item 1A. Risk Factors. Those factors may cause our actual results to differ
materially from any of our forward-looking statements.

Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times at, or by which, such performance or results will be achieved.
Forward-looking information is based on information available at the time and/or
our good faith belief with respect to future events, and is subject to risks and
uncertainties that are difficult to predict and many of which are outside of our
control. Many factors, including those set forth herein in Item 1A. Risk
Factors, and other important factors disclosed in this report, and from time to
time in our other filings with the SEC, could cause actual performance or
results to differ materially from those expressed in the statements. Such
factors include, among other things, the following:

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we are subject to risks associated with public health threats and epidemics,
including the health concerns relating to the COVID-19 pandemic. In January
2020, the Centers for Disease Control and Prevention ("CDC") confirmed the
spread of the disease to the United States. In March 2020, the World Health
Organization declared the COVID-19 outbreak a pandemic. The federal government
has declared COVID-19 a national emergency, as many federal and state
authorities have implemented aggressive measures to "flatten the curve" of
confirmed individuals diagnosed with COVID-19 in an attempt to curtail the
spread of the virus and to avoid overwhelming the health care system;

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the impact of the COVID-19 pandemic, which began during the second half of
March, 2020, has had a material effect on our operations and financial results
since that time. The length and extent of the disruptions caused by the COVID­19
pandemic are currently unknown; however, we expect such disruptions to continue
into the future. Since the future volumes and severity of COVID-19 patients
remain highly uncertain and subject to change, including potential increases in
future COVID-19 patient volumes caused by new variants of the virus, as well as
related pressures on staffing and wage rates, we are not able to fully quantify
the impact that these factors will have on our future financial results.
However, developments related to the COVID-19 pandemic could continue to
materially affect our financial performance. Even after the COVID-19 pandemic
has subsided, we may continue to experience materially adverse impacts on our
financial condition and our results of operations as a result of its
macroeconomic impact, including the risks of a global recession or a recession
in one or more of our key markets, the impact they may have on us and our
customers and our assessment of that impact, and any disruptions and
inefficiencies in the supply chain, and many of our known risks described in the
Risk Factors section of our Annual Report on Form 10-K for the year ended
December 31, 2022;

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the nationwide shortage of nurses and other clinical staff and support personnel
has been a significant operating issue facing us and other healthcare providers.
Like others in the healthcare industry, we continue to experience a shortage of
nurses and other clinical staff and support personnel at our acute care and
behavioral health care hospitals in many geographic areas. In some areas, the
labor scarcity is putting a strain on our resources and staff, which has
required us to utilize higher­cost temporary labor and pay premiums above
standard compensation for essential workers. This staffing shortage has required
us to hire expensive temporary personnel and/or enhance wages and benefits to
recruit and retain nurses and other clinical staff and support personnel. At
certain facilities, particularly within our behavioral health care segment, we
have been unable to fill all vacant positions and, consequently, have been
required to limit patient volumes. These factors, which had a material
unfavorable impact on our results of operations during 2022, are expected to
continue to have an unfavorable material impact on our results of operations for
the foreseeable future;

•

the Centers for Medicare and Medicaid Services ("CMS") issued an Interim Final
Rule ("IFR") effective November 5, 2021 mandating COVID-19 vaccinations for all
applicable staff at all Medicare and Medicaid certified facilities. Under the
IFR, facilities covered by this regulation must establish a policy ensuring all
eligible staff have received the COVID-19 vaccine prior to providing any care,
treatment, or other services. All eligible staff must have received the
necessary shots to be fully vaccinated. The regulation also provides for
exemptions based on recognized medical conditions or religious beliefs,
observances, or practices. Under the IFR, facilities must develop a similar
process or plan for permitting exemptions in alignment with federal law. If
facilities fail to comply with the IFR by the deadlines established, they are
subject to potential termination from the Medicare and Medicaid program for
non-compliance. We cannot predict at this time the potential viability or impact
of any additional vaccination requirements. Implementation of these rules could
have an impact on staffing at our facilities for those employees that are not
vaccinated in accordance with IFR requirements, and associated loss of revenues
and increased costs resulting from staffing issues could have a material adverse
effect on our financial results;

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•

the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), a
stimulus package signed into law on March 27, 2020, authorizes $100 billion in
grant funding to hospitals and other healthcare providers to be distributed
through the Public Health and Social Services Emergency Fund (the "PHSSEF").
These funds are not required to be repaid provided the recipients attest to and
comply with certain terms and conditions, including limitations on balance
billing and not using PHSSEF funds to reimburse expenses or losses that other
sources are obligated to reimburse. However, since the expenses and losses will
be ultimately measured over the life of the COVID-19 pandemic, potential
retrospective unfavorable adjustments in future periods, of funds recorded as
revenues in prior periods, could occur. The U.S. Department of Health and Human
Services ("HHS") initially distributed $30 billion of this funding based on each
provider's share of total Medicare fee-for-service reimbursement in 2019.
Subsequently, HHS determined that CARES Act funding (including the $30 billion
already distributed) would be allocated proportional to providers' share of 2018
net patient revenue. We have received payments from these initial distributions
of the PHSSEF as disclosed herein. HHS has indicated that distributions of the
remaining $50 billion will be targeted primarily to hospitals in COVID-19 high
impact areas, to rural providers, safety net hospitals and certain Medicaid
providers and to reimburse providers for COVID-19 related treatment of uninsured
patients. We have received payments from these targeted distributions of the
PHSSEF, as disclosed herein. The CARES Act also makes other forms of financial
assistance available to healthcare providers, including through Medicare and
Medicaid payment adjustments and an expansion of the Medicare Accelerated and
Advance Payment Program, which made available accelerated payments of Medicare
funds in order to increase cash flow to providers. On April 26, 2020, CMS
announced it was reevaluating and temporarily suspending the Medicare
Accelerated and Advance Payment Program in light of the availability of the
PHSSEF and the significant funds available through other programs. We have
received accelerated payments under this program during 2020, and returned early
all of those funds during the first quarter of 2021, as disclosed herein. The
Paycheck Protection Program and Health Care Enhancement Act (the "PPPHCE Act"),
a stimulus package signed into law on April 24, 2020, includes additional
emergency appropriations for COVID-19 response, including $75 billion to be
distributed to eligible providers through the PHSSEF. A third phase of PHSSEF
allocations made $24.5 billion available for providers who previously received,
rejected or accepted PHSSEF payments. Applicants that had not yet received
PHSSEF payments of 2 percent of patient revenue were to receive a payment that,
when combined with prior payments (if any), equals 2 percent of patient care
revenue. Providers that have already received payments of approximately 2
percent of annual revenue from patient care were potentially eligible for an
additional payment. Recipients will not be required to repay the government for
PHSSEF funds received, provided they comply with HHS defined terms and
conditions. On December 27, 2020, the Consolidated Appropriations Act, 2021
("CAA") was signed into law. The CAA appropriated an additional $3 billion to
the PHSSEF, codified flexibility for providers to calculate lost revenues, and
permitted parent organizations to allocate PHSSEF targeted distributions to
subsidiary organizations. The CAA also provides that not less than 85 percent of
the unobligated PHSSEF amounts and any future funds recovered from health care
providers should be used for additional distributions that consider financial
losses and changes in operating expenses in the third or fourth quarters of 2020
and the first quarter of 2021 that are attributable to the coronavirus. The CAA
provided additional funding for testing, contact tracing and vaccine
administration. Providers receiving payments were required to sign terms and
conditions regarding utilization of the payments. Any provider receiving funds
in excess of $10,000 in the aggregate will be required to report data elements
to HHS detailing utilization of the payments, and we will be required to file
such reports. We, and other providers, will report healthcare related expenses
attributable to COVID-19 that have not been reimbursed by another source, which
may include general and administrative or healthcare related operating expenses.
Funds may also be applied to lost revenues, represented as a negative change in
year-over-year net patient care operating income. The deadline for using all
Provider Relief Fund payments depends on the date of the payment received
period; payments received in the first period of April 10, 2020 to June 30, 2020
were to have been expended by June 30, 2021 and payments received in the fourth
period of July 1, 2021 to December 31, 2021 were to have been expended by
December 31, 2022. The American Rescue Plan Act of 2021 ("ARPA"), enacted on
March 11, 2021, included funding directed at detecting, diagnosing, tracing, and
monitoring COVID-19 infections; establishing community vaccination centers and
mobile vaccine units; promoting, distributing, and tracking COVID-19 vaccines;
and reimbursing rural hospitals and facilities for healthcare-related expenses
and lost revenues attributable to COVID-19. ARPA increased the eligibility for,
and amount of, premium tax credits to purchase health coverage through Patient
Protection and Affordable Care Act, as amended by the Health and Education
Reconciliation Act (collectively, the "Legislation"). Further, ARPA set the
Medicaid program's federal medical assistance percentage ("FMAP") at 100 percent
for amounts expended for COVID-19 vaccines and vaccine administration. ARPA also
increases the FMAP by 5 percent for eight calendar quarters to incentivize
states to expand their Medicaid programs. Finally, ARPA provides subsidies to
cover 100 percent of health insurance premiums under the Consolidated Omnibus
Budget Reconciliation Act through September 30, 2021. There is a high degree of
uncertainty surrounding the implementation of the CARES Act, the PPPHCE Act, the
CAA and ARPA, and the federal government may consider additional stimulus and
relief efforts, but we are unable to predict whether additional stimulus
measures will be enacted or their impact. On December 29, 2022, the Consolidated
Appropriations Act, 2023, was signed into law and phases out the enhanced FMAP
rate and fully eliminates the increase on December 31, 2023. States are also
permitted to begin Medicaid eligibility redeterminations on March 31, 2023,
which is anticipated to result in a large decrease in Medicaid enrollment. There
can be no assurance as to the total amount of financial and other types of
assistance we will

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receive under the CARES Act, the PPPHCE Act, the CAA and the ARPA, and it is
difficult to predict the impact of such legislation on our operations or how
they will affect operations of our competitors. Moreover, we are unable to
assess the extent to which anticipated negative impacts on us arising from the
COVID-19 pandemic will be offset by amounts or benefits received or to be
received under the CARES Act, the PPPHCE Act, the CAA and the ARPA;

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HHS had adopted certain reimbursement policies and regulatory flexibilities
favorable to providers during the Public Health Emergency ("PHE") declared in
response to the COVID-19 pandemic. HHS has published guidance indicating its
intent for the PHE to expire on May 11, 2023. The end of the PHE status will
result in the conclusion of those policies over various designated timeframes.
We cannot predict whether the loss of any such favorable conditions available to
providers during the declared PHE will ultimately have a negative financial
impact on us;

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our ability to comply with the existing laws and government regulations, and/or
changes in laws and government regulations;

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an increasing number of legislative initiatives have been passed into law that
may result in major changes in the health care delivery system on a national or
state level. For example, Congress has reduced to $0 the penalty for failing to
maintain health coverage that was part of the original Legislation as part of
the Tax Cuts and Jobs Act. President Biden has undertaken and is expected to
undertake additional executive actions that will strengthen the Legislation and
reverse the policies of the prior administration. To date, the Biden
administration has issued executive orders implementing a special enrollment
period permitting individuals to enroll in health plans outside of the annual
open enrollment period and reexamining policies that may undermine the
Legislation or the Medicaid program. The Inflation Reduction Act of 2022 ("IRA")
was passed on August 16, 2022, which among other things, allows for CMS to
negotiate prices for certain single-source drugs reimbursed under Medicare Part
B and Part D. The ARPA's expansion of subsidies to purchase coverage through a
Legislation exchange, which the IRA continued through 2025, is anticipated to
increase exchange enrollment. The Trump Administration had directed the issuance
of final rules (i) enabling the formation of association health plans that would
be exempt from certain Legislation requirements such as the provision of
essential health benefits, (ii) expanding the availability of short-term,
limited duration health insurance, (iii) eliminating cost-sharing reduction
payments to insurers that would otherwise offset deductibles and other
out-of-pocket expenses for health plan enrollees at or below 250 percent of the
federal poverty level, (iv) relaxing requirements for state innovation waivers
that could reduce enrollment in the individual and small group markets and lead
to additional enrollment in short-term, limited duration insurance and
association health plans and (v) incentivizing the use of health reimbursement
arrangements by employers to permit employees to purchase health insurance in
the individual market. The uncertainty resulting from these Executive Branch
policies may have led to reduced Exchange enrollment in 2018, 2019 and 2020. It
is also anticipated that these policies, to the extent that they remain as
implemented, may create additional cost and reimbursement pressures on
hospitals, including ours. In addition, there have been numerous political and
legal efforts to expand, repeal, replace or modify the Legislation since its
enactment, some of which have been successful, in part, in modifying the
Legislation, as well as court challenges to the constitutionality of the
Legislation. The U.S. Supreme Court rejected the latest such case on June 17,
2021, when the Court held in California v. Texas that the plaintiffs lacked
standing to challenge the Legislation's requirement to obtain minimum essential
health insurance coverage, or the individual mandate. The Court dismissed the
case without specifically ruling on the constitutionality of the Legislation. As
a result, the Legislation will continue to remain law, in its entirety, likely
for the foreseeable future. On September 7, 2022, the Legislation faced its most
recent challenge when a Texas Federal District Court judge, in the case of
Braidwood Management v. Becerra, ruled that a requirement that certain health
plans cover services without cost sharing violates the Appointments Clause of
the U.S. Constitution and that the coverage of certain HIV prevention medication
violates the Religious Freedom Restoration Act. Any future efforts to challenge,
replace or replace the Legislation or expand or substantially amend its
provision is unknown. See below in Sources of Revenue and Health Care Reform for
additional disclosure;

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under the Legislation, hospitals are required to make public a list of their
standard charges, and effective January 1, 2019, CMS has required that this
disclosure be in machine-readable format and include charges for all hospital
items and services and average charges for diagnosis-related groups. On November
27, 2019, CMS published a final rule on "Price Transparency Requirements for
Hospitals to Make Standard Charges Public." This rule took effect on January 1,
2021 and requires all hospitals to also make public their payer-specific
negotiated rates, minimum negotiated rates, maximum negotiated rates, and
discounted cash rates, for all items and services, including individual items
and services and service packages, that could be provided by a hospital to a
patient. Failure to comply with these requirements may result in daily monetary
penalties. On November 2, 2021, CMS released a final rule amending several
hospital price transparency policies and increasing the amount of penalties for
noncompliance through the use of a scaling factor based on hospital bed count;

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as part of the CAA, Congress passed legislation aimed at preventing or limiting
patient balance billing in certain circumstances. The CAA addresses surprise
medical bills stemming from emergency services, out-of-network ancillary
providers at in-network facilities, and air ambulance carriers. The legislation
prohibits surprise billing when out-of-network emergency services or
out-of-network services at an in-network facility are provided, unless informed
consent is

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received. In these circumstances providers are prohibited from billing the
patient for any amounts that exceed in-network cost-sharing requirements. HHS,
the Department of Labor and the Department of the Treasury have issued interim
final rules, which begin to implement the legislation. The rules are expected to
limit our ability to receive payment for services at usually higher
out-of-network rates in certain circumstances and prohibit out-of-network
payments in other circumstances. On February 28, 2022, a district judge in the
Eastern District of Texas invalidated portions of the rule governing aspects of
the Independent Dispute Resolution ("IDR") process. In light of this decision,
the government issued a final rule on August 19, 2022 eliminating the rebuttable
presumption in favor of the qualifying payment amount ("QPA") by the IDR entity
and providing additional factors the IDR entity should consider when choosing
between two competing offers. On September 22, 2022, the Texas Medical
Association filed a lawsuit challenging the IDR process provided in the updated
final rule and alleging that the final rule unlawfully elevates the QPA above
other factors the IDR entity must consider. The American Hospital Association
and American Medical Association have announced their intent to join this case
as amici supporting the Texas Medical Association;

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possible unfavorable changes in the levels and terms of reimbursement for our
charges by third party payers or government based payers, including Medicare or
Medicaid in the United States, and government based payers in the United
Kingdom;

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our ability to enter into managed care provider agreements on acceptable terms
and the ability of our competitors to do the same;

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the outcome of known and unknown litigation, government investigations, false
claims act allegations, and liabilities and other claims asserted against us and
other matters as disclosed in Note 8 to the Consolidated Financial Statements -
Commitments and Contingencies and the effects of adverse publicity relating to
such matters;

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competition from other healthcare providers (including physician owned
facilities) in certain markets;

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technological and pharmaceutical improvements that increase the cost of
providing, or reduce the demand for healthcare;

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our ability to attract and retain qualified personnel, nurses, physicians and
other healthcare professionals and the impact on our labor expenses resulting
from a shortage of nurses and other healthcare professionals;

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demographic changes;

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there is a heightened risk of future cybersecurity threats, including ransomware
attacks targeting healthcare providers. If successful, future cyberattacks could
have a material adverse effect on our business. Any costs that we incur as a
result of a data security incident or breach, including costs to update our
security protocols to mitigate such an incident or breach could be significant.
Any breach or failure in our operational security systems can result in loss of
data or an unauthorized disclosure of or access to sensitive or confidential
member or protected personal or health information and could result in
significant penalties or fines, litigation, loss of customers, significant
damage to our reputation and business, and other losses;

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the availability of suitable acquisition and divestiture opportunities and our
ability to successfully integrate and improve our acquisitions since failure to
achieve expected acquisition benefits from certain of our prior or future
acquisitions could result in impairment charges for goodwill and purchased
intangibles;

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the impact of severe weather conditions, including the effects of hurricanes and
climate change;

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as discussed below in Sources of Revenue, we receive revenues from various state
and county-based programs, including Medicaid in all the states in which we
operate. We receive annual Medicaid revenues of approximately $100 million, or
greater, from each of Texas, California, Nevada, Illinois, Pennsylvania,
Washington, D.C., Florida, Kentucky and Massachusetts. We also receive Medicaid
disproportionate share hospital payments in certain states including Texas and
South Carolina. We are therefore particularly sensitive to potential reductions
in Medicaid and other state-based revenue programs as well as regulatory,
economic, environmental and competitive changes in those states. We can provide
no assurance that reductions to revenues earned pursuant to these programs, and
the effect of the COVID-19 pandemic on state budgets, particularly in the
above-mentioned states, will not have a material adverse effect on our future
results of operations;

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our ability to continue to obtain capital on acceptable terms, including
borrowed funds, to fund the future growth of our business;

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our inpatient acute care and behavioral health care facilities may experience
decreasing admission and length of stay trends;

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•

our financial statements reflect large amounts due from various commercial and
private payers and there can be no assurance that failure of the payers to remit
amounts due to us will not have a material adverse effect on our future results
of operations;

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the Budget Control Act of 2011 (the "2011 Act") imposed annual spending limits
for most federal agencies and programs aimed at reducing budget deficits by $917
billion between 2012 and 2021, according to a report released by the
Congressional Budget Office. Among its other provisions, the law established a
bipartisan Congressional committee, known as the Joint Select Committee on
Deficit Reduction (the "Joint Committee"), which was tasked with making
recommendations aimed at reducing future federal budget deficits by an
additional $1.5 trillion over 10 years. The Joint Committee was unable to reach
an agreement by the November 23, 2011 deadline and, as a result,
across-the-board cuts to discretionary, national defense and Medicare spending
were implemented on March 1, 2013 resulting in Medicare payment reductions of up
to 2% per fiscal year with a uniform percentage reduction across all Medicare
programs. The Bipartisan Budget Act of 2015, enacted on November 2, 2015,
continued the 2% reductions to Medicare reimbursement imposed under the 2011
Act. Recent legislation suspended payment reductions through December 31, 2021
in exchange for extended cuts through 2030. Subsequent legislation extended the
payment reduction suspension through March 31, 2022, with a 1% payment reduction
from then until June 30, 2022 and the full 2% payment reduction thereafter. The
most recent legislation extended these reductions through 2032. We cannot
predict whether Congress will restructure the implemented Medicare payment
reductions or what other federal budget deficit reduction initiatives may be
proposed by Congress going forward. See below in 2019 Novel Coronavirus Disease
Medicare and Medicaid Payment Related Legislation - Medicare Sequestration
Relief, for additional disclosure related to the favorable effect the
legislative extensions have had on our results of operations;

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uninsured and self-pay patients treated at our acute care facilities unfavorably
impact our ability to satisfactorily and timely collect our self-pay patient
accounts;

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changes in our business strategies or development plans;

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in June, 2016, the United Kingdom affirmatively voted in a non-binding
referendum in favor of the exit of the United Kingdom ("U.K.") from the European
Union (the "Brexit") and it was approved by vote of the British legislature. On
March 29, 2017, the United Kingdom triggered Article 50 of the Lisbon Treaty,
formally starting negotiations regarding its exit from the European Union. On
January 31, 2020, the U.K. formally exited the European Union. On December 24,
2020, the United Kingdom and the European Union reached a post-Brexit trade and
cooperation agreement that created new business and security requirements and
preserved the United Kingdom's tariff- and quota-free access to the European
Union member states. The trade and cooperation agreement was provisionally
applied as of January 1, 2021 and entered into force on May 1, 2021, following
ratification by the European Union. We do not know to what extent Brexit will
ultimately impact the business and regulatory environment in the U.K., the
European Union, or other countries. Any of these effects of Brexit, and others
we cannot anticipate, could harm our business, financial condition and results
of operations;

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in 2021, the rate of inflation in the United States began to increase and has
since risen to levels not experienced in over 40 years. We are experiencing
inflationary pressures, primarily in personnel costs, and we anticipate impacts
on other cost areas within the next twelve months. The extent of any future
impacts from inflation on our business and our results of operations will be
dependent upon how long the elevated inflation levels persist and the extent to
which the rate of inflation further increases, if at all, neither of which we
are able to predict. If elevated levels of inflation were to persist or if the
rate of inflation were to accelerate, our expenses could increase faster than
anticipated and we may utilize our capital resources sooner than expected.
Further, given the complexities of the reimbursement landscape in which we
operate, our payers may be unwilling or unable to increase reimbursement rates
to compensate for inflationary impacts. Although we have hedged some of our
floating rate indebtedness, the rapid increase in interest rates have increased
our interest expense significantly increasing our expenses and reducing our free
cash flow and our ability to access the capital markets on favorable terms. As
such, the effects of inflation may adversely impact our results of operations,
financial condition and cash flows;

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we have exposure to fluctuations in foreign currency exchange rates, primarily
the pound sterling. We have international subsidiaries that operate in the
United Kingdom. We routinely hedge our exposures to foreign currencies with
certain financial institutions in an effort to minimize the impact of certain
currency exchange rate fluctuations, but these hedges may be inadequate to
protect us from currency exchange rate fluctuations. To the extent that these
hedges are inadequate, our reported financial results or the way we conduct our
business could be adversely affected. Furthermore, if a financial counterparty
to our hedges experiences financial difficulties or is otherwise unable to honor
the terms of the foreign currency hedge, we may experience material financial
losses, and;

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other factors referenced herein or in our other filings with the Securities and
Exchange Commission.

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Given these uncertainties, risks and assumptions, as outlined above, you are
cautioned not to place undue reliance on such forward-looking statements. Our
actual results and financial condition could differ materially from those
expressed in, or implied by, the forward-looking statements. Forward-looking
statements speak only as of the date the statements are made. We assume no
obligation to publicly update any forward-looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting
forward-looking information, except as may be required by law. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by this cautionary statement.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the amounts reported in our consolidated financial
statements and accompanying notes.

A summary of our significant accounting policies is outlined in Note 1 to the
financial statements. We consider our critical accounting policies to be those
that require us to make significant judgments and estimates when we prepare our
financial statements, including the following:

Revenue Recognition: We report net patient service revenue at the estimated net
realizable amounts from patients and third-party payers and others for services
rendered. We have agreements with third-party payers that provide for payments
to us at amounts different from our established rates. Payment arrangements
include rates per discharge, reimbursed costs, discounted charges and per diem
payments. Estimates of contractual allowances under managed care plans, which
represent explicit price concessions, are based upon the payment terms specified
in the related contractual agreements. We closely monitor our historical
collection rates, as well as changes in applicable laws, rules and regulations
and contract terms, to assure that provisions are made using the most accurate
information available. However, due to the complexities involved in these
estimations, actual payments from payers may be different from the amounts we
estimate and record.

See Note 10 to the Consolidated Financial Statements-Revenue Recognition, for
additional disclosure related to our revenues including a disaggregation of our
consolidated net revenues by major source for each of the periods presented
herein.

We estimate our Medicare and Medicaid revenues using the latest available
financial information, patient utilization data, government provided data and in
accordance with applicable Medicare and Medicaid payment rules and regulations.
The laws and regulations governing the Medicare and Medicaid programs are
extremely complex and subject to interpretation and as a result, there is at
least a reasonable possibility that recorded estimates will change by material
amounts in the near term. Certain types of payments by the Medicare program and
state Medicaid programs (e.g. Medicare Disproportionate Share Hospital, Medicare
Allowable Bad Debts and Inpatient Psychiatric Services) are subject to
retroactive adjustment in future periods as a result of administrative review
and audit and our estimates may vary from the final settlements. Such amounts
are included in accounts receivable, net, on our Consolidated Balance Sheets.
The funding of both federal Medicare and state Medicaid programs are subject to
legislative and regulatory changes. As such, we cannot provide any assurance
that future legislation and regulations, if enacted, will not have a material
impact on our future Medicare and Medicaid reimbursements. Adjustments related
to the final settlement of these retrospectively determined amounts did not
materially impact our results in 2022, 2021 or 2020. If it were to occur, each
1% adjustment to our estimated net Medicare revenues that are subject to
retrospective review and settlement as of December 31, 2022, would change our
after-tax net income by approximately $1 million.

Charity Care, Uninsured Discounts and Other Adjustments to Revenue: Collection
of receivables from third-party payers and patients is our primary source of
cash and is critical to our operating performance. Our primary collection risks
relate to uninsured patients and the portion of the bill which is the patient's
responsibility, primarily co-payments and deductibles. We estimate our revenue
adjustments for implicit price concessions based on general factors such as
payer mix, the aging of the receivables and historical collection experience. We
routinely review accounts receivable balances in conjunction with these factors
and other economic conditions which might ultimately affect the collectability
of the patient accounts and make adjustments to our allowances as warranted. At
our acute care hospitals, third party liability accounts are pursued until all
payment and adjustments are posted to the patient account. For those accounts
with a patient balance after third party liability is finalized or accounts for
uninsured patients, the patient receives statements and collection letters.

Historically, a significant portion of the patients treated throughout our
portfolio of acute care hospitals are uninsured patients which, in part, has
resulted from patients who are employed but do not have health insurance or who
have policies with relatively high deductibles. Patients treated at our
hospitals for non-elective services, who have gross income of various amounts,
dependent upon the state, ranging from 200% to 400% of the federal poverty
guidelines, are deemed eligible for charity care. The federal poverty guidelines
are established by the federal government and are based on income and family
size. Because we do not pursue collection of amounts that qualify as charity
care, the transaction price is fully adjusted and there is no impact in our net
revenues or in our accounts receivable, net.

A portion of the accounts receivable at our acute care facilities are comprised
of Medicaid accounts that are pending approval from third-party payers but we
also have smaller amounts due from other miscellaneous payers such as county
indigent programs in certain states. Our patient registration process includes
an interview of the patient or the patient's responsible party at the time of

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registration. At that time, an insurance eligibility determination is made and
an insurance plan code is assigned. There are various pre-established insurance
profiles in our patient accounting system which determine the expected insurance
reimbursement for each patient based on the insurance plan code assigned and the
services rendered. Certain patients may be classified as Medicaid pending at
registration based upon a screening evaluation if we are unable to definitively
determine if they are currently Medicaid eligible. When a patient is registered
as Medicaid eligible or Medicaid pending, our patient accounting system records
net revenues for services provided to that patient based upon the established
Medicaid reimbursement rates, subject to the ultimate disposition of the
patient's Medicaid eligibility. When the patient's ultimate eligibility is
determined, reclassifications may occur which impacts net revenues in future
periods. Although the patient's ultimate eligibility determination may result in
adjustments to net revenues, these adjustments did not have a material impact on
our results of operations in 2022 or 2021 since our facilities make estimates at
each financial reporting period to adjust revenue based on historical
collections.

We also provide discounts to uninsured patients (included in "uninsured
discounts" amounts below) who do not qualify for Medicaid or charity care.
Because we do not pursue collection of amounts classified as uninsured
discounts, the transaction price is fully adjusted and there is no impact in our
net revenues or in our net accounts receivable. In implementing the discount
policy, we first attempt to qualify uninsured patients for governmental
programs, charity care or any other discount program. If an uninsured patient
does not qualify for these programs, the uninsured discount is applied.

Uncompensated care (charity care and uninsured discounts):

The following table shows the amounts recorded at our acute care hospitals for
charity care and uninsured discounts, based on charges at established rates, for
the years ended December 31, 2022 and 2021:

                                      (dollar amounts in thousands)
                                   2022                      2021
                             Amount          %         Amount          %
Charity care               $   786,962        35 %   $   661,965        33 %
Uninsured discounts          1,474,933        65 %     1,336,319        67 %
Total uncompensated care   $ 2,261,895       100 %   $ 1,998,284       100 %

The estimated cost of providing uncompensated care:

The estimated cost of providing uncompensated care, as reflected below, were
based on a calculation which multiplied the percentage of operating expenses for
our acute care hospitals to gross charges for those hospitals by the
above-mentioned total uncompensated care amounts. The percentage of cost to
gross charges is calculated based on the total operating expenses for our acute
care facilities divided by gross patient service revenue for those facilities.
An increase in the level of uninsured patients to our facilities and the
resulting adverse trends in the adjustments to net revenues and uncompensated
care provided could have a material unfavorable impact on our future operating
results.
                                                            (amounts in thousands)
                                                            2022               2021
Estimated cost of providing charity care                $      85,434      $     72,095
Estimated cost of providing uninsured discounts
related care                                                  160,122       

145,538

Estimated cost of providing uncompensated care $ 245,556 $ 217,633

Self-Insured/Other Insurance Risks: We provide for self-insured risks, primarily
general and professional liability claims, workers' compensation claims and
healthcare and dental claims. Our estimated liability for self-insured
professional and general liability claims is based on a number of factors
including, among other things, the number of asserted claims and reported
incidents, estimates of losses for these claims based on recent and historical
settlement amounts, estimate of incurred but not reported claims based on
historical experience, and estimates of amounts recoverable under our commercial
insurance policies. All relevant information, including our own historical
experience is used in estimating the expected amount of claims. While we
continuously monitor these factors, our ultimate liability for professional and
general liability claims could change materially from our current estimates due
to inherent uncertainties involved in making this estimate. Our estimated
self-insured reserves are reviewed and changed, if necessary, at each reporting
date and changes are recognized currently as additional expense or as a
reduction of expense.

In addition, we also: (i) own commercial health insurers headquartered in Nevada
and Puerto Rico, and; (ii) maintain self-insured employee benefits programs for
employee healthcare and dental claims. The ultimate costs related to these
programs/operations include expenses for claims incurred and paid in addition to
an accrual for the estimated expenses incurred in connection with claims
incurred but not yet reported. Given our significant insurance-related exposure,
there can be no assurance that a sharp increase in the number and/or severity of
claims asserted against us will not have a material adverse effect on our future
results of operations.

See Note 8 to the Consolidated Financial Statements-Commitments and
Contingencies for additional disclosure related to our self-insured general and
professional liability and workers' compensation liability.

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Long-Lived Assets: We review our long-lived assets for impairment whenever
events or circumstances indicate that the carrying value of these assets may not
be recoverable. The assessment of possible impairment is based on our ability to
recover the carrying value of our asset based on our estimate of its
undiscounted future cash flow. If the analysis indicates that the carrying value
is not recoverable from future cash flows, the asset is written down to its
estimated fair value and an impairment loss is recognized. Fair values are
determined based on estimated future cash flows using appropriate discount
rates. Please see additional disclosure below in Provision for Asset Impairment.

Goodwill and Intangible Assets: Goodwill and indefinite-lived intangible assets
are reviewed for impairment at the reporting unit level on an annual basis or
more often if indicators of impairment arise. Our judgments regarding the
existence of impairment indicators are based on market conditions and
operational performance of each reporting unit. We have designated October 1st
as our annual impairment assessment date for our goodwill and indefinite-lived
intangible assets.

We performed an impairment assessment as of October 1, 2022 which indicated no
impairment of goodwill. There was no goodwill impairment during 2021.

Future changes in the estimates used to conduct the impairment review, including
profitability and market value projections, could indicate impairment in future
periods potentially resulting in a write-off of a portion or all of our goodwill
or indefinite-lived intangible assets.

Income Taxes: Deferred tax assets and liabilities are recognized for the amount
of taxes payable or deductible in future years as a result of differences
between the tax bases of assets and liabilities and their reported amounts in
the financial statements. We believe that future income will enable us to
realize our deferred tax assets net of recorded valuation allowances relating to
state and foreign net operating loss carry-forwards, tax credits, and interest
deduction limitations.

We operate in multiple jurisdictions with varying tax laws. We are subject to
audits by any of these taxing authorities. Our tax returns have been examined by
the Internal Revenue Service through the year ended December 31, 2006. We
believe that adequate accruals have been provided for federal, foreign and state
taxes.

See Note 6 to the Consolidated Financial Statements-Income Taxes for additional
disclosure of our effective tax rates.

Recent Accounting Pronouncements: For a summary of recent accounting
pronouncements, please see Note 1 to the Consolidated Financial
Statements-Accounting Standards as included in this Report on Form 10-K for the
year ended December 31, 2022.

CARES Act and Other Governmental Grants and Medicare Accelerated Payments:
Please see Sources of Revenue- 2019 Novel Coronavirus Disease Medicare and
Medicaid Payment Related Legislation below for additional disclosure.

Results of Operations

COVID-19, Clinical Staffing Shortage and Effects of Inflation:

The impact of the COVID-19 pandemic, which began during the second half of
March, 2020, has had a material effect on our operations and financial results
since that time. The length and extent of the disruptions caused by the COVID­19
pandemic are currently unknown; however, we expect such disruptions to continue
into the future. Since the future volumes and severity of COVID-19 patients
remain highly uncertain and subject to change, including potential increases in
future COVID-19 patient volumes caused by new variants of the virus, as well as
related pressures on staffing and wage rates, we are not able to fully quantify
the impact that these factors will have on our future financial results.
However, developments related to the COVID-19 pandemic could continue to
materially affect our financial performance.

The healthcare industry is labor intensive and salaries, wages and benefits are
subject to inflationary pressures, as are supplies expense and other operating
expenses. In addition, the nationwide shortage of nurses and other clinical
staff and support personnel has been a significant operating issue facing us and
other healthcare providers. Like others in the healthcare industry, we continue
to experience a shortage of nurses and other clinical staff and support
personnel at our acute care and behavioral health care hospitals in many
geographic areas. In some areas, the labor scarcity is putting a strain on our
resources and staff, which has required us to utilize higher­cost temporary
labor and pay premiums above standard compensation for essential workers. This
staffing shortage has required us to hire expensive temporary personnel and/or
enhance wages and benefits to recruit and retain nurses and other clinical staff
and support personnel. At certain facilities, particularly within our behavioral
health care segment, we have been unable to fill all vacant positions and,
consequently, have been required to limit patient volumes. This staffing
shortage may require us to further enhance wages and benefits to recruit and
retain nurses and other clinical staff and support personnel or require us to
hire expensive temporary personnel. We have also experienced cost increases
related to the procurement of medical supplies as well as certain of our other
operating expenses which we believe resulted from supply chain disruptions as
well as general inflationary pressures. These factors, which had a material
unfavorable impact on our results of operations during 2022, have been
moderating to a certain degree but are expected to continue to have an
unfavorable material impact on our results of operations for the foreseeable
future.

Although our ability to pass on increased costs associated with providing
healthcare to Medicare and Medicaid patients is limited due to various federal,
state and local laws which, in certain circumstances, limit our ability to
increase prices, we have been

                                       46

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negotiating increased rates from commercial insurers to defray our increased
cost of providing patient care. In addition, we have implemented various
productivity enhancement programs and cost reduction initiatives including, but
not limited to, the following: team-based patient care initiatives designed to
optimize the level of patient care services provided by our licensed
nurses/clinicians; efforts to reduce utilization of, and rates paid for, premium
pay labor; consolidation of medical supply vendors to increase purchasing
discounts; review and reduction of clinical variation in connection with the
utilization of medical supplies, and; various other efforts to increase
productivity and/or reduce costs including investments in new information
technology applications.

The following table summarizes our results of operations, and is used in the
discussion below, for the years ended December 31, 2022 and 2021 (dollar amounts
in thousands):

                                                                   Year Ended December 31,
                                            2022                            2021                            2020
                                                   % of Net                        % of Net                        % of Net
                                    Amount         Revenues         Amount         Revenues         Amount         Revenues
Net revenues                     $ 13,399,370          100.0 %   $ 12,642,117          100.0 %   $ 11,558,897          100.0 %
Operating charges:
Salaries, wages and
benefits                            6,762,256           50.5 %      6,163,944           48.8 %      5,613,097           48.6 %
Other operating expenses            3,445,733           25.7 %      3,035,869           24.0 %      2,672,762           23.1 %
Supplies expense                    1,474,339           11.0 %      1,427,134           11.3 %      1,288,132           11.1 %
Depreciation and
amortization                          581,861            4.3 %        533,213            4.2 %        510,493            4.4 %
Lease and rental expense              131,626            1.0 %        118,863            0.9 %        116,059            1.0 %
Subtotal-operating expenses        12,395,815           92.5 %     11,279,023           89.2 %     10,200,543           88.2 %
Income from operations              1,003,555            7.5 %      1,363,094           10.8 %      1,358,354           11.8 %
Interest expense, net                 126,889            0.9 %         83,672            0.7 %        106,285            0.9 %
Other (income) expense, net            10,406            0.1 %        (13,891 )         -0.1 %            (14 )          0.0 %
Income before income taxes            866,260            6.5 %      1,293,313           10.2 %      1,252,083           10.8 %
Provision for income taxes            209,278            1.6 %        305,681            2.4 %        299,293            2.6 %
Net income                            656,982            4.9 %        987,632            7.8 %        952,790            8.2 %
Less: Net income (loss)
attributable
  to noncontrolling
interests                             (18,627 )         -0.1 %         (3,958 )          0.0 %          8,837            0.1 %
Net income attributable to
UHS                              $    675,609            5.0 %   $    991,590            7.8 %   $    943,953            8.2 %

Net revenues increased by 6.0%, or $757 million, to $13.40 billion during 2022
as compared to $12.64 billion during 2021. The increase in net revenues was
primarily attributable to:

•

a $507 million or 4.1% increase in net revenues generated from our acute care
and behavioral health care operations owned during both periods (which we refer
to as "same facility"), and;

•

$250 million of other combined net increases including the revenues generated at
facilities and businesses acquired during the past year, the revenues generated
at a newly constructed, 158-bed acute care hospital located in Reno, Nevada,
that opened in early April, 2022, and a $77 million increase in provider tax
assessments programs (which had no impact on net income attributable to UHS as
reflected above since the amounts were offset between net revenues and other
operating expenses).

Income before income taxes decreased by $427 million to $866 million during 2022
as compared to $1.29 billion during 2021. The decrease was attributable to:

•

a decrease of $305 million at our acute care facilities, as discussed below in
Acute Care Hospital Services;

•

a decrease of $45 million at our behavioral health care facilities, as discussed
below in Behavioral Health Services;

•

a decrease of $43 million due to an increase in interest expense due to an
increase in our aggregate average outstanding borrowings as well as an increase
in our weighted average cost of borrowings, as discussed below in Other
Operating Results-Interest Expense, and;

•

$34 million of other combined net decreases.

Net income attributable to UHS decreased by $316 million to $675 million during
2022 as compared to $992 million during 2021. This decrease was attributable to:

•

a decrease of $427 million in income before income taxes, as discussed above;

•

an increase of $15 million due to an increase in the loss attributable to
noncontrolling interests, and;

                                       47

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•

an increase of $96 million resulting from a net decrease in the provision for
income taxes due primarily to the income tax benefit recorded in connection with
the $412 million decrease in pre-tax income. Please see additional disclosure
below in Other Operating Results-Provision for Income Taxes and Effective Tax
Rates.

Increase to self-insured professional and general liability reserves:

Our estimated liability for self-insured professional and general liability
claims is based on a number of factors including, among other things, the number
of asserted claims and reported incidents, estimates of losses for these claims
based on recent and historical settlement amounts, estimates of incurred but not
reported claims based on historical experience, and estimates of amounts
recoverable under our commercial insurance policies.

As a result of unfavorable trends experienced during 2022 and 2021, included in
our results of operations were pre-tax increases of $16 million during 2022, and
$52 million during 2021, to our reserves for self-insured professional and
general liability claims. During 2022, approximately $10 million of the reserves
increase is included in our Same Facility basis acute care hospitals services'
results, and approximately $6 million is included in our behavioral health
services' results. During 2021, approximately $39 million of the reserves
increase is included in our Same Facility basis acute care hospitals services'
results, and approximately $13 million is included in our behavioral health
services' results.

Acute Care Hospital Services

The following table sets forth certain operating statistics for our acute care
hospital services for the years ended December 31, 2022 and 2021.

                               Same Facility Basis                     All
                              2022            2021            2022            2021
Average licensed beds            6,760           6,566           6,923           6,566
Average available beds           6,588           6,394           6,751           6,394
Patient days                 1,546,067       1,568,639       1,569,611       1,568,639
Average daily census           4,235.8         4,297.6         4,300.3         4,297.6
Occupancy-licensed beds           62.7 %          65.5 %          62.1 %          65.5 %
Occupancy-available beds          64.3 %          67.2 %          63.7 %          67.2 %
Admissions                     307,462         305,296         311,537         305,296
Length of stay                     5.0             5.1             5.0             5.1

Acute Care Hospital Services-Same Facility Basis

We believe that providing our results on a "Same Facility" basis (which is a
non-GAAP measure), which includes the operating results for facilities and
businesses operated in both the current year and prior year periods, is helpful
to our investors as a measure of our operating performance. Our Same Facility
results also neutralize (if applicable) the effect of items that are
non-operational in nature including items such as, but not limited to,
gains/losses on sales of assets and businesses, impacts of settlements, legal
judgments and lawsuits, impairments of long-lived and intangible assets and
other amounts that may be reflected in the current or prior year financial
statements that relate to prior periods.

Our Same Facility basis results reflected on the tables below also exclude from
net revenues and other operating expenses, provider tax assessments incurred in
each period as discussed below Sources of Revenue-Various State Medicaid
Supplemental Payment Programs. However, these provider tax assessments are
included in net revenues and other operating expenses as reflected in the table
below under All Acute Care Hospital Services. The provider tax assessments had
no impact on the income before income taxes as reflected on the tables below
since the amounts offset between net revenues and other operating expenses. To
obtain a complete understanding of our financial performance, the Same Facility
results should be examined in connection with our net income as determined in
accordance with U.S. GAAP and as presented in the condensed consolidated
financial statements and notes thereto as contained in this Annual Report on
Form 10-K.

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The following table summarizes the results of operations for our acute care
hospital services on a same facility basis and is used in the discussions below
for the years ended December 31, 2022 and 2021 (dollar amounts in thousands):

                                        Year Ended                     Year Ended
                                    December 31, 2022              December 31, 2021
                                                 % of Net                       % of Net
                                  Amount         Revenues        Amount         Revenues
Net revenues                    $ 7,281,739          100.0 %   $ 6,998,257          100.0 %
Operating charges:
Salaries, wages and benefits      3,221,550           44.2 %     2,964,934           42.4 %
Other operating expenses          1,860,791           25.6 %     1,661,418           23.7 %
Supplies expense                  1,224,070           16.8 %     1,224,499           17.5 %
Depreciation and amortization       361,354            5.0 %       329,755            4.7 %
Lease and rental expense             76,649            1.1 %        75,391            1.1 %
Subtotal-operating expenses       6,744,414           92.6 %     6,255,997           89.4 %
Income from operations              537,325            7.4 %       742,260           10.6 %
Interest expense, net                 1,109            0.0 %         1,006            0.0 %
Other (income) expense, net           1,493            0.0 %           567            0.0 %
Income before income taxes      $   534,723            7.3 %   $   740,687           10.6 %




During 2022, as compared to 2021, net revenues from our acute care hospital
services, on a Same Facility basis, increased by $283 million or 4.1%. Income
before income taxes (and before income attributable to noncontrolling interests)
decreased by $206 million, or 28%, amounting to $535 million, or 7.3% of net
revenues during 2022, as compared to $741 million, or 10.6% of net revenues
during 2021.

During 2022, net revenue per adjusted admission decreased by 0.3% while net
revenue per adjusted patient day increased by 1.9%, as compared to 2021. During
2022, as compared to 2021, inpatient admissions to our acute care hospitals
increased by 0.7% and adjusted admissions (adjusted for outpatient activity)
increased by 3.1%. Patient days at these facilities decreased by 1.4% and
adjusted patient days increased by 0.9% during 2022, as compared to 2021. The
average length of inpatient stay at these facilities was 5.0 days during 2022
and 5.1 days during 2021. The occupancy rate, based on the average available
beds at these facilities, was 64% during 2022, as compared to 67% during 2021.

On a Same Facility basis during 2022, as compared to 2021, salaries, wages and
benefits expense increased $257 million or 8.7%. The increase during 2022, as
compared to 2021, was due primarily to higher labor costs due, in part, to the
healthcare labor shortage as well as an increase in patients at our hospitals,
during the first quarter of 2022, with COVID­19 which increased the demand for
care and pressured our staffing resources requiring us to utilize higher­cost
temporary labor and pay premiums above standard compensation for essential
workers. As compared to the first quarter of 2022, we experienced a decrease in
patients with COVID-19 during the remaining 9 months of the year which eased the
need for higher-cost temporary labor and pay premiums.

Other operating expenses increased $199 million, or 12.0%, during 2022, as
compared to 2021. Operating expenses incurred in connection with our commercial
health insurer, consisting primarily of medical costs, increased approximately
$97 million during 2022, as compared to 2021. Excluding the operating expenses
incurred in connection with our commercial health insurer, other operating
expenses increased $103 million, or 7.6%.

Supplies expense decreased slightly during 2022, as compared to 2021. Offsetting
the increased cost of supplies experienced during 2022, as compared to 2021, was
a decrease in the number of patients treated with COVID-19 at our hospitals
during 2022, as compared to 2021. Patients diagnosed with COVID-19 generally
require more intensive medical resources and supplies.

All Acute Care Hospital Services

The following table summarizes the results of operations for all our acute care
operations during 2022 and 2021. These amounts include: (i) our acute care
results on a same facility basis, as indicated above; (ii) the impact of
provider tax assessments which increased net revenues and other operating
expenses but had no impact on income before income taxes, and; (iii) certain
other amounts including, if applicable, the operating results of businesses the
were acquired/opened, or divested/closed, during the past year as well as
provisions for asset impairments. Dollar amounts below are reflected in
thousands.

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                                        Year Ended                     Year Ended
                                    December 31, 2022              December 31, 2021
                                                 % of Net                       % of Net
                                  Amount         Revenues        Amount         Revenues
Net revenues                    $ 7,646,749          100.0 %   $ 7,108,254          100.0 %
Operating charges:
Salaries, wages and benefits      3,332,535           43.6 %     2,968,140           41.8 %
Other operating expenses          2,146,196           28.1 %     1,772,312           24.9 %
Supplies expense                  1,264,688           16.5 %     1,224,664           17.2 %
Depreciation and amortization       383,115            5.0 %       331,508            4.7 %
Lease and rental expense             86,654            1.1 %        75,391            1.1 %
Subtotal-operating expenses       7,213,188           94.3 %     6,372,015           89.6 %
Income from operations              433,561            5.7 %       736,239           10.4 %
Interest expense, net                 1,109            0.0 %         1,006            0.0 %
Other (income) expense, net           2,788            0.0 %           567            0.0 %
Income before income taxes      $   429,664            5.6 %   $   734,666           10.3 %


During 2022, as compared to 2021, net revenues from our acute care hospital
services increased by $538 million, or 7.6%, due to: (i) the $283 million, or
4.1% increase in Same Facility revenues, as discussed above, and; (ii) $255
million of other combined increases due to facilities and businesses acquired
during the past year, the revenues generated at the newly constructed hospital
located in Reno, Nevada, that opened during the first quarter of 2022, and a $66
million increase in provider tax assessments.

Income before income taxes decreased by $305 million, or 42%, to $430 million,
or 5.6% of net revenues during 2022, as compared to $735 million, or 10.3% of
net revenues during 2021. The decrease in income before income taxes resulted
from: (i) the $206 million, or 28%, decrease in income before income taxes at
our hospitals, on a Same Facility basis, as discussed above; (ii) a $58 million
provision for asset impairment recorded during 2022, as discussed below in Other
Operating Results-Provision for Asset Impairments, and; (iii) $41 million of
other combined net decreases related primarily to the start-up losses incurred
at the newly constructed acute care hospital located in Reno, Nevada, that
opened during the first quarter of 2022.

During 2022, as compared to 2021, salaries, wages and benefits expense increased
$364 million or 12.3%. The increase was due to the $257 million, or 8.7%,
above-mentioned increase related to our acute care hospital services, on a Same
Facility basis, as well as a combined increase of $107 million related to the
facilities and businesses acquired/opened during the past year.

Other operating expenses increased $374 million, or 21.1%, during 2022, as
compared to 2021. The increase was due to the $199 million, or 12.0%,
above-mentioned increase related to our acute care hospital services, on a Same
Facility basis, a combined increase of $109 million related to the facilities
and businesses acquired/opened during the past year, and a $66 million increase
in provider tax assessments.

Supplies expense increased $40 million, or 3.3%, during 2022, as compared to
2021. Since, as discussed above, supplies expense decreased slightly for our
acute care hospital services, on a Same Facility basis, the increase was due to
the expense incurred at the facilities and businesses acquired/opened during the
past year.

Please see Results of Operations - COVID-19, Clinical Staffing Shortage and
Effects of Inflation above for additional disclosure regarding the factors
impacting our operating costs.

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Behavioral Health Care Services

The following table sets forth certain operating statistics for our behavioral
health care services for the years ended December 31, 2022 and 2021.

                               Same Facility Basis                     All
                              2022            2021            2022            2021
Average licensed beds           23,835          23,749          24,259          24,132
Average available beds          23,735          23,647          24,159          24,030
Patient days                 6,164,887       6,091,704       6,230,124       6,162,780
Average daily census          16,890.1        16,689.6        17,068.8        16,884.3
Occupancy-licensed beds           70.9 %          70.3 %          70.4 %          70.0 %
Occupancy-available beds          71.2 %          70.6 %          70.7 %          70.3 %
Admissions                     452,772         449,670         459,245         457,006
Length of stay                    13.6            13.5            13.6            13.5

Behavioral Health Care Services-Same Facility Basis

We believe that providing our results on a "Same Facility" basis (which is a
non-GAAP measure), which includes the operating results for facilities and
businesses operated in both the current year and prior year periods, is helpful
to our investors as a measure of our operating performance. Our Same Facility
results also neutralize (if applicable) the effect of items that are
non-operational in nature including items such as, but not limited to,
gains/losses on sales of assets and businesses, impacts of settlements, legal
judgments and lawsuits, impairments of long-lived and intangible assets and
other amounts that may be reflected in the current or prior year financial
statements that relate to prior periods.

Our Same Facility basis results reflected on the table below also excludes from
net revenues and other operating expenses, provider tax assessments incurred in
each period as discussed below Sources of Revenue-Various State Medicaid
Supplemental Payment Programs. However, these provider tax assessments are
included in net revenues and other operating expenses as reflected in the table
below under All Behavioral Health Care Services. The provider tax assessments
had no impact on the income before income taxes as reflected on the tables below
since the amounts offset between net revenues and other operating expenses. To
obtain a complete understanding of our financial performance, the Same Facility
results should be examined in connection with our net income as determined in
accordance with U.S. GAAP and as presented in the condensed consolidated
financial statements and notes thereto as contained in this Annual Report on
Form 10-K.

The following table summarizes the results of operations for our behavioral
health care services, on a same facility basis, and is used in the discussions
below for the years ended December 31, 2022 and 2021 (dollar amounts in
thousands):

                                        Year Ended                     Year Ended
                                    December 31, 2022              December 31, 2021
                                                 % of Net                       % of Net
                                  Amount         Revenues        Amount         Revenues
Net revenues                    $ 5,595,179          100.0 %   $ 5,371,512          100.0 %
Operating charges:
Salaries, wages and benefits      3,075,718           55.0 %     2,863,708           53.3 %
Other operating expenses          1,071,443           19.1 %     1,036,089           19.3 %
Supplies expense                    210,136            3.8 %       202,816            3.8 %
Depreciation and amortization       180,958            3.2 %       183,843            3.4 %
Lease and rental expense             42,657            0.8 %        40,438            0.8 %
Subtotal-operating expenses       4,580,912           81.9 %     4,326,894           80.6 %
Income from operations            1,014,267           18.1 %     1,044,618           19.4 %
Interest expense, net                 3,749            0.1 %         3,312            0.1 %
Other (income) expense, net          (6,343 )         -0.1 %            96            0.0 %
Income before income taxes      $ 1,016,861           18.2 %   $ 1,041,210           19.4 %


During 2022, as compared to 2021, net revenues from our behavioral health
services, on a Same Facility basis, increased by $224 million or 4.2%. Income
before income taxes (and before income attributable to noncontrolling interests)
decreased by $24 million, or 2%, amounting to $1.02 billion or 18.2% of net
revenues during 2022 as compared to $1.04 billion or 19.4% of net revenues
during 2021.

During 2022, net revenue per adjusted admission increased by 4.0% while net
revenue per adjusted patient day increased by 3.5%, as compared to 2021. During
2022, as compared to 2021, inpatient admissions and adjusted admissions to our
behavioral health care hospitals each increased by 0.7%. Patient days and
adjusted patient days at these facilities each increased by 1.2% during 2022, as

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compared to 2021. The average length of inpatient stay at these facilities was
13.6 days during 2022 and 13.5 days during 2021. The occupancy rate, based on
the average available beds at these facilities, was 71% during each of 2022 and
2021.

On a Same Facility basis during 2022, as compared to 2021, salaries, wages and
benefits expense increased $212 million or 7.4%. The increase during 2022, as
compared to 2021, was due, in part, to a nationwide shortage of nurses and other
clinical staff and support personnel at our behavioral health care hospitals
which pressured our staffing resources and required us to pay premiums above
standard compensation for essential workers and to utilize higher­cost temporary
labor.

Other operating expenses increased $35 million, or 3.4%, during 2022, as
compared to 2021. Supplies expense increased $7 million, or 3.6%, during 2022,
as compared to 2021.

All Behavioral Health Care Services

The following table summarizes the results of operations for all our behavioral
health care services during 2022 and 2021. These amounts include: (i) our
behavioral health care results on a same facility basis, as indicated above;
(ii) the impact of provider tax assessments which increased net revenues and
other operating expenses but had no impact on income before income taxes, and;
(iii) certain other amounts, if applicable, including the results of facilities
acquired or opened during the past year as well as the results of certain
facilities that were closed or restructured during the past year. Dollar amounts
below are reflected in thousands.

                                        Year Ended                     Year Ended
                                    December 31, 2022              December 31, 2021
                                                 % of Net                       % of Net
                                  Amount         Revenues        Amount         Revenues
Net revenues                    $ 5,729,758          100.0 %   $ 5,503,644          100.0 %
Operating charges:
Salaries, wages and benefits      3,107,216           54.2 %     2,893,028           52.6 %
Other operating expenses          1,201,563           21.0 %     1,145,879           20.8 %
Supplies expense                    211,786            3.7 %       204,840            3.7 %
Depreciation and amortization       186,555            3.3 %       187,761            3.4 %
Lease and rental expense             43,868            0.8 %        41,703            0.8 %
Subtotal-operating expenses       4,750,988           82.9 %     4,473,211           81.3 %
Income from operations              978,770           17.1 %     1,030,433           18.7 %
Interest expense, net                 5,323            0.1 %         4,780            0.1 %
Other (income) expense, net          (6,843 )         -0.1 %            96            0.0 %
Income before income taxes      $   980,290           17.1 %   $ 1,025,557           18.6 %

During 2022, as compared to 2021, net revenues generated from our behavioral
health services increased by $226 million, or 4.1% due primarily to the
above-mentioned $224 million, or 4.2% increase in net revenues on a Same
Facility basis.

Income before income taxes decreased by $45 million, or 4%, to $980 million or
17.1% of net revenues during 2022, as compared to $1.03 billion or 18.6% of net
revenues during 2021. The decrease during 2022, as compared to 2021, was
attributable to: (i) the $24 million, or 2% decrease in income before income
taxes experienced at our behavioral health facilities, on a Same Facility basis,
as discussed above, and; (ii) $21 million of other combined net decreases
consisting primarily of the startup losses incurred at various facilities opened
during the past year.

During 2022, as compared to 2021, salaries, wages and benefits expense increased
$215 million or 7.4%. The increase was due primarily to the $212 million, or
7.4%, increase related to our behavioral health services, on a Same Facility
basis, as discussed above.

Other operating expenses increased $56 million, or 4.9%, during 2022, as
compared to 2021. The increase was due primarily to the $35 million, or 3.4%,
above-mentioned increase related to our behavioral health services, on a Same
Facility basis, as well as the other operating expenses incurred at various
facilities opened during the past year.

Supplies expense increased $7 million, or 3.4%, during 2022, as compared to
2021, due to the above-mentioned increase related to our behavioral health
services, on a Same Facility basis.

Please see Results of Operations - COVID-19, Clinical Staffing Shortage and
Effects of Inflation above for additional disclosure regarding the factors
impacting our operating costs.

Sources of Revenue

Overview: We receive payments for services rendered from private insurers,
including managed care plans, the federal government under the Medicare program,
state governments under their respective Medicaid programs and directly from
patients.
Hospital revenues depend upon inpatient occupancy levels, the medical and
ancillary services and therapy programs ordered by physicians and provided to
patients, the volume of outpatient procedures and the charges or negotiated
payment rates for such services. Charges and reimbursement rates for inpatient
routine services vary depending on the type of services provided (e.g.,
medical/surgical, intensive care or behavioral health) and the geographic
location of the hospital. Inpatient occupancy levels fluctuate

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for various reasons, many of which are beyond our control. The percentage of
patient service revenue attributable to outpatient services has generally
increased in recent years, primarily as a result of advances in medical
technology that allow more services to be provided on an outpatient basis, as
well as increased pressure from Medicare, Medicaid and private insurers to
reduce hospital stays and provide services, where possible, on a less expensive
outpatient basis. We believe that our experience with respect to our increased
outpatient levels mirrors the general trend occurring in the health care
industry and we are unable to predict the rate of growth and resulting impact on
our future revenues.

Patients are generally not responsible for any difference between customary
hospital charges and amounts reimbursed for such services under Medicare,
Medicaid, some private insurance plans, and managed care plans, but are
responsible for services not covered by such plans, exclusions, deductibles or
co-insurance features of their coverage. The amount of such exclusions,
deductibles and co-insurance has generally been increasing each year.
Indications from recent federal and state legislation are that this trend will
continue. Collection of amounts due from individuals is typically more difficult
than from governmental or business payers which unfavorably impacts the
collectability of our patient accounts.

As described below in the section titled 2019 Novel Coronavirus Disease Medicare
and Medicaid Payment Related Legislation, the federal government has enacted
multiple pieces of legislation to assist healthcare providers during the
COVID-19 world-wide pandemic and U.S. National Emergency declaration. We have
outlined those legislative changes related to Medicare and Medicaid payment and
their estimated impact on our financial results, where estimates are possible.

Sources of Revenues and Health Care Reform: Given increasing budget deficits,
the federal government and many states are currently considering additional ways
to limit increases in levels of Medicare and Medicaid funding, which could also
adversely affect future payments received by our hospitals. In addition, the
uncertainty and fiscal pressures placed upon the federal government as a result
of, among other things, impacts on state revenue and expenses resulting from the
COVID-19 pandemic, economic recovery stimulus packages, responses to natural
disasters, and the federal and state budget deficits in general may affect the
availability of government funds to provide additional relief in the future. We
are unable to predict the effect of future policy changes on our operations.

On March 23, 2010, President Obama signed into law the Legislation. Two primary
goals of the Legislation are to provide for increased access to coverage for
healthcare and to reduce healthcare-related expenses.

The Legislation revises reimbursement under the Medicare and Medicaid programs
to emphasize the efficient delivery of high-quality care and contains a number
of incentives and penalties under these programs to achieve these goals. The
Legislation and subsequent revisions provide for reductions to both Medicare DSH
and Medicaid DSH payments. The Medicare DSH reductions began in October, 2013
while the Medicaid DSH reductions are scheduled to begin in 2024. The
Legislation implemented a value-based purchasing program, which will reward the
delivery of efficient care. Conversely, certain facilities will receive reduced
reimbursement for failing to meet quality parameters; such hospitals will
include those with excessive readmission or hospital-acquired condition rates.

A 2012 U.S. Supreme Court ruling limited the federal government's ability to
expand health insurance coverage by holding unconstitutional sections of the
Legislation that sought to withdraw federal funding for state noncompliance with
certain Medicaid coverage requirements. Pursuant to that decision, the federal
government may not penalize states that choose not to participate in the
Medicaid expansion by reducing their existing Medicaid funding. Therefore,
states can choose to expand or not to expand their Medicaid program without
risking the loss of federal Medicaid funding. As a result, many states,
including Texas, have not expanded their Medicaid programs without the threat of
loss of federal funding. CMS has previously granted section 1115 demonstration
waivers providing for work and community engagement requirements for certain
Medicaid eligible individuals. CMS has also released guidance to states
interested in receiving their Medicaid funding through a block grant mechanism.
The Biden administration has signaled its intent to withdraw previously issued
section 1115 demonstrations aligned with these policies. However, if
implemented, the previously issued section 1115 demonstrations are anticipated
to lead to reductions in coverage, and likely increases in uncompensated care,
in states where these demonstration waivers are granted.

On December 14, 2018, a Texas Federal District Court deemed the Legislation to
be unconstitutional in its entirety. The Court concluded that the Individual
Mandate is no longer permissible under Congress's taxing power as a result of
the Tax Cut and Jobs Act of 2017 ("TCJA") reducing the individual mandate's tax
to $0 (i.e., it no longer produces revenue, which is an essential feature of a
tax), rendering the Legislation unconstitutional. The Court also held that
because the individual mandate is "essential" to the Legislation and is
inseverable from the rest of the law, the entire Legislation is
unconstitutional. That ruling was ultimately appealed to the United States
Supreme Court, which decided in California v. Texas that the plaintiffs in the
matter lacked standing to bring their constitutionality claims. The Court did
not reach the plaintiffs' merits arguments, which specifically challenged the
constitutionality of the Legislation's individual mandate and the entirety of
the Legislation itself. As a result, the Legislation will continue to be law,
and HHS and its respective agencies will continue to enforce regulations
implementing the law. However, on September 7, 2022, the Legislation faced its
most recent challenge when a Texas Federal District Court judge, in the case of
Braidwood Management v. Becerra, ruled that a requirement that certain health
plans cover services without cost sharing violates the Appointments Clause of
the U.S. Constitution and that the coverage of certain HIV prevention medication
violates the Religious Freedom Restoration Act.

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The various provisions in the Legislation that directly or indirectly affect
Medicare and Medicaid reimbursement took effect over a number of years. The
impact of the Legislation on healthcare providers will be subject to
implementing regulations, interpretive guidance and possible future legislation
or legal challenges. Certain Legislation provisions, such as that creating the
Medicare Shared Savings Program creates uncertainty in how healthcare may be
reimbursed by federal programs in the future. Thus, we cannot predict the impact
of the Legislation on our future reimbursement at this time and we can provide
no assurance that the Legislation will not have a material adverse effect on our
future results of operations.

The Legislation also contained provisions aimed at reducing fraud and abuse in
healthcare. The Legislation amends several existing laws, including the federal
Anti-Kickback Statute and the False Claims Act, making it easier for government
agencies and private plaintiffs to prevail in lawsuits brought against
healthcare providers. While Congress had previously revised the intent
requirement of the Anti-Kickback Statute to provide that a person is not
required to "have actual knowledge or specific intent to commit a violation of"
the Anti-Kickback Statute in order to be found in violation of such law, the
Legislation also provides that any claims for items or services that violate the
Anti-Kickback Statute are also considered false claims for purposes of the
federal civil False Claims Act. The Legislation provides that a healthcare
provider that retains an overpayment in excess of 60 days is subject to the
federal civil False Claims Act. The Legislation also expands the Recovery Audit
Contractor program to Medicaid. These amendments also make it easier for severe
fines and penalties to be imposed on healthcare providers that violate
applicable laws and regulations.

We have partnered with local physicians in the ownership of certain of our
facilities. These investments have been permitted under an exception to the
physician self-referral law. The Legislation permits existing physician
investments in a hospital to continue under a "grandfather" clause if the
arrangement satisfies certain requirements and restrictions, but physicians are
prohibited from increasing the aggregate percentage of their ownership in the
hospital. The Legislation also imposes certain compliance and disclosure
requirements upon existing physician-owned hospitals and restricts the ability
of physician-owned hospitals to expand the capacity of their facilities. As
discussed below, should the Legislation be repealed in its entirety, this aspect
of the Legislation would also be repealed restoring physician ownership of
hospitals and expansion right to its position and practice as it existed prior
to the Legislation.

The impact of the Legislation on each of our hospitals may vary. Because
Legislation provisions are effective at various times over the next several
years, we anticipate that many of the provisions in the Legislation may be
subject to further revision. Initiatives to repeal the Legislation, in whole or
in part, to delay elements of implementation or funding, and to offer amendments
or supplements to modify its provisions have been persistent. The ultimate
outcomes of legislative attempts to repeal or amend the Legislation and legal
challenges to the Legislation are unknown. Legislation has already been enacted
that eliminated the individual mandate penalty, effective January 1, 2019,
related to the obligation to obtain health insurance that was part of the
original Legislation. In addition, Congress previously considered legislation
that would, in material part: (i) eliminate the large employer mandate to offer
health insurance coverage to full-time employees; (ii) permit insurers to impose
a surcharge up to 30 percent on individuals who go uninsured for more than two
months and then purchase coverage; (iii) provide tax credits towards the
purchase of health insurance, with a phase-out of tax credits accordingly to
income level; (iv) expand health savings accounts; (v) impose a per capita cap
on federal funding of state Medicaid programs, or, if elected by a state,
transition federal funding to block grants, and; (vi) permit states to seek a
waiver of certain federal requirements that would allow such state to define
essential health benefits differently from federal standards and that would
allow certain commercial health plans to take health status, including
pre-existing conditions, into account in setting premiums.

In addition to legislative changes, the Legislation can be significantly
impacted by executive branch actions. President Biden is expected to undertake
executive actions that will strengthen the Legislation and may reverse the
policies of the prior administration. To date, the Biden administration has
issued executive orders implementing a special enrollment period permitting
individuals to enroll in health plans outside of the annual open enrollment
period and reexamining policies that may undermine the ACA or the Medicaid
program. The ARPA's expansion of subsidies to purchase coverage through an
exchange contributed to increased exchange enrollment in 2021. The IRA's
extension of the subsidies through 2025 is expected to increase exchange
enrollment in future years. The recent and on-going COVID-19 pandemic and
related U.S. National Emergency declaration may significantly increase the
number of uninsured patients treated at our facilities extending beyond the most
recent CBO published estimates due to increased unemployment and loss of group
health plan health insurance coverage. It is also anticipated that these
policies may create additional cost and reimbursement pressures on hospitals.

It remains unclear what portions of the Legislation may remain, or whether any
replacement or alternative programs may be created by any future legislation.
Any such future repeal or replacement may have significant impact on the
reimbursement for healthcare services generally, and may create reimbursement
for services competing with the services offered by our hospitals. Accordingly,
there can be no assurance that the adoption of any future federal or state
healthcare reform legislation will not have a negative financial impact on our
hospitals, including their ability to compete with alternative healthcare
services funded by such potential legislation, or for our hospitals to receive
payment for services.

For additional disclosure related to our revenues including a disaggregation of
our consolidated net revenues by major source for each of the periods presented
herein, please see Note 10 to the Consolidated Financial Statements-Revenue
Recognition.

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Medicare: Medicare is a federal program that provides certain hospital and
medical insurance benefits to persons aged 65 and over, some disabled persons
and persons with end-stage renal disease. All of our acute care hospitals and
many of our behavioral health centers are certified as providers of Medicare
services by the appropriate governmental authorities. Amounts received under the
Medicare program are generally significantly less than a hospital's customary
charges for services provided. Since a substantial portion of our revenues will
come from patients under the Medicare program, our ability to operate our
business successfully in the future will depend in large measure on our ability
to adapt to changes in this program.

Under the Medicare program, for inpatient services, our general acute care
hospitals receive reimbursement under the inpatient prospective payment system
("IPPS"). Under the IPPS, hospitals are paid a predetermined fixed payment
amount for each hospital discharge. The fixed payment amount is based upon each
patient's Medicare severity diagnosis related group ("MS-DRG"). Every MS-DRG is
assigned a payment rate based upon the estimated intensity of hospital resources
necessary to treat the average patient with that particular diagnosis. The
MS-DRG payment rates are based upon historical national average costs and do not
consider the actual costs incurred by a hospital in providing care. This MS-DRG
assignment also affects the predetermined capital rate paid with each MS-DRG.
The MS-DRG and capital payment rates are adjusted annually by the predetermined
geographic adjustment factor for the geographic region in which a particular
hospital is located and are weighted based upon a statistically normal
distribution of severity. While we generally will not receive payment from
Medicare for inpatient services, other than the MS-DRG payment, a hospital may
qualify for an "outlier" payment if a particular patient's treatment costs are
extraordinarily high and exceed a specified threshold. MS-DRG rates are adjusted
by an update factor each federal fiscal year, which begins on October 1. The
index used to adjust the MS-DRG rates, known as the "hospital market basket
index," gives consideration to the inflation experienced by hospitals in
purchasing goods and services. Generally, however, the percentage increases in
the MS-DRG payments have been lower than the projected increase in the cost of
goods and services purchased by hospitals.

In August, 2022, CMS published its IPPS 2023 final payment rule which provides
for a 4.1% market basket increase to the base Medicare MS-DRG blended rate. When
statutorily mandated budget neutrality factors, annual geographic wage index
updates, documenting and coding adjustments, and adjustments mandated by the
Legislation are considered, without consideration for the required Medicare DSH
payments changes and increase to the Medicare Outlier threshold, the overall
increase in IPPS payments is approximately 4.6.%. Including DSH payments, an
increase to the Medicare Outlier threshold and certain other adjustments, we
estimate our overall increase from the final IPPS 2023 rule (covering the period
of October 1, 2022 through September 30, 2023) will approximate 4.4%. This
projected impact from the IPPS 2023 final rule includes an increase of
approximately 0.5% to partially restore cuts made as a result of the American
Taxpayer Relief Act of 2012 ("ATRA"), as required by the 21st Century Cures Act,
but excludes the impact of the sequestration reductions related to the 2011 Act,
Bipartisan Budget Act of 2015, and Bipartisan Budget Act of 2018, as discussed
below.

In August, 2021, CMS published its IPPS 2022 final payment rule which provides
for a 2.7% market basket increase to the base Medicare MS-DRG blended rate. When
statutorily mandated budget neutrality factors, annual geographic wage index
updates, documenting and coding adjustments, and adjustments mandated by the
Legislation are considered, without consideration for the required Medicare DSH
payments changes and increase to the Medicare Outlier threshold, the overall
final increase in IPPS payments is approximately 2.5%. Including DSH payments
and certain other adjustments, we estimate our overall increase from the final
IPPS 2022 rule (covering the period of October 1, 2021 through September 30,
2022) will approximate 1.5%. This projected impact from the IPPS 2022 final rule
includes an increase of approximately 0.5% to partially restore cuts made as a
result of the ATRA, as required by the 21st Century Cures Act but excludes the
impact of the sequestration reductions related to the 2011 Act, Bipartisan
Budget Act of 2015, and Bipartisan Budget Act of 2018, as discussed below.

In June, 2019, the Supreme Court of the United States issued a decision
favorable to hospitals impacting prior year Medicare DSH payments (Azar v.
Allina Health Services, No. 17-1484 (U.S. Jun. 3, 2019)). In Allina, the
hospitals challenged the Medicare DSH adjustments for federal fiscal year 2012,
specifically challenging CMS's decision to include inpatient hospital days
attributable to Medicare Part C enrollee patients in the numerator and
denominator of the Medicare/SSI fraction used to calculate a hospital's DSH
payments. This ruling addresses CMS's attempts to impose the policy espoused in
its vacated 2004 rulemaking to a fiscal year in the 2004-2013 time period
without using notice-and-comment rulemaking. This decision should require CMS to
recalculate hospitals' DSH Medicare/SSI fractions, with Medicare Part C days
excluded, for at least federal fiscal year 2012, but likely federal fiscal years
2005 through 2013. In August, 2020, CMS issued a rule that proposed to
retroactively negate the effects of the aforementioned Supreme Court decision,
which rule has yet to be finalized. Although we can provide no assurance that we
will ultimately receive additional funds, we estimate that the favorable impact
of this court ruling on certain prior year hospital Medicare DSH payments could
range between $18 million to $28 million in the aggregate.

The 2011 Act included the imposition of annual spending limits for most federal
agencies and programs aimed at reducing budget deficits by $917 billion between
2012 and 2021, according to a report released by the Congressional Budget
Office. Among its other provisions, the law established a bipartisan
Congressional committee, known as the Joint Committee, which was responsible for
developing recommendations aimed at reducing future federal budget deficits by
an additional $1.5 trillion over 10 years. The Joint Committee was unable to
reach an agreement by the November 23, 2011 deadline and, as a result,
across-the-board cuts to discretionary, national defense and Medicare spending
were implemented on March 1, 2013 resulting in Medicare payment reductions of up
to 2% per fiscal year. Recent legislation suspended payment reductions through
December 31, 2021, in exchange for extended

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cuts through 2030. In December, 2021, the suspended 2% payment reduction was
extended until June 30, 2022 and partially suspended at a 1% payment reduction
for an additional three-month period that ended on June 30, 2022.

Inpatient services furnished by psychiatric hospitals under the Medicare program
are paid under a Psychiatric Prospective Payment System ("Psych PPS"). Medicare
payments to psychiatric hospitals are based on a prospective per diem rate with
adjustments to account for certain facility and patient characteristics. The
Psych PPS also contains provisions for outlier payments and an adjustment to a
psychiatric hospital's base payment if it maintains a full-service emergency
department.

In July, 2022, CMS published its Psych PPS final rule for the federal fiscal
year 2023. Under this final rule, payments to our behavioral health care
hospitals and units are estimated to increase by 3.8% compared to federal fiscal
year 2022. This amount includes the effect of the 4.1% net market basket update
which reflects the offset of a 0.3% productivity adjustment.
In July, 2021, CMS published its Psych PPS final rule for the federal fiscal
year 2022. Under this final rule, payments to our psychiatric hospitals and
units are estimated to increase by 2.2% compared to federal fiscal year 2021.
This amount includes the effect of the 2.0% net market basket update which
reflects the offset of a 0.7% productivity adjustment.

CMS's calendar year 2018 final OPPS rule, issued on November 13, 2017,
substantially reduced Medicare Part B reimbursement for 340B Program drugs paid
to hospitals. Beginning January 1, 2018, CMS reimbursement for certain
separately payable drugs or biologicals that are acquired through the 340B
Program by a hospital paid under the OPPS (and not excepted from the payment
adjustment policy) is the average sales price of the drug or biological minus
22.5 percent, an effective reduction of 26.89% in payments for 340B program
drugs. In December, 2018, the U.S. District Court for the District of Columbia
ruled that HHS did not have statutory authority to implement the 2018 Medicare
OPPS rate reduction related to hospitals that qualify for drug discounts under
the federal 340B Program and granted a permanent injunction against the payment
reduction. On July 31, 2020, the U.S. Court of Appeals for the D.C. Circuit
reversed the District Court and held that HHS's decision to lower drug
reimbursement rates for 340B hospitals rests on a reasonable interpretation of
the Medicare statute. As a result, we recognized $8 million of revenues during
2020 that were previously reserved in a prior year. These payment reductions
were challenged before the U.S. Supreme Court, which held in American Hospital
Association v. Becerra that because HHS did not conduct a survey of hospitals'
acquisition costs in 2018 and 2019, its decision to vary reimbursement rates
only for 340B hospitals in those years was unlawful. As a result of the Supreme
Court's decision, CMS finalized for calendar year 2023 a payment rate of average
sales price plus 6% for 340B Program drugs, consistent with CMS policy for drugs
not acquired through the program. CMS further implemented a 3.09% reduction to
payment rates for non-drug services to achieve budget neutrality for the 340B
Program payment rate change for calendar year 2023. CMS will address the remedy
for 340B drug payments from 2018-2022 in future rulemaking prior to the calendar
year 2024 OPPS proposed rule.

In November, 2022, CMS issued its OPPS final rule for 2023. The hospital market
basket increase is 4.1% and the productivity adjustment reduction is -0.3% for a
net market basket increase of 3.8%. The final rule provides that in light of the
Supreme Court decision in American Hospital Association v. Becerra, CMS is
applying the default rate, generally average sales price plus 6 percent, to 340B
acquired drugs and biologicals for 2023. CMS stated they will address the remedy
for 340B drug payments from 2018-2022 in future rulemaking prior to the CY 2024
OPPS/ASC proposed rule. During the 2018-2022 time period, we recorded an
aggregate of approximately $45 million to $50 million of Medicare revenues
related to the prior 340B payment policy. When other statutorily required
adjustments and hospital patient service mix are considered as well as impact of
the aforementioned 340B Program policy change, we estimate that our overall
Medicare OPPS update for 2023 will aggregate to a net increase of 0.9% which
includes a 0.3% increase to behavioral health division partial hospitalization
rates.

On November 2, 2021, CMS issued its OPPS final rule for 2022. The hospital
market basket increase is 2.7% and the productivity adjustment reduction is
-0.7% for a net market basket increase of 2.0%. When other statutorily required
adjustments and hospital patient service mix are considered, we estimate that
our overall Medicare OPPS update for 2022 will aggregate to a net increase of
2.4% which includes a 3.0% increase to behavioral health division partial
hospitalization rates.

In December, 2020, CMS published its OPPS final rule for 2021. The hospital
market basket increase is 2.4% and there is no productivity adjustment reduction
to the 2021 OPPS market basket. When other statutorily required adjustments and
hospital patient service mix are considered, we estimate that our overall
Medicare OPPS update for 2021 will aggregate to a net increase of 3.3% which
includes a 9.2% increase to behavioral health division partial hospitalization
rates.

In November, 2019, CMS finalized its Hospital Price Transparency rule that
implements certain requirements under the June 24, 2019 Presidential Executive
Order related to Improving Price and Quality Transparency in American Healthcare
to Put Patients First. Under this final rule, effective January 1, 2021, CMS
will require: (1) hospitals make public their standard changes (both gross
charges and payer-specific negotiated charges) for all items and services online
in a machine-readable format, and; (2) hospitals to make public standard charge
data for a limited set of "shoppable services" the hospital provides in a form
and manner that is more consumer friendly. On November 2, 2021, CMS released a
final rule increasing the monetary penalty that CMS can impose on hospitals that
fail to comply with the price transparency requirements. We believe that our
hospitals are in full compliance with the applicable federal regulations.

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Medicaid: Medicaid is a joint federal-state funded health care benefit program
that is administered by the states to provide benefits to qualifying
individuals. Most state Medicaid payments are made under a PPS-like system, or
under programs that negotiate payment levels with individual hospitals. Amounts
received under the Medicaid program are generally significantly less than a
hospital's customary charges for services provided. In addition to revenues
received pursuant to the Medicare program, we receive a large portion of our
revenues either directly from Medicaid programs or from managed care companies
managing Medicaid. All of our acute care hospitals and most of our behavioral
health centers are certified as providers of Medicaid services by the
appropriate governmental authorities.

We receive revenues from various state and county-based programs, including
Medicaid in all the states in which we operate. We receive annual Medicaid
revenues of approximately $100 million, or greater, from each of Texas,
California, Nevada, Illinois, Pennsylvania, Washington, D.C., Florida, Kentucky
and Massachusetts. We also receive Medicaid disproportionate share hospital
payments from certain states including, most significantly, Texas. We are
therefore particularly sensitive to potential reductions in Medicaid and other
state-based revenue programs as well as regulatory, economic, environmental and
competitive changes in those states. We can provide no assurance that reductions
to revenues earned pursuant to these programs, particularly in the
above-mentioned states, will not have a material adverse effect on our future
results of operations.

The Legislation substantially increases the federally and state-funded Medicaid
insurance program, and authorizes states to establish federally subsidized
non-Medicaid health plans for low-income residents not eligible for Medicaid
starting in 2014. However, the Supreme Court has struck down portions of the
Legislation requiring states to expand their Medicaid programs in exchange for
increased federal funding. Accordingly, many states in which we operate have not
expanded Medicaid coverage to individuals at 133% of the federal poverty level.
Facilities in states not opting to expand Medicaid coverage under the
Legislation may be additionally penalized by corresponding reductions to
Medicaid disproportionate share hospital payments beginning in fiscal year 2024,
as discussed below. We can provide no assurance that further reductions to
Medicaid revenues, particularly in the above-mentioned states, will not have a
material adverse effect on our future results of operations.

In January, 2020, CMS announced a new opportunity to support states with greater
flexibility to improve the health of their Medicaid populations. The new 1115
Waiver Block Grant Type Demonstration program, titled Healthy Adult Opportunity
("HAO"), emphasizes the concept of value-based care while granting states
extensive flexibility to administer and design their programs within a defined
budget. CMS believes this state opportunity will enhance the Medicaid program's
integrity through its focus on accountability for results and quality
improvement, making the Medicaid program stronger for states and beneficiaries.
The Biden administration has signaled its intent to withdraw the HAO
demonstration. Accordingly, we are unable to predict whether the HAO
demonstration will impact our future results of operations.

Various State Medicaid Supplemental Payment Programs:

We incur health-care related taxes ("Provider Taxes") imposed by states in the
form of a licensing fee, assessment or other mandatory payment which are related
to: (i) healthcare items or services; (ii) the provision of, or the authority to
provide, the health care items or services, or; (iii) the payment for the health
care items or services. Such Provider Taxes are subject to various federal
regulations that limit the scope and amount of the taxes that can be levied by
states in order to secure federal matching funds as part of their respective
state Medicaid programs. As outlined below, we derive a related Medicaid
reimbursement benefit from assessed Provider Taxes in the form of Medicaid
claims based payment increases and/or lump sum Medicaid supplemental payments.

Included in these Provider Tax programs are reimbursements received in
connection with the Texas Uncompensated Care/Upper Payment Limit program
("UC/UPL") and Texas Delivery System Reform Incentive Payments program
("DSRIP"). Additional disclosure related to the Texas UC/UPL and DSRIP programs
is provided below.

Texas Uncompensated Care/Upper Payment Limit Payments:

Certain of our acute care hospitals located in various counties of Texas
(Grayson, Hidalgo, Maverick, Potter and Webb) participate in Medicaid
supplemental payment Section 1115 Waiver indigent care programs. Section 1115
Waiver Uncompensated Care ("UC") payments replace the former Upper Payment Limit
("UPL") payments. These hospitals also have affiliation agreements with
third-party hospitals to provide free hospital and physician care to qualifying
indigent residents of these counties. Our hospitals receive both supplemental
payments from the Medicaid program and indigent care payments from third-party,
affiliated hospitals. The supplemental payments are contingent on the county or
hospital district making an Inter-Governmental Transfer ("IGT") to the state
Medicaid program while the indigent care payment is contingent on a transfer of
funds from the applicable affiliated hospitals. However, the county or hospital
district is prohibited from entering into an agreement to condition any IGT on
the amount of any private hospital's indigent care obligation.

On December 21, 2017, CMS approved the 1115 Waiver for the period January 1,
2018 to September 30, 2022. The Waiver continued to include UC and DSRIP payment
pools with modifications and new state specific reporting deadlines that if not
met by THHSC will result in material decreases in the size of the UC and DSRIP
pools. For UC during the initial two years of this renewal, the UC program will
remain relatively the same in size and allocation methodology. For year three of
this waiver renewal, the federal fiscal year ("FFY") 2020, and through FFY 2022,
the size and distribution of the UC pool will be determined based on charity
care costs reported to HHSC in accordance with Medicare cost report Worksheet
S-10 principles. In September 2019, CMS approved the

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annual UC pool size in the amount of $3.9 billion for demonstration years
("DYs") 9, 10 and 11 (October 1, 2019 to September 30, 2022). In June 2022, HHSC
announced that CMS approved the UC Pool size for Demonstration Years 12 through
16 (October 1, 2022 to September 30, 2027) for the current 1115 Waiver which
will be $4.51 billion per year. The UC pool will be resized again in 2027 for
DYs 17 through 19 (October 1, 2027 to September 30, 2030).

On April 16, 2021, CMS rescinded its January 15, 2021, 1115 Waiver ten year
expedited renewal approval that was effective through September 30, 2030. In
July, 2021, HHSC submitted another 1115 Waiver renewal application to CMS which
reflects the same terms and conditions agreed to by CMS on January 15, 2021, in
order to receive an extension beyond September 30, 2022. On April 22, 2022, CMS
withdrew its rescission of the 1115 Waiver and now considers the 1115 Waiver
approved as extended and governed by the special terms and conditions that CMS
approved on January 15, 2021.

Effective April 1, 2018, certain of our acute care hospitals located in Texas
began to receive Medicaid managed care rate enhancements under the Uniform
Hospital Rate Increase Program ("UHRIP"). The non-federal share component of
these UHRIP rate enhancements are financed by Provider Taxes. The Texas 1115
Waiver rules require UHRIP rate enhancements be considered in the Texas UC
payment methodology which results in a reduction to our UC payments. The UC
amounts reported in the State Medicaid Supplemental Payment Program Table below
reflect the impact of this new UHRIP program. In July 2020, THHSC announced CMS
approval of an increase to UHRIP pool for the state's 2021 fiscal year to $2.7
billion from its prior funding level of $1.6 billion.

On March 26, 2021, HHSC published a final rule that will apply to program
periods on or after September 1, 2021, and UHRIP was re-named the Comprehensive
Hospital Increase Reimbursement Program ("CHIRP"). CHIRP is comprised of a UHRIP
component and an Average Commercial Incentive Award component. CHIRP has a pool
size of $4.7 billion. On March 25, 2022, CMS approved the CHIRP program
retroactive to September 1, 2021 through August 31, 2022. The impact of the
CHIRP program is reflected in the State Medicaid Supplemental Payment Program
Table below including approximately $12 million of estimated CHIRP revenues
which were recorded during the first quarter of 2022, attributable to the period
September 1, 2021 through December 31, 2021, net of associated provider taxes.
On August 1, 2022, CMS approved the CHIRP program, with a pool of $5.2 billion,
for the rate period effective September 1, 2022 to August 31, 2023.

During, 2022, certain of our acute care hospitals located in Texas recorded an
aggregate of $33 million in Quality Incentive Fund ("QIF") payments, applicable
to the period September 1, 2020 to August 31, 2021 in connection with the
state's UHRIP program. This revenue was earned pursuant to contract terms with
various Medicaid managed care plans which requires the annual payout of QIF
funds when a managed care service delivery area's actual claims-based UHRIP
payments are less than targeted UHRIP payments for a specific rate year. We also
anticipate that these hospitals may be entitled to a comparable amount of
aggregate QIF revenue during 2023.

On January 11, 2021, HHSC announced that CMS approved the pre-print modification
that HHSC submitted for UHRIP period March 1, 2021 through August 31, 2021. CMS
approved rate changes that will now increase rates for private Institutions of
Mental Disease ("IMD") for services provided to patients under age 21 or
patients 65 years of age or older. Subsequent CMS UHRIP and CHIRP program
approvals continue to include IMD's eligible patient population. The impact of
these programs are included in the Medicaid Supplemental Payment Programs table
below.

On September 24, 2021, HHSC finalized New Fee-for-Service Supplemental Payment
Program: Hospital Augmented Reimbursement Program ("HARP") to be effective
October 1, 2021. The HARP program continues the financial transition for
providers who have historically participated in the Delivery System Reform
Incentive Payment program described below. The program will provide additional
funding to hospitals to help offset the cost hospitals incur while providing
Medicaid services. HHSC financial model released concurrent with the publication
of the final rule indicates net potential incremental Medicaid reimbursements to
us of approximately $15 million annually, without consideration of any potential
adverse impact on future Medicaid DSH or Medicaid UC payments. This program
remains subject to CMS approval.

Texas Delivery System Reform Incentive Payments:

In addition, the Texas Medicaid Section 1115 Waiver included a DSRIP pool to
incentivize hospitals and other providers to transform their service delivery
practices to improve quality, health status, patient experience, coordination,
and cost-effectiveness. DSRIP pool payments are incentive payments to hospitals
and other providers that develop programs or strategies to enhance access to
health care, increase the quality of care, the cost-effectiveness of care
provided and the health of the patients and families served. In FFY 2022, DSRIP
funding under the waiver is eliminated except for certain carryover DSRIP
projects. In connection with this DSRIP program, our results of operations
included revenues of approximately $18 million in 2022 and $34 million in 2021.

Summary of Amounts Related To The Above-Mentioned Various State Medicaid
Supplemental Payment Programs:

The following table summarizes the revenues, Provider Taxes and net benefit
related to each of the above-mentioned Medicaid supplemental programs for the
years ended December 31, 2022 and 2021. The Provider Taxes are recorded in other
operating expenses on the Condensed Consolidated Statements of Income as
included herein.

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                                   (amounts in millions)
                                    2022           2021
Texas UC/UPL:
Revenues                         $       258    $       120
Provider Taxes                          (101 )          (35 )
Net benefit                      $       157    $        85

Texas DSRIP:
Revenues                         $        27    $        49
Provider Taxes                            (9 )          (16 )
Net benefit                      $        18    $        33

Various other state programs:
Revenues                         $       499    $       472
Provider Taxes                          (177 )         (160 )
Net benefit                      $       322    $       312

Total all Provider Tax programs:
Revenues                         $       784    $       641
Provider Taxes                          (287 )         (211 )
Net benefit                      $       497    $       430


We estimate that our aggregate net benefit from the Texas and various other
state Medicaid supplemental payment programs will approximate $469 million (net
of Provider Taxes of $278 million) during the year ending December 31, 2023.
These amounts are based upon various terms and conditions that are out of our
control including, but not limited to, the states'/CMS's continued approval of
the programs and the applicable hospital district or county making IGTs
consistent with 2022 levels.

Future changes to these terms and conditions could materially reduce our net
benefit derived from the programs which could have a material adverse impact on
our future consolidated results of operations. In addition, Provider Taxes are
governed by both federal and state laws and are subject to future legislative
changes that, if reduced from current rates in several states, could have a
material adverse impact on our future consolidated results of operations. As
described below in 2019 Novel Coronavirus Disease Medicare and Medicaid Payment
Related Legislation, a 6.2% increase to the Medicaid Federal Matching Assistance
Percentage ("FMAP") is included in the Families First Coronavirus Response Act.
The impact of the enhanced FMAP Medicaid supplemental and DSH payments are
reflected in our financial results during 2022 and 2021. We are unable to
estimate the prospective financial impact of this provision at this time as our
financial impact is contingent on unknown state action during future eligible
federal fiscal quarters.

Texas and South Carolina Medicaid Disproportionate Share Hospital Payments:

Hospitals that have an unusually large number of low-income patients (i.e.,
those with a Medicaid utilization rate of at least one standard deviation above
the mean Medicaid utilization, or having a low income patient utilization rate
exceeding 25%) are eligible to receive a DSH adjustment. Congress established a
national limit on DSH adjustments. Although this legislation and the resulting
state broad-based provider taxes have affected the payments we receive under the
Medicaid program, to date the net impact has not been materially adverse.

Upon meeting certain conditions and serving a disproportionately high share of
Texas' and South Carolina's low income patients, five of our facilities located
in Texas and one facility located in South Carolina received additional
reimbursement from each state's DSH fund. The South Carolina and Texas DSH
programs were renewed for each state's 2023 DSH fiscal year (covering the period
of October 1, 2022 through September 30, 2023).

In connection with these DSH programs, included in our financial results was an
aggregate of approximately $54 million during 2022 and $51 million during 2021.
We expect the aggregate reimbursements to our hospitals pursuant to the Texas
and South Carolina 2023 fiscal year programs to be approximately $49 million.

The Legislation and subsequent federal legislation provides for a significant
reduction in Medicaid disproportionate share payments beginning in federal
fiscal year 2024 (see above in Sources of Revenues and Health Care
Reform-Medicaid for additional disclosure related to the delay of these DSH
reductions). HHS is to determine the amount of Medicaid DSH payment cuts imposed
on each state based on a defined methodology. As Medicaid DSH payments to states
will be cut, consequently, payments to Medicaid-participating providers,
including our hospitals in Texas and South Carolina, will be reduced in the
coming years. Based on the CMS final rule published in September, 2019,
beginning in fiscal year 2024 (as amended by the CARES Act and the CAA), annual
Medicaid DSH payments in South Carolina and Texas could be reduced by
approximately 65% and 41%, respectively, from 2022 DSH payment levels.

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Our behavioral health care facilities in Texas have been receiving Medicaid DSH
payments since FFY 2016. As with all Medicaid DSH payments, hospitals are
subject to state audits that typically occur up to three years after their
receipt. DSH payments are subject to a federal Hospital Specific Limit ("HSL")
and are not fully known until the DSH audit results are concluded. In general,
freestanding psychiatric hospitals tend to provide significantly less charity
care than acute care hospitals and therefore are at more risk for retroactive
recoupment of prior year DSH payments in excess of their respective HSL. In
light of the retroactive HSL audit risk for freestanding psychiatric hospitals,
we have established DSH reserves for our facilities that have been receiving
funds since FFY 2016. These DSH reserves are also impacted by the resolution of
federal DSH litigation related to Children's Hospital Association of Texas v.
Azar ("CHAT") where the calculation of HSL was being challenged. In August,
2019, DC Circuit Court of Appeals issued a unanimous decision in CHAT and
reversed the judgment of the district court in favor of CMS and ordered that
CMS's "2017 Rule" (regarding Medicaid DSH Payments-Treatment of Third Party
Payers in Calculating Uncompensated Care Costs) be reinstated. CMS has not
issued any additional guidance post the ruling. In April 2020, the plaintiffs in
the case have petitioned the Supreme Court of the United States to hear their
case. Additionally, there have been separate legal challenges on this same issue
in the Fifth and Eight Circuits. On November 4, 2019, in Missouri Hosp. Ass'n v.
Azar, the United States Court of Appeals for the Eighth Circuit issued an
opinion upholding the 2017 Rule. On April 20, 2020, in Baptist Memorial Hospital
v. Azar, the United States Court of Appeals of the Fifth Circuit issued a
decision also upholding the 2017 Rule. In light of these court decisions, we
continue to maintain reserves in the financial statements for cumulative
Medicaid DSH and UC reimbursements related to our behavioral health hospitals
located in Texas that amounted to $42 million as of December 31, 2022 and $40
million as of December 31, 2021.

Nevada - SPA and SDP:

State Plan Amendment ("SPA")

CMS initially approved an SPA in Nevada in August, 2014 and this SPA has been
approved for additional state fiscal years, including the 2022 fiscal year
covering the period of July 1, 2021 through June 30, 2022. CMS's approval for
the 2023 fiscal year, which is still pending, is expected to occur.

In connection with this program, included in our financial results was
approximately $21 million during 2022 and approximately $23 million during 2021.
We estimate that our reimbursements pursuant to this program will approximate
$19 million during the year ended December 31, 2023.

State Directed Payment Program ("SDP")

On February 7, 2023, the Division of Health Care Financing and Policy ("DHCFP")
held a public workshop that outlined a new provider fee on private hospitals
located in Nevada that would effectively capture new Medicaid federal share for
certain categories of services eligible for the new payment programs. Final
approval of each of these Medicaid supplemental payment programs is subject to
various state and federal actions. If ultimately approved, DHCFP intends to have
both components implemented retroactively to January 1, 2023.

DHCFP indicated the new Medicaid supplemental payments will include two
components as follows:

•

Medicaid fee for service upper payment limit component.

o
We anticipate state and federal approval of the fee for service upper payment
limit component to occur during 2023. If approved, we estimate that our
aggregate net reimbursements pursuant to this program (net of related provider
taxes) will approximate $25 million during the year ended December 31, 2023.

•

Medicaid managed care component.

o
We cannot predict whether or not the managed care component will ultimately
receive state and federal approval. If approved, we cannot predict the timing
and aggregate net reimbursements that we may receive in connection with this
program.

California SPA:

In California, CMS issued formal approval of the 2017-19 Hospital Fee Program in
December, 2017 retroactive to January 1, 2017 through September 30, 2019. In
September, 2019, the state submitted a request to renew the Hospital Fee Program
for the period July 1, 2019 to December 31, 2021. On February 25, 2020, CMS
approved this renewed program. These approvals include the Medicaid inpatient
and outpatient fee-for-service supplemental payments and the overall provider
tax structure but did not yet include the approval of the managed care rate
setting payment component for certain rate periods (see table below). The
managed care payment component consists of two categories of payments,
"pass-through" payments and "directed" payments. The pass-through payments are
similar in nature to the prior Hospital Fee Program payment method whereas the
directed payment method will be based on actual concurrent hospital Medicaid
managed care in-network patient volume.

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California Hospital Fee Program CMS Approval Status:

Hospital Fee Program CMS Methodology Approval CMS Rate Setting Approval

        Component                  Status                      Status

Fee For Service Payment Approved through Approved through December 31,

                          December 31, 2022        2022; Paid through June 

30,

                                                   2022
Managed Care-Pass-Through Approved through         Approved through June 30,
Payment                   December 31, 2022        2019; Paid in advance of
                                                   approval through December 31,
                                                   2021
Managed Care-Directed     Approved through         Approved through June 30,
Payment                   December 31, 2022        2019; Paid in advance of
                                                   approval through December 30,
                                                   2020


In connection with the existing program, included in our financial results was
approximately $50 million during 2022 and $46 million during 2021. We estimate
that our reimbursements pursuant to this program will approximate $51 million
during the year ended December 31, 2023. The aggregate impact of the California
supplemental payment program, as outlined above, is included in the above State
Medicaid Supplemental Payment Program table.

Kentucky Hospital Rate Increase Program ("HRIP"):

In early 2021, CMS approved the Kentucky Medicaid Managed Care Hospital Rate
Increase Program ("HRIP") for SFY 2021, which covered the period of July 1, 2020
through June 30, 2021. In December 2021, CMS approved the HRIP program period
for the period July 1, 2021 to December 31, 2021. Included in our financial
results was approximately $69 million during 2022 and approximately $97 million
during 2021 (covering the eighteen month period of July 1, 2020 through December
31, 2021), respectively.

Programs such as HRIP require an annual state submission and approval by CMS. In
December, 2021, CMS approved the program for the period of January 1, 2022
through December 31, 2022 at rates similar to the prior year. We estimate that
our reimbursements pursuant to HRIP will approximate $60 million during the year
ended December 31, 2023.

Florida Medicaid Managed Care Directed Payment Program ("DPP"):

The Florida Medicaid Managed Care Directed Payment Program ("DPP") provides for
an additional payment for Medicaid managed care contracted services. The DPP
program requires various related legislative and regulatory approvals each year.
In connection with this program, included in our financial results was
approximately $36 million during 2022 and $23 million during 2021 (recorded
during fourth quarters of each year). We estimate that our reimbursements
pursuant to this DPP will approximate $34 million during the year ended December
31, 2023.

Oklahoma Transition to Managed Care and Implementation of a Medicaid Managed
Care DPP

In May, 2022, Oklahoma enacted legislation (SB 1337 and SB 1396) that directs
the Oklahoma Health Care Authority ("OHCA") to: (i) transition its Medicaid
program from a fee for service payment model to a managed care payment model by
no later than October 1, 2023, and: (ii) concurrently implement a Medicaid
managed care DPP using a managed care gap of ninety percent (90%) average
commercial rates. In December, 2022, the OHCA delayed the implementation date of
the Medicaid managed care change and related DPP until April 1, 2024. Although
we estimate that the DPP as enacted may have a favorable impact on our future
results of operations, we are unable to quantify the ultimate impact since
implementation of this legislation is subject to various administrative and
regulatory steps including the awarding of managed care contracts as well as
CMS's approval of the DPP.

Illinois Medicaid Supplemental Payment Programs

The Illinois Medicaid Supplemental Payment Programs are comprised of three
components (1) Medicaid managed care directed payment program (2) Medicaid
managed care pass-through program and (3) Medicaid fee for service supplemental
payment program. The results of this program are included in the above State
Medicaid Supplemental Payment Program table. These programs require various
related legislative and regulatory approvals each year. In connection with this
program, included in our financial results was approximately $49 million during
2022 and $30 million during 2021. Included in the 2022 amount was a
non-recurring Medicaid managed care claims processing catchup payment amounting
to approximately $10 million. We estimate that our reimbursements pursuant to
these supplemental payment programs will approximate $39 million during the year
ended December 31, 2023.

Risk Factors Related To State Supplemental Medicaid Payments:

As outlined above, we receive substantial reimbursement from multiple states in
connection with various supplemental Medicaid payment programs. The states
include, but are not limited to, Texas, Kentucky, California, Illinois, Indiana
and Nevada. Failure to renew these programs beyond their scheduled termination
dates, failure of the public hospitals to provide the necessary IGTs for the
states' share of the DSH programs, failure of our hospitals that currently
receive supplemental Medicaid revenues to

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qualify for future funds under these programs, or reductions in reimbursements,
could have a material adverse effect on our future results of operations.

In April, 2016, CMS published its final Medicaid Managed Care Rule which
explicitly permits but phases out the use of pass-through payments (including
supplemental payments) by Medicaid Managed Care Organizations ("MCO") to
hospitals over ten years but allows for a transition of the pass-through
payments into value-based payment structures, delivery system reform initiatives
or payments tied to services under a MCO contract. Since we are unable to
determine the financial impact of this aspect of the final rule, we can provide
no assurance that the final rule will not have a material adverse effect on our
future results of operations. In November, 2020, CMS issued a final rule
permitting pass-through supplemental provider payments during a time-limited
period when states transition populations or services from fee-for-service
Medicaid to managed care.

HITECH Act: In July 2010, HHS published final regulations implementing the
health information technology ("HIT") provisions of the American Recovery and
Reinvestment Act (referred to as the "HITECH Act"). The final regulation defines
the "meaningful use" of Electronic Health Records ("EHR") and establishes the
requirements for the Medicare and Medicaid EHR payment incentive programs. The
final rule established an initial set of standards and certification criteria.
The implementation period for these Medicare and Medicaid incentive payments
started in federal fiscal year 2011 and can end as late as 2016 for Medicare and
2021 for the state Medicaid programs. State Medicaid program participation in
this federally funded incentive program is voluntary but all of the states in
which our eligible hospitals operate have chosen to participate. Our acute care
hospitals qualified for these EHR incentive payments upon implementation of the
EHR application assuming they meet the "meaningful use" criteria. The
government's ultimate goal is to promote more effective (quality) and efficient
healthcare delivery through the use of technology to reduce the total cost of
healthcare for all Americans and utilizing the cost savings to expand access to
the healthcare system.

All of our acute care hospitals have met the applicable meaningful use criteria.
However, under the HITECH Act, hospitals must continue to meet the applicable
meaningful use criteria in each fiscal year or they will be subject to a market
basket update reduction in a subsequent fiscal year. Failure of our acute care
hospitals to continue to meet the applicable meaningful use criteria would have
an adverse effect on our future net revenues and results of operations.

In the 2019 IPPS final rule, CMS overhauled the Medicare and Medicaid EHR
Incentive Program to focus on interoperability, improve flexibility, relieve
burden and place emphasis on measures that require the electronic exchange of
health information between providers and patients. We can provide no assurance
that the changes will not have a material adverse effect on our future results
of operations.

Managed Care: A significant portion of our net patient revenues are generated
from managed care companies, which include health maintenance organizations,
preferred provider organizations and managed Medicare (referred to as Medicare
Part C or Medicare Advantage) and Medicaid programs. In general, we expect the
percentage of our business from managed care programs to continue to grow. The
consequent growth in managed care networks and the resulting impact of these
networks on the operating results of our facilities vary among the markets in
which we operate. Typically, we receive lower payments per patient from managed
care payers than we do from traditional indemnity insurers, however, during the
past few years we have secured price increases from many of our commercial
payers including managed care companies.

Commercial Insurance: Our hospitals also provide services to individuals covered
by private health care insurance. Private insurance carriers typically make
direct payments to hospitals or, in some cases, reimburse their policy holders,
based upon the particular hospital's established charges and the particular
coverage provided in the insurance policy. Private insurance reimbursement
varies among payers and states and is generally based on contracts negotiated
between the hospital and the payer.

Commercial insurers are continuing efforts to limit the payments for hospital
services by adopting discounted payment mechanisms, including predetermined
payment or DRG-based payment systems, for more inpatient and outpatient
services. To the extent that such efforts are successful and reduce the
insurers' reimbursement to hospitals and the costs of providing services to
their beneficiaries, such reduced levels of reimbursement may have a negative
impact on the operating results of our hospitals.

Surprise Billing Interim Final Rule: On September 30, 2021, the Department of
Labor, and the Department of the Treasury, along with the Office of Personnel
Management ("OPM"), released an interim final rule with comment period, entitled
"Requirements Related to Surprise Billing; Part II." This rule is related to
Title I (the "No Surprises Act") of Division BB of the Consolidated
Appropriations Act, 2021, and establishes new protections from surprise billing
and excessive cost sharing for consumers receiving health care items/services.
It implements additional protections against surprise medical bills under the No
Surprises Act, including provisions related to the independent dispute
resolution process, good faith estimates for uninsured (or self-pay)
individuals, the patient-provider dispute resolution process, and expanded
rights to external review. On February 28, 2022, a district judge in the Eastern
District of Texas invalidated portions of the rule governing aspects of the
Independent Dispute Resolution ("IDR") process. In light of this decision, the
government issued a final rule on August 19, 2022 eliminating the rebuttable
presumption in favor of the qualifying payment amount ("QPA") by the IDR entity
and providing additional factors the IDR entity should consider when choosing
between two competing offers. On September 22, 2022, the Texas Medical
Association filed a lawsuit challenging the IDR process provided in the updated
final rule and alleging that the final rule unlawfully elevates the QPA above
other factors the IDR entity must consider. The American Hospital Association
and American Medical Association have announced their intent to join this case
as

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amici supporting the Texas Medical Association. On February 10, 2023, CMS
instructed certified IDR entities to hold all payment determinations until
further guidance is issued by the departments of Health & Human Services, Labor,
and Treasury. This decision stems from the February 6, 2023, court decision that
vacated the federal government's revised IDR process for determining payment for
out-of-network services under the No Surprises Act. Certified IDR entities have
also been instructed to recall any payment determinations issued after February
6, 2023. We do not expect the interim final rule or the August 19, 2022, final
rule to have a material impact on our results of operations.

Other Sources: Our hospitals provide services to individuals that do not have
any form of health care coverage. Such patients are evaluated, at the time of
service or shortly thereafter, for their ability to pay based upon federal and
state poverty guidelines, qualifications for Medicaid or other state assistance
programs, as well as our local hospitals' indigent and charity care policy.
Patients without health care coverage who do not qualify for Medicaid or
indigent care write-offs are offered substantial discounts in an effort to
settle their outstanding account balances.

Health Care Reform: Many Medicare, Medicaid and other health care industry
changes were implemented as a result of the Legislation. Some of these key
changes are outlined below.

Medicaid Federal DSH Allotment:

Although the implementation has been delayed several times, the Legislation (as
amended by subsequent federal legislation) requires annual aggregate reductions
in federal Medicaid DSH allotment from FFY 2024 through FFY 2027. Commencing in
federal fiscal year 2024, and continuing through 2027, DSH payments are
scheduled to be reduced by $8 billion annually.

Value-Based Purchasing:

There is a trend in the healthcare industry toward value-based purchasing of
healthcare services. These value-based purchasing programs include both public
reporting of quality data and preventable adverse events tied to the quality and
efficiency of care provided by facilities. Governmental programs including
Medicare and Medicaid currently require hospitals to report certain quality data
to receive full reimbursement updates. In addition, Medicare does not reimburse
for care related to certain preventable adverse events. Many large commercial
payers currently require hospitals to report quality data, and several
commercial payers do not reimburse hospitals for certain preventable adverse
events.

The Legislation required HHS to implement a value-based purchasing program for
inpatient hospital services which became effective on October 1, 2012. The
Legislation requires HHS to reduce inpatient hospital payments for all
discharges by 2% in FFY 2017 and subsequent years. HHS will pool the amount
collected from these reductions to fund payments to reward hospitals that meet
or exceed certain quality performance standards established by HHS. HHS will
determine the amount each hospital that meets or exceeds the quality performance
standards will receive from the pool of dollars created by these payment
reductions. As part of the FFY 2022 IPPS final rule and FFY 2023 final rule, as
discussed above, and as a result of the on-going COVID-19 pandemic, CMS has
implemented a budget neutral payment policy to fully offset the 2% VBP withhold
during each of FFY 2022 and FFY 2023.

Hospital Acquired Conditions:

The Legislation prohibits the use of federal funds under the Medicaid program to
reimburse providers for medical assistance provided to treat hospital acquired
conditions ("HAC"). Beginning in FFY 2015, hospitals that fall into the top 25%
of national risk-adjusted HAC rates for all hospitals in the previous year will
receive a 1% reduction in their total Medicare payments. As part of the FFY 2023
final rule discussed above, and as a result of the on-going COVID-19 pandemic,
CMS will suppress all six measures in the HAC Reduction Program for the FY 2023
program year and eliminate the HAC reduction program's one percent payment
penalty.

Readmission Reduction Program:

In the Legislation, Congress also mandated implementation of the hospital
readmission reduction program ("HRRP"). Hospitals with excessive readmissions
for conditions designated by HHS will receive reduced payments for all inpatient
discharges, not just discharges relating to the conditions subject to the
excessive readmission standard. The HRRP currently assesses penalties on
hospitals having excess readmission rates for heart failure, myocardial
infarction, pneumonia, acute exacerbation of chronic obstructive pulmonary
disease (COPD) and elective total hip arthroplasty (THA) and/or total knee
arthroplasty (TKA), excluding planned readmissions, when compared to expected
rates. In the fiscal year 2015 IPPS final rule, CMS added readmissions for
coronary artery bypass graft (CABG) surgical procedures beginning in fiscal year
2017. To account for excess readmissions, an applicable hospital's base
operating DRG payment amount is adjusted for each discharge occurring during the
fiscal year. Readmissions payment adjustment factors can be no more than a 3
percent reduction. As part of the FFY 2023 IPPS final rule discussed above, CMS
will modify all of the condition-specific readmission measures to include an
adjustment for patient history of COVID-19 for FFY 2024.

Accountable Care Organizations:

The Legislation requires HHS to establish a Medicare Shared Savings Program that
promotes accountability and coordination of care through the creation of
accountable care organizations ("ACOs"). The ACO program allows providers
(including hospitals), physicians and other designated professionals and
suppliers to voluntarily work together to invest in infrastructure and redesign
delivery processes to achieve high quality and efficient delivery of services.
The program is intended to produce savings as a result of

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improved quality and operational efficiency. ACOs that achieve quality
performance standards established by HHS will be eligible to share in a portion
of the amounts saved by the Medicare program. CMS is also developing and
implementing more advanced ACO payment models that require ACOs to assume
greater risk for attributed beneficiaries. On December 21, 2018, CMS published a
final rule that, in general, requires ACO participants to take on additional
risk associated with participation in the program. On April 30, 2020, CMS issued
an interim final rule with comment in response to the COVID-19 national
emergency permitting ACOs with current agreement periods expiring on December
31, 2020 the option to extend their existing agreement period by one year, and
permitting certain ACOs to retain their participation level through 2021. It
remains unclear to what extent providers will pursue federal ACO status or
whether the required investment would be warranted by increased payment.

2019 Novel Coronavirus Disease Medicare and Medicaid Payment Related Legislation

In response to the growing threat of COVID-19, on March 13, 2020 a national
emergency was declared. The declaration empowered the HHS Secretary to waive
certain Medicare, Medicaid and Children's Health Insurance Program ("CHIP")
program requirements and Medicare conditions of participation under Section 1135
of the Social Security Act. Having been granted this authority by HHS, CMS
issued a broad range of blanket waivers, which eased certain requirements for
impacted providers, including:

•

Waivers and Flexibilities for Hospitals and other Healthcare Facilities
including those for physical environment requirements and certain Emergency
Medical Treatment & Labor Act provisions

•

Provider Enrollment Flexibilities

•

Flexibility and Relief for State Medicaid Programs including those under section
1135 Waivers

•

Suspension of Certain Enforcement Activities

In addition to the national emergency declaration, Congress passed and
Presidents Trump and Biden have signed various forms of legislation intended to
support state and local authority responses to COVID-19 as well as provide
fiscal support to businesses, individuals, financial markets, hospitals and
other healthcare providers.

Some of the financial support included in the various legislative actions
include:

•
Medicaid FMAP Enhancement

•

The FMAP was increased by 6.2% retroactive to the federal fiscal quarter
beginning January 1, 2020 and each subsequent federal fiscal quarter for all
states and U.S. territories during the declared public health emergency through
December 31, 2022, in accordance with specified conditions. The Consolidated
Appropriations Act of 2023 ("CAA of 2023"), signed into law on December 29,
2022, provides for the transitional reduction of the 6.2% enhanced FMAP during
2023 to 5.0% during the second quarter, 2.5% during the third quarter and 1.5%
during the fourth quarter of 2023.

•

Effective April 1, 2023, the CAA of 2023 allows states to initiate Medicaid
renewals, post-enrollment verifications, and redeterminations over a 12-month
period for all individuals who are enrolled in such plan (or waiver) as of April
1, 2023. This activity was previously prohibited as a condition for the receipt
of the enhanced FMAP during the PHE. This Medicaid enrollment related activity
is likely to reduce Medicaid beneficiary enrollment as states initiate this
activity but the level of Medicaid disenrollment cannot be predicted.

•

Public Health Emergency Declaration

•

The HHS Secretary renewed the PHE effective January 11, 2023, for 90 days. As a
result, certain Medicare payment provisions contingent on the PHE are extended
including the twenty percent (20%) Medicare add-on for inpatient hospital
COVID-19 patients noted below. However, HHS has published guidance indicating
its intent for the PHE to expire on May 11, 2023. We cannot predict whether the
loss of any such favorable payment provisions available to providers during the
declared PHE will ultimately have a negative financial impact on us.

•

Creation of a $250 billion Public Health and Social Services Emergency Fund
("PHSSEF")

•

Makes grants available to hospitals and other healthcare providers to cover
unreimbursed healthcare related expenses or lost revenues attributable to the
public health emergency resulting from the coronavirus.

•

During 2021, we received approximately $189 million in PHSSEF grants from the
federal government as provided for by the CARES Act. As previously disclosed, we
returned these funds to HHS during the second quarter of 2021. Since our intent
was to return these funds, our financial results for the year ended December 31,
2021 include no impact from the receipt of these federal funds. Reimbursements
recorded pursuant the PHSSEF and other various state and local governmental
stimulus programs did not have a significant impact on our financial results
during the nine-month period ended September 30, 2022. Our results of operations
for the nine-month period ended September 30, 2021 included approximately $13
million of reimbursements recorded in connection with these programs.

•

During the year ended December 31, 2020, we received approximately $417 million
of funds from various governmental stimulus programs, most notably the PHSSEF as
provided for by the CARES Act. As mentioned above,

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included financial results for the year ended December 31, 2020 was
approximately $413 million of revenues recognized in connection with funds
received from these federal, state and local governmental stimulus programs.

•

All PHSSEF receipts are subject to meeting the applicable terms and conditions
of the various distribution programs as of September 30, 2021. The Consolidated
Appropriations Act, 2021 (H.R. 133) enacted on December 27, 2020 includes
language that provides specific instructions on: (1) the redistribution of
PHSSEF grant payments by a parent company among its subsidiaries, and; (2) the
calculation of lost revenue in a PHSSEF grant entitlement determination. The HHS
terms and conditions for all grant recipients and specific fund distributions
are located at
https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/for-providers/index.html

•

Reimburse hospitals at Medicare rates for uncompensated COVID-19 care for the
uninsured

•

Our financial results for the years ended December 31, 2022 and 2021 included
approximately $22 million and $71 million, respectively, of revenues recorded in
connection with this COVID-19 uninsured program. Revenue for the eligible
patient encounters is recorded in the period in which the encounter is deemed
eligible for this program net of any normal accounting reserves.

•

Effective March 22, 2022, HHS announced that the HRSA COVID-19 Uninsured Program
and Coverage Assistance Fund is no longer accepting claims due to insufficient
funding.

•

Medicare Sequestration Relief

•

Suspension of the 2% Medicare sequestration offset for Medicare services
provided from May 1, 2020 through December 31, 2021 by various legislative
extensions. In December, 2021, the suspended 2% payment reduction was extended
until March 31, 2022 and partially suspended at a 1% payment reduction for an
additional three-month period that ended on June 30, 2022.

•

Our financial results for the years ended December 31, 2022 and 2021 included
approximately $17 million and $45 million, respectively, of revenues recorded in
connection with this Medicare sequestration relief program.

•

Medicare add-on for inpatient hospital COVID-19 patients

•

Increases the payment that would otherwise be made to a hospital for treating a
Medicare patient admitted with COVID-19 by twenty percent (20%) for the duration
of the COVID-19 public health emergency.

•

Our financial results for the years ended December 31, 2022 and 2021 included
approximately $30 million and $34 million, respectively, of revenues recorded in
connection with this COVID-19 Medicare add-on program. These payments were
intended to offset the increased expenses associated with the treatment of
Medicare COVID-19 patients.

•

Expansion of the Medicare Accelerated and Advance Payment Program ("MAAPP")

•

In March, 2021, we fully repaid the $695 million of Medicare Accelerated
payments received during 2020.

In addition to statutory and regulatory changes to the Medicare program and each
of the state Medicaid programs, our operations and reimbursement may be affected
by administrative rulings, new or novel interpretations and determinations of
existing laws and regulations, post-payment audits, requirements for utilization
review and new governmental funding restrictions, all of which may materially
increase or decrease program payments as well as affect the cost of providing
services and the timing of payments to our facilities. The final determination
of amounts we receive under the Medicare and Medicaid programs often takes many
years, because of audits by the program representatives, providers' rights of
appeal and the application of numerous technical reimbursement provisions. We
believe that we have made adequate provisions for such potential adjustments.
Nevertheless, until final adjustments are made, certain issues remain unresolved
and previously determined allowances could become either inadequate or more than
ultimately required.

Finally, we expect continued third-party efforts to aggressively manage
reimbursement levels and cost controls. Reductions in reimbursement amounts
received from third-party payers could have a material adverse effect on our
financial position and our results.

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Other Operating Results

Interest Expense

Reflected below are the components of our interest expense which amounted to
$127 million during 2022 and $84 million during 2021 (amounts in thousands):

                                                            2022            

2021

Revolving credit & demand notes (a.)                    $      9,791     $  

2,318

Tranche A term loan facility (a.)                             68,782        

26,408

Tranche B term loan facility (a.)                                  -        

5,941

$400 million, 5.00% Senior Notes due 2026 (b.)                     -        

14,000

$800 million, 2.65% Senior Notes due 2030 (c.)                21,426        

21,470

$700 million, 1.65% Senior Notes due 2026 (d.)                11,725        

4,137

$500 million, 2.65% Senior Notes due 2032 (e.)                13,380        

4,720

Accounts receivable securitization program (f.)                   39        

787

Subtotal - revolving credit, demand notes, Senior
Notes, term
  loan facilities and accounts receivable
securitization
  program                                                    125,143        

79,781

Amortization of financing fees                                 4,903        

4,310

Other combined interest expense                                5,844        

5,588

Capitalized interest on major projects                        (8,623 )         (4,411 )
Interest income                                                 (378 )         (1,596 )
Interest expense, net                                   $    126,889     $     83,672


(a.)
In June, 2022 we entered into the ninth amendment to our credit agreement dated
November 15, 2010, as amended (the "Credit Agreement"), which, among other
things, added a new incremental tranche A term loan facility in the aggregate
principal amount of $700 million. In September, 2021, we entered into an eighth
amendment which modified the definition of "Adjusted LIBO Rate". In August,
2021, we entered into a seventh amendment to our Credit Agreement which provided
for the amendment and restatement of the previously existing credit facility
including, among other things, the following: (i) a $1.2 billion aggregate
amount revolving credit facility that is scheduled to mature in August, 2026
($310.4 million of borrowings outstanding as of December 31, 2022); (ii) a
tranche A term loan facility with $2.34 billion of outstanding borrowings as of
December 31, 2022 (including the $700 million increase provided for by the ninth
amendment in June, 2022), and; (iii) repayment of a portion of the previously
outstanding tranche A term loan facility borrowings ($150 million) and all of
the tranche B term loan facility borrowings ($488 million). Repayment of the
$638 million of previously outstanding borrowings under the tranche A and
tranche B term loan facilities were funded utilizing a portion of the proceeds
generated from the August, 2021, issuance of the $700 million, 1.65% Senior
Notes due in 2026, and the $500 million, 2.65%, Senior Notes due in 2032.

(b.)

In September, 2021 we redeemed the entire $400 million aggregate principal
amount of our previously outstanding 5.00% Senior Secured Notes that were
scheduled to mature in 2026 at a cash redemption price equal to the sum of
102.50% of the aggregate principal amount. This redemption was funded utilizing
a portion of the proceeds generated from the August, 2021 issuance of the $700
million, 1.65% Senior Notes due in 2026, and the $500 million, 2.65% Senior
Notes due in 2032, as discussed in (d.) and (e.) below.

(c.)

In September, 2020, we completed the offering of $800 million aggregate
principal amount of 2.65% Senior Notes due in 2030.

(d.)

In August, 2021, we completed the offering of $700 million aggregate principal
amount of 1.65% Senior Notes due in 2026.

(e.)

In August, 2021, we completed the offering of $500 million aggregate principal
amount of 2.65% Senior Notes due in 2032.

(f.)

The accounts receivable securitization program was amended in April, 2021, to
reduce the borrowing commitment to $20 million (from $450 million previously).
As of the maturity date on December 20, 2022, the Securitization expired and was
not renewed or replaced.

Interest expense increased by $43 million during 2022 to $127 million as
compared to $84 million during 2021. The increase was primarily due to: (i) a
net $45 million increase in aggregate interest expense on our revolving credit,
demand notes, senior notes, term loan facilities and accounts receivable
securitization program, resulting from an increase in our aggregate average cost
of borrowings pursuant to these facilities (2.8% during 2022 as compared to 2.1%
during 2021), as well as an increase in the aggregate average outstanding
borrowings ($4.40 billion during 2022 as compared to $3.72 billion during 2021),
partially offset by; (ii) a net $2 million decrease in other combined interest
expenses, including a $4 million increase in capitalized interest on major
projects.

The average effective interest rate, including amortization of deferred
financing costs, original issue discount and designated interest rate swap
expense/income, on borrowings outstanding under our revolving credit, demand
notes, senior notes, term loan A and

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B facilities and accounts receivable securitization program, which amounted to
approximately $4.40 billion during 2022 and $3.72 billion during 2021, were 2.9%
during 2022 and 2.2% during 2021.

Costs Related to Early Extinguishment of Debt

In connection with financing transactions completed during 2021, our 2021
results of operations included pre-tax charges of approximately $17 million,
incurred for the costs related to the extinguishment of debt. These charges,
which were included in other (income) expense, net, consisted of the write-off
of deferred charges (approximately $7 million) as well as the make-whole premium
paid on the early redemption of the $400 million, 5% senior notes (approximately
$10 million).

Provision for Asset Impairments

Our financial statements for the year ended December 31, 2022, include a pre-tax
provision for asset impairment of approximately $58 million, which is included
in other operating expenses on the accompanying consolidated statements of
income, to write-down the asset value of Desert Springs Hospital Medical Center,
a 282-bed acute care hospital located in Las Vegas, Nevada. In early 2023, as a
result of various competitive pressures and operational challenges experienced
in the market, which had a significant unfavorable impact on the hospital's
results of operations during the past year, as well as physical plant
constraints and limitations resulting from the advanced age of the facility
(which opened in 1971), we announced plans to discontinue all inpatient
operations by March of 2023. During the next two years, we plan to continue
providing emergency department services within a portion of the existing
facility while we construct a new free-standing emergency department on the
hospital's campus. The provision for asset impairment reduced the asset values
of the facility's real estate and equipment to their estimated fair values.

During 2021, in connection with the discontinuation of a certain module of a new
clinical/financial information technology application under development, our
financial results included a pre-tax provision for asset impairment of
approximately $14 million to write-off the applicable portion of the capitalized
costs incurred and is included in other operating expenses on the accompanying
consolidated statement of income.

Provision for Income Taxes and Effective Tax Rates

The effective tax rates, as calculated by dividing the provision for income
taxes by income before income taxes, were as follows for each of the years ended
December 31, 2022 and 2021 (dollar amounts in thousands):

                               2022           2021
Provision for income taxes   $ 209,278     $   305,681
Income before income taxes     866,260       1,293,313
Effective tax rate                24.2 %          23.6 %


The provision for income taxes decreased $96 million during 2022, as compared to
2021, due primarily to the income tax benefit recorded in connection with the
$412 million decrease in pre-tax income ($427 million decrease in income before
income taxes partially offset by a $15 million increase in net loss attributable
to noncontrolling interests).

Effects of Inflation and Seasonality

Seasonality -Our acute care services business is typically seasonal, with higher
patient volumes and net patient service revenue in the first and fourth quarters
of the year. This seasonality occurs because, generally, more people become ill
during the winter months, which results in significant increases in the number
of patients treated in our hospitals during those months.

Inflation - See disclosure above in Results of Operations-COVID-19, Clinical
Staffing Shortage and Effects of Inflation.

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Liquidity

Year ended December 31, 2022 as compared to December 31, 2021:

Net cash provided by operating activities

Net cash provided by operating activities was $996 million during 2022 as
compared to $884 million during 2021. The net increase of $112 million was
primarily attributable to the following:

•

a favorable change of $695 million from the early return of the Medicare
accelerated payments which were received during 2020 and repaid during the first
quarter of 2021;

•

an unfavorable change of $249 million in accounts receivable due, in part, to
increased receivables related to supplemental Medicaid programs in various
states as well as amounts outstanding at December 31, 2022, related to
facilities and businesses that were opened/acquired during the past year;

•

an unfavorable change of $238 million resulting from a decrease in net income
plus/minus depreciation and amortization expense, stock-based compensation,
gain/loss on sale of assets and businesses, costs related to extinguishment of
debt and provision for asset impairments;

•

an unfavorable change of $193 million from other working capital accounts due
primarily to the timing of disbursements for accounts payable, accrued expenses
and accrued compensation, as well as the payment during 2022, of a portion of
the employer's share of the 2020 Social Security taxes which were deferred
pursuant to the CARES Act;

•

an unfavorable change of $62 million in accrued insurance expense, net of
commercial premiums paid;

•

a favorable change of $59 million in other assets and deferred charges;

•

a favorable change of $25 million in accrued and deferred income taxes, and;

•

$75 million of other combined net favorable changes.

Days sales outstanding ("DSO"): Our DSO are calculated by dividing our net
revenue by the number of days in the year. The result is divided into the
accounts receivable balance at the end of the year. Our DSO were 55 days at
December 31, 2022 and 50 days at December 31, 2021. The increase in our DSO at
December 31, 2022, as compared to December 31, 2021, was due, in part, to the
above-mentioned increase in receivables during 2022 related to supplemental
Medicaid programs in various states and facilities that were opened or acquired
during the year.

Net cash used in investing activities

Net cash used in investing activities was $647 million during 2022 and $914
million during 2021.

2022:

The $647 million of net cash used in investing activities during 2022 consisted
of:

•

$734 million spent on capital expenditures including capital expenditures for
equipment, renovations and new projects at various existing facilities;

•

$95 million received in connection with net cash inflows from forward exchange
contracts that hedge our investment in the U.K. against movements in exchange
rates;

•

$20 million spent on the acquisition of businesses and property, and;

•

$12 million of proceeds received from sales of assets and businesses.

2021:

The $914 million of net cash used in investing activities during 2021 consisted
of:

•

$856 million spent on capital expenditures including capital expenditures for
equipment, renovations and new projects at various existing facilities;

•

$105 million spent to acquire businesses and property, consisting primarily of a
micro acute care hospital located in Las Vegas, Nevada, and a physician practice
management company located in California;

•

$25 million of proceeds received from sales of assets and businesses;

•

$20 million received in connection with the implementation of information
technology applications (consists primarily of refunded costs previously paid),
and;

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•

$1 million received in connection with net cash inflows from forward exchange
contracts that hedge our investment in the U.K. against movements in exchange
rates.

Net cash used in financing activities

Net cash used in financing activities was $318 million during 2022 and $1.069
billion during 2021.

2022:

The $318 million of net cash used in financing activities during 2022 consisted
of the following:

•

generated $705 million of proceeds from new borrowings consisting primarily of
$700 million of proceeds generated from the new tranche A term loan facility
which commenced in June, 2022;

•

spent $833 million to repurchase shares of our Class B Common Stock in
connection with: (i) open market purchases pursuant to our stock repurchase
program ($811 million), and; (ii) income tax withholding obligations related to
stock-based compensation programs ($22 million);

•

spent $89 million on net repayment of debt as follows: (i) $51 million related
to our tranche A term loan facility; (ii) $32 million related to our revolving
credit facility, and; (iii) $6 million related to other debt facilities;

•

spent $58 million to pay quarterly cash dividends of $.20 per share;

•

spent $49 million in connection with the purchase of ownership interests from
minority members, net of sales, consisting primarily of our purchase of George
Washington University's 20% ownership in the George Washington University
Hospital (we now own 100% of the hospital);

•

generated $14 million from the issuance of shares of our Class B Common Stock
pursuant to the terms of employee stock purchase plans;

•

spent $5 million to pay profit distributions related to noncontrolling interests
in majority owned businesses, and;

•

spent $3 million to pay financing costs.

2021:

The $1.069 billion of net cash used in financing activities during 2021
consisted of the following:

•

spent $3.038 billion on net repayment of debt as follows: (i) $1.911 billion
related to our tranche A term loan facility; (ii) $490 million related to our
terminated tranche B term loan facility; (iii) $410 million related to the early
redemption of our previously outstanding $400 million, 5.00% senior secured
notes which were scheduled to mature in June, 2026; (iv) $225 million related to
our accounts receivable securitization program, and; (v) $2 million related to
other debt facilities;

•

generated $3.255 billion of proceeds related to new borrowings as follows: (i)
$1.7 billion related to our tranche A term loan facility; (ii) $699 million (net
of discount) related to the August, 2021 issuance of $700 million, 1.65% senior
secured notes due in September, 2026; (iii) $499 million (net of discount)
related to the August, 2021 issuance of $500 million, 2.65% senior secured notes
due in January, 2032; (iv) $343 million pursuant to our revolving credit
facility, and; (v) $14 million of proceeds received related to other debt
facilities;

•

spent $1.221 billion to repurchase shares of our Class B Common Stock in
connection with: (i) open market purchases pursuant to our stock repurchase
program ($1.201 billion), and; (ii) income tax withholding obligations related
to stock-based compensation programs ($20 million);

•

spent $66 million to pay quarterly cash dividends of $.20 per share;

•

spent $19 million to pay financing costs incurred in connection with various
financing transactions;

•

generated $13 million from the issuance of shares of our Class B Common Stock
pursuant to the terms of employee stock purchase plans;

•

received $13 million in capital contributions from minority members in majority
owned businesses, and;

•

spent $7 million to pay profit distributions related to noncontrolling interests
in majority owned businesses.

2023 Expected Capital Expenditures:

During 2023, we expect to spend approximately $725 million to $875 million on
capital expenditures which includes expenditures for capital equipment,
construction of new facilities, and renovations and expansions at existing
hospitals. We believe

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that our capital expenditure program is adequate to expand, improve and equip
our existing hospitals. We expect to finance all capital expenditures and
acquisitions with internally generated funds and/or additional funds, as
discussed below.

Capital Resources:

Credit Facilities and Outstanding Debt Securities

In June, 2022 we entered into a ninth amendment to our credit agreement dated as
of November 15, 2010, as amended and restated as of September, 2012, August,
2014, October, 2018, August, 2021, and September, 2021, among UHS, as borrower,
the several banks and other financial institutions from time to time parties
thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent,
(the "Credit Agreement"). The ninth amendment provided for, among other things,
the following: (i) a new incremental tranche A term loan facility in the
aggregate principal amount of $700 million which is scheduled to mature on
August 24, 2026, and; (ii) replaces the option to make Eurodollar borrowings
(which bear interest by reference to the LIBO Rate) with Term Benchmark Loans,
which will bear interest by reference to the Secured Overnight Financing Rate
("SOFR"). The net proceeds generated from the incremental tranche A term loan
facility were used to repay a portion of the borrowings that were previously
outstanding under our revolving credit facility.

In September, 2021 we entered into an eighth amendment to our Credit Agreement
which modified the definition of "Adjusted LIBO Rate".

In August, 2021 we entered into a seventh amendment to our Credit Agreement
which, among other things, provided for the following:

o
a $1.2 billion aggregate amount revolving credit facility, which is scheduled to
mature on August 24, 2026, representing an increase of $200 million over the
$1.0 billion previous commitment. As of December 31, 2022, this facility had
$310 million of borrowings outstanding and $886 million of available borrowing
capacity, net of $4 million of outstanding letters of credit;

o
a $1.7 billion initial tranche A term loan facility which was subsequently
increased by $700 million in June, 2022 by the above-mentioned ninth amendment.
The seventh amendment also provided for repayment of $150 million of borrowings
outstanding pursuant to the previous tranche A term loan facility, and;

o

repayment of approximately $488 million of outstanding borrowings and
termination of the previous tranche B term loan facility.

The terms of the tranche A term loan facility, as amended, which had $2.338
billion of outstanding borrowings as of December 31, 2022, provides for
installment payments of $15.0 million per quarter during the period of
September, 2022 through September, 2023, and $30.0 million per quarter during
the period of December, 2023 through June, 2026. The unpaid principal balance at
June 30, 2026 is payable on the August 24, 2026 scheduled maturity date of the
Credit Agreement.

Revolving credit and tranche A term loan borrowings under the Credit Agreement
bear interest at our election at either (1) the ABR rate which is defined as the
rate per annum equal to the greatest of (a) the lender's prime rate, (b) the
weighted average of the federal funds rate, plus 0.5% and (c) one month SOFR
rate plus 1%, in each case, plus an applicable margin based upon our
consolidated leverage ratio at the end of each quarter ranging from 0.25% to
0.625%, or (2) the one, three or six month SOFR rate plus 0.1% (at our
election), plus an applicable margin based upon our consolidated leverage ratio
at the end of each quarter ranging from 1.25% to 1.625%. As of December 31,
2022, the applicable margins were 0.50% for ABR-based loans and 1.50% for
SOFR-based loans under the revolving credit and term loan A facilities. The
revolving credit facility includes a $125 million sub-limit for letters of
credit. The Credit Agreement is secured by certain assets of the Company and our
material subsidiaries (which generally excludes asset classes such as
substantially all of the patient-related accounts receivable of our acute care
hospitals, and certain real estate assets and assets held in joint-ventures with
third parties) and is guaranteed by our material subsidiaries.

The Credit Agreement includes a material adverse change clause that must be
represented at each draw. The Credit Agreement also contains covenants that
include a limitation on sales of assets, mergers, change of ownership, liens,
indebtedness, transactions with affiliates, dividends and stock repurchases; and
requires compliance with financial covenants including maximum leverage. We were
in compliance with all required covenants as of December 31, 2022 and December
31, 2021.

On August 24, 2021, we completed the following via private offerings to
qualified institutional buyers under Rule 144A and to non-U.S. persons outside
the United States in reliance on Regulation S under the Securities Act of 1933,
as amended:

o

Issued $700 million of aggregate principal amount of 1.65% senior secured notes
due on September 1, 2026, and;

o

Issued $500 million of aggregate principal amount of 2.65% senior secured notes
due on January 15, 2032.

In April, 2021 our accounts receivable securitization program ("Securitization")
was amended (the eighth amendment) to: (i) reduce the aggregate borrowing
commitments to $20 million (from $450 million previously); (ii) slightly reduce
the borrowing rates and commitment fee, and; (iii) extend the maturity date to
April 25, 2022. At various times from April, 2022 to September, 2022, the

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Securitization was amended to extend the maturity date to various dates
including, most recently, December 20, 2022. As of the December 20, 2022
maturity date, the Securitization expired and was not renewed or replaced.

On September 13, 2021, we redeemed $400 million of aggregate principal amount of
5.00% senior secured notes, that were scheduled to mature on June 1, 2026, at
102.50% of the aggregate principal, or $410 million.

As of December 31, 2022, we had combined aggregate principal of $2.0 billion
from the following senior secured notes:

o

$700 million aggregate principal amount of 1.65% senior secured notes due in
September, 2026 ("2026 Notes") which were issued on August 24, 2021.

o

$800 million aggregate principal amount of 2.65% senior secured notes due in
October, 2030 ("2030 Notes") which were issued on September 21, 2020.

o

$500 million of aggregate principal amount of 2.65% senior secured notes due in
January, 2032 ("2032 Notes") which were issued on August 24, 2021.

Interest on the 2026 Notes is payable on March 1st and September 1st until the
maturity date of September 1, 2026. Interest on the 2030 Notes payable on April
15th and October 15th, until the maturity date of October 15, 2030. Interest on
the 2032 Notes is payable on January 15thand July 15th until the maturity date
of January 15, 2032.

The 2026 Notes, 2030 Notes and 2032 Notes (collectively "The Notes") were
initially issued only to qualified institutional buyers under Rule 144A and to
non-U.S. persons outside the United States in reliance on Regulation S under the
Securities Act of 1933, as amended (the "Securities Act"). In December, 2022, we
completed a registered exchange offer in which virtually all previously
outstanding Notes were exchanged for identical Notes that were registered under
the Securities Act, and thereby became freely transferable (subject to certain
restrictions applicable to affiliates and broker dealers). Notes originally
issued under Rule 144A or Regulation S that were not exchanged in the exchange
offer remain outstanding and may not be offered or sold in the United States
absent registration under the Securities Act or an applicable exemption from
registration requirements thereunder.

The Notes are guaranteed (the "Guarantees") on a senior secured basis by all of
our existing and future direct and indirect subsidiaries (the "Subsidiary
Guarantors") that guarantee our Credit Agreement, or other first lien
obligations or any junior lien obligations. The Notes and the Guarantees are
secured by first-priority liens, subject to permitted liens, on certain of the
Company's and the Subsidiary Guarantors' assets now owned or acquired in the
future by the Company or the Subsidiary Guarantors (other than real property,
accounts receivable sold pursuant to the Company's Existing Receivables Facility
(as defined in the Indenture pursuant to which The Notes were issued (the
"Indenture")), and certain other excluded assets). The Company's obligations
with respect to The Notes, the obligations of the Subsidiary Guarantors under
the Guarantees, and the performance of all of the Company's and the Subsidiary
Guarantors' other obligations under the Indenture, are secured equally and
ratably with the Company's and the Subsidiary Guarantors' obligations under the
Credit Agreement and The Notes by a perfected first-priority security interest,
subject to permitted liens, in the collateral owned by the Company and its
Subsidiary Guarantors, whether now owned or hereafter acquired. However, the
liens on the collateral securing The Notes and the Guarantees will be released
if: (i) The Notes have investment grade ratings; (ii) no default has occurred
and is continuing, and; (iii) the liens on the collateral securing all first
lien obligations (including the Credit Agreement and The Notes) and any junior
lien obligations are released or the collateral under the Credit Agreement, any
other first lien obligations and any junior lien obligations is released or no
longer required to be pledged. The liens on any collateral securing The Notes
and the Guarantees will also be released if the liens on that collateral
securing the Credit Agreement, other first lien obligations and any junior lien
obligations are released.

As discussed in Note 9 to the Consolidated Financial Statements-Relationship
with Universal Health Realty Income Trust and Other Related Party Transactions,
on December 31, 2021, we (through wholly-owned subsidiaries of ours) entered
into an asset purchase and sale agreement with Universal Health Realty Income
Trust (the "Trust"). Pursuant to the terms of the agreement, which was amended
during the first quarter of 2022, we, among other things, transferred to the
Trust, the real estate assets of Aiken Regional Medical Center ("Aiken") and
Canyon Creek Behavioral Health ("Canyon Creek"). In connection with this
transaction, Aiken and Canyon Creek (as lessees), entered into a master lease
and individual property leases, as amended, (with the Trust as lessor), for
initial lease terms on each property of approximately twelve years, ending on
December 31, 2033. As a result of our purchase option within the Aiken and
Canyon Creek lease agreements, this asset purchase and sale transaction is
accounted for as a failed sale leaseback in accordance with U.S. GAAP and we
have accounted for the transaction as a financing arrangement. Our lease
payments payable to the Trust are recorded to interest expense and as a
reduction of the outstanding financial liability, and the amount allocated to
interest expense is determined based upon our incremental borrowing rate and the
outstanding financial liability. In connection with this transaction, our
Consolidated Balance Sheets at December 31, 2022 and December 31, 2021 reflect
financial liabilities, which are included in debt, of approximately $81 million
and $82 million, respectively.

At December 31, 2022, the carrying value and fair value of our debt were
approximately $4.8 billion and $4.4 billion, respectively. At December 31, 2021,
the carrying value and fair value of our debt were each approximately $4.2
billion. The fair value of our debt was computed based upon quotes received from
financial institutions. We consider these to be "level 2" in the fair value
hierarchy as outlined in the authoritative guidance for disclosures in
connection with debt instruments.

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Our total debt as a percentage of total capitalization was approximately 45% at
December 31, 2022 and 41% at December 31, 2021.

We expect to finance all capital expenditures and acquisitions and pay dividends
and potentially repurchase shares of our common stock utilizing internally
generated and additional funds. Additional funds may be obtained through: (i)
borrowings under our existing revolving credit facility, which had $886 million
of available borrowing capacity as of December 31, 2022, or through refinancing
the existing Credit Agreement; (ii) the issuance of other short-term and/or
long-term debt, and/or; (iii) the issuance of equity. We believe that our
operating cash flows, cash and cash equivalents, available commitments under
existing agreements, as well as access to the capital markets, provide us with
sufficient capital resources to fund our operating, investing and financing
requirements for the next twelve months. However, in the event we need to access
the capital markets or other sources of financing, there can be no assurance
that we will be able to obtain financing on acceptable terms or within an
acceptable time. Our inability to obtain financing on terms acceptable to us
could have a material unfavorable impact on our results of operations, financial
condition and liquidity.

Supplemental Guarantor Financial Information

As of December 31, 2022, we had combined aggregate principal of $2.0 billion
from The Notes:

•

$700 million aggregate principal amount of the 2026 Notes;

•

$800 million aggregate principal amount of the 2030 Notes, and;

•

$500 million of aggregate principal amount of the 2032 Notes.

The Notes are fully and unconditionally guaranteed pursuant to the Guarantees on
a senior secured basis by the Subsidiary Guarantors. The Notes and the
Guarantees are secured by first-priority liens, subject to permitted liens, on
certain of the Company's and the Subsidiary Guarantors' assets now owned or
acquired in the future by the Company or the Subsidiary Guarantors (other than
real property, accounts receivable sold pursuant to the Company's existing
receivables facility (as defined in the Indentures pursuant to which The Notes
were issued ), and certain other excluded assets). The Company's obligations
with respect to The Notes, the obligations of the Subsidiary Guarantors under
the Guarantees, and the performance of all of the Company's and the Subsidiary
Guarantors' other obligations under the Indentures, are secured equally and
ratably with the Company's and the Subsidiary Guarantors' obligations under the
Credit Agreement and The Notes by a perfected first-priority security interest,
subject to permitted liens, in the collateral owned by the Company and its
Subsidiary Guarantors, whether now owned or hereafter acquired. However, the
liens on the collateral securing The Notes and the Guarantees will be released
if: (i) The Notes have investment grade ratings; (ii) no default has occurred
and is continuing, and; (iii) the liens on the collateral securing all first
lien obligations (including the Credit Agreement and The Notes) and any junior
lien obligations are released or the collateral under the Credit Agreement, any
other first lien obligations and any junior lien obligations is released or no
longer required to be pledged. The liens on any collateral securing The Notes
and the Guarantees will also be released if the liens on that collateral
securing the Credit Agreement, other first lien obligations and any junior lien
obligations are released.

The Notes will be structurally subordinated to all obligations of our existing
and future subsidiaries that are not and do not become Subsidiary Guarantors of
The Notes. No appraisal of the value of the collateral has been made, and the
value of the collateral in the event of liquidation will depend on market and
economic conditions, the availability of buyers and other factors. Consequently,
liquidating the collateral securing The Notes may not produce proceeds in an
amount sufficient to pay any amounts due on The Notes.

We and our subsidiaries may be able to incur significant additional indebtedness
in the future. Although our Credit Agreement contains restrictions on the
incurrence of additional indebtedness and our Credit Agreement and The Notes
contain restrictions on our ability to incur liens to secure additional
indebtedness, these restrictions are subject to a number of qualifications and
exceptions, and the additional indebtedness incurred in compliance with these
restrictions could be substantial. These restrictions also will not prevent us
from incurring obligations that do not constitute indebtedness. In addition, if
we incur any additional indebtedness secured by liens that rank equally with The
Notes, subject to collateral arrangements, the holders of that debt will be
entitled to share ratably with you in any proceeds distributed in connection
with any insolvency, liquidation, reorganization, dissolution or other winding
up of our company. This may have the effect of reducing the amount of proceeds
paid to holders of The Notes.

Federal and state fraudulent transfer and conveyance statutes may apply to the
issuance of The Notes and the incurrence of the Guarantees. Under federal
bankruptcy law and comparable provisions of state fraudulent transfer or
conveyance laws, which may vary from state to state, The Notes or the Guarantees
(or the grant of collateral securing any such obligations) could be voided as a
fraudulent transfer or conveyance if we or any of the Subsidiary Guarantors, as
applicable, (a) issued The Notes or incurred the Guarantees with the intent of
hindering, delaying or defrauding creditors or (b) under certain circumstances
received less than reasonably equivalent value or fair consideration in return
for either issuing The Notes or incurring the Guarantees.

Basis of Presentation

The following tables include summarized financial information of Universal
Health Services, Inc. and the other obligors in respect of debt issued by
Universal Health Services, Inc. The summarized financial information of each
obligor group is presented on a combined basis with balances and transactions
within the obligor group eliminated. Investments in and the equity in earnings
of

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non-guarantor subsidiaries, which would otherwise be consolidated in accordance
with GAAP, are excluded from the below summarized financial information pursuant
to SEC Regulation S-X Rule 13-01.

The summarized balance sheet information for the consolidated obligor group of
debt issued by Universal Health Services, Inc. is presented in the table below:


(in thousands)                                  December 31, 2022        December 31, 2021
Current assets                                  $        2,062,900       $        1,865,568
Noncurrent assets (1)                           $        8,773,036       $        8,695,985
Current liabilities                             $        1,686,005       $        1,818,415
Noncurrent liabilities                          $        5,587,141       $        6,164,650
Due to non-guarantors                           $          942,731       $          940,852

(1) Includes goodwill of $3,273 million and $3,257 million as of December 31, 2022 and
2021, respectively.

The summarized results of operations information for the consolidated obligor
group of debt issued by Universal Health Services, Inc. is presented in the
table below:

                             Twelve Months Ended       Twelve Months Ended
(in thousands)                December 31, 2022         December 31, 2021
Net revenues                $          10,853,259     $          10,310,332
Operating charges                       9,947,778                 9,044,261
Interest expense, net                     193,486                   149,394
Other (income) expense, net                 7,487                   (14,513 )
Net income                  $             532,047     $             878,065

Affiliates Whose Securities Collateralize the Senior Secured Notes

The Notes and the Guarantees are secured by, among other things, pledges of the
capital stock of our subsidiaries held by us or by our secured Guarantors, in
each case other than certain excluded assets and subject to permitted liens.
Such collateral securities are secured equally and ratably with our and the
Guarantors' obligations under our Credit Agreement. For a list of our
subsidiaries the capital stock of which has been pledged to secure The Notes,
see Exhibit 22.1 to this Report.

Upon the occurrence and during the continuance of an event of default under the
indentures governing The Notes, subject to the terms of the Security Agreement
relating to The Notes provide for (among other available remedies) the
foreclosure upon and sale of the Collateral (including the pledged stock) and
the distribution of the net proceeds of any such sale to the holders of The
Notes, the lenders under the Credit Agreement and the holders of any other
permitted first priority secured obligations on a pro rata basis, subject to any
prior liens on the collateral.

No appraisal of the value of the collateral securities has been made, and the
value of the collateral securities in the event of liquidation will depend on
market and economic conditions, the availability of buyers and other factors.
Consequently, liquidating the collateral securities securing The Notes may not
produce proceeds in an amount sufficient to pay any amounts due on The Notes.

The security agreement relating to The Notes provides that the representative of
the lenders under our Credit Agreement will initially control actions with
respect to that collateral and, consequently, exercise of any right, remedy or
power with respect to enforcing interests in or realizing upon such collateral
will initially be at the direction of the representative of the lenders.

No trading market exists for the capital stock pledged as collateral.

The assets, liabilities and results of operations of the combined affiliates
whose securities are pledged as collateral are not materially different than the
corresponding amounts presented in the consolidated financial information of
Universal Health Services, Inc.

Contractual Obligations and Off-Balance Sheet Arrangements

As of December 31, 2022 we were party to certain off balance sheet arrangements
consisting of standby letters of credit and surety bonds which totaled $169
million consisting of: (i) $159 million related to our self-insurance programs,
and; (ii) $10 million of other debt and public utility guarantees.

Obligations under operating leases for real property, real property master
leases and equipment amount to $922 million as of December 31, 2022. The real
property master leases are leases for buildings on or near hospital property for
which we guarantee a certain level of rental income. We sublease space in these
buildings and any amounts received from these subleases are offset against the
expense. In addition, we lease certain hospital facilities from Universal Health
Realty Trust (the "Trust") with terms scheduled to expire in 2026, 2033 and
2040. These leases contain various renewal options, as disclosed in Note 9 to
the Consolidated Financial

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Statements-Relationship with Universal Health Realty Income Trust and Other
Related Party Transactions. We also lease two free-standing emergency
departments and space in certain medical office buildings which are owned by the
Trust. In addition, we lease the real property of certain other facilities from
non-related parties as indicated in Item 2. Properties, as included herein.

The following represents the scheduled maturities of our contractual obligations
as of December 31, 2022:

                                                    Payments Due by Period (dollars in thousands)
                                                       Less than         2-3            4-5            After
                                          Total          1 year         years          years          5 years
Long-term debt obligations (a)         $ 4,807,980     $   81,447     $ 253,263     $ 3,035,768     $ 1,437,502
Estimated future interest payments
on debt
  outstanding as of December 31,
2022 (b)                                 1,031,021        225,637       418,642         190,747         195,995
Construction commitments (c)                23,563          5,000        18,563               0               0

Purchase and other obligations (d) 369,259 58,589 107,057 76,727 126,886
Operating leases (e)

                       921,753         83,573       143,634          98,810         595,736
Estimated future payments for
defined benefit
  pension plan, and other retirement
plan (f)                                   169,337         19,535        15,176          18,470         116,156
Health and dental unpaid claims (g)        133,624        133,624             0               0               0

Total contractual cash obligations $ 7,456,537 $ 607,405 $ 956,335 $ 3,420,522 $ 2,472,275

(a)

Reflects debt outstanding, after unamortized financing costs, as of December 31,
2022 as discussed in Note 4 to the Consolidated Financial Statements.
(b)
Assumes that all debt outstanding as of December 31, 2022, including borrowings
under our Credit Agreement, remain outstanding until the final maturity of the
debt agreements at the same interest rates (some of which are floating) which
were in effect as of December 31, 2022. We have the right to repay borrowings
upon short notice and without penalty, pursuant to the terms of the Credit
Agreement.
(c)
Our share of the estimated construction cost of a behavioral health care
facility scheduled to be completed in 2025 that, subject to approval of certain
regulatory conditions, we are required to build pursuant to a joint-venture
agreement with a third party. In addition, we had various other projects under
construction as of December 31, 2022. Because we can terminate substantially all
of the construction contracts related to the various other projects at any time
without paying a termination fee, these costs are excluded from the table above.
(d)
Consists of: (i) $54 million related to long-term contracts with third-parties
consisting primarily of certain revenue cycle data processing services for our
acute care facilities; (ii) $224 million related to the future expected costs to
be paid to a third-party vendor in connection with the ongoing operation of an
electronic health records application and purchase and implementation of a
revenue cycle and other applications for our facilities; (iii) $16 million for
other software applications, and; (iv) $75 million in healthcare infrastructure
in Washington D.C. in connection with various agreements with the District of
Columbia, as discussed below.
(e)
Reflects our future minimum operating lease payment obligations related to our
operating lease agreements outstanding as of December 31, 2022 as discussed in
Note 7 to the Consolidated Financial Statements. Some of the lease agreements
provide us with the option to renew the lease and our future lease obligations
would change if we exercised these renewal options. In connection with these
operating lease commitments, our consolidated balance sheet as of December 31,
2022 includes right of use assets amounting to $455 million and aggregate
operating lease liabilities of $463 million ($68 million included in current
liabilities and $395 million included in noncurrent liabilities).
(f)
Consists of $146 million of estimated future payments related to our
non-contributory, defined benefit pension plan (estimated through 2080), as
disclosed in Note 8 to the Consolidated Financial Statements, and $23 million of
estimated future payments related to other retirement plan liabilities ($19
million of liabilities recorded in other non-current liabilities as of December
31, 2022 in connection with these retirement plans).
(g)
Consists of accrued and unpaid estimated claims expense incurred in connection
with our commercial health insurers and self-insured employee benefit plans.

As of December 31, 2022, the total net accrual for our professional and general
liability claims was $372 million, of which $74 million is included in other
current liabilities and $298 million is included in other non-current
liabilities. We exclude the $372 million for professional and general liability
claims from the contractual obligations table because there are no significant
contractual obligations associated with these liabilities and because of the
uncertainty of the dollar amounts to be ultimately paid as well as the timing of
such payments. Please see Self-Insured/Other Insurance Risks above for
additional disclosure related to our professional and general liability claims
and reserves.

During 2020, we entered into a various agreements with the District of Columbia
(the "District") related to the development, leasing and operation of an acute
care hospital and certain other facilities/structures on land owned by the
District ("District Facilities"). The agreements contemplate that we will serve
as manager for development and construction of the District Facilities on behalf
of the District, with a projected aggregate cost of approximately $439 million,
approximately $64 million of which was

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incurred as of December 31, 2022, which will be entirely funded by the District.
Construction of the District Facilities is expected to be completed during 2025.
Upon completion of the District Facilities, we will lease the District
Facilities for a nominal rental amount for a period of 75 years and are
obligated to operate the District Facilities during the lease term. We have
certain lease termination rights in connection with the District Facilities
beginning on the tenth anniversary of the lease commencement date for various
and decreasing amounts as provided for in the agreements. Additionally, any time
after the 10th anniversary of the lease term, we have a right to purchase the
District Facilities for a price equal to the greater of fair market value of the
District Facilities or the amount necessary to defease the bonds issued by the
District to fund the construction of the District Facilities. The lease
agreement also entitles the District to participation rent should certain
specified earnings before interest, taxes, depreciation and amortization
thresholds be achieved by the acute care hospital. Additionally, we have
committed to expend no less than $75 million, over a projected 12-year period,
in healthcare infrastructure including expenditures related to the District
Facilities as well as other healthcare related expenditures in certain specified
areas of Washington, D.C. This financial commitment is included in "Purchase and
other obligations" as reflected on the contractual obligations table above.
Pursuant to the agreements, the District is entitled to certain termination fees
and other amounts as specified in the agreements in the event we, within certain
specified periods of time, cease to operate the acute care hospital or there is
a transfer of control of us or our subsidiary operating the hospital.