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MarketScreener Homepage  >  Equities  >  Nyse  >  HCA Holdings (Hospital Corporation America)    HCA

HCA HOLDINGS (HOSPITAL CORPORATION AMERI

(HCA)
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HCA Hospital America : HEALTRE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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11/01/2019 | 03:36pm EST
Forward-Looking Statements
This quarterly report on Form

10-Q

includes certain disclosures which contain "forward-looking statements."
Forward-looking statements include statements regarding expected share-based
compensation expense, expected capital expenditures and expected net claim
payments and all other statements that do not relate solely to historical or
current facts, and can be identified by the use of words like "may," "believe,"
"will," "expect," "project," "estimate," "anticipate," "plan," "initiative" or
"continue." These forward-looking statements are based on our current plans and
expectations and are subject to a number of known and unknown uncertainties and
risks, many of which are beyond our control, which could significantly affect
current plans and expectations and our future financial position and results of
operations. These factors include, but are not limited to, (1) the impact of our
substantial indebtedness and the ability to refinance such indebtedness on
acceptable terms, (2) the impact of the Patient Protection and Affordable Care
Act, as amended by the Health Care and Education Reconciliation Act of 2010
(collectively, the "Health Reform Law"), including the effects of court
challenges to, any repeal of, or changes to, the Health Reform Law or additional
changes to its implementation, the possible enactment of additional federal or
state health care reforms and possible changes to other federal, state or local
laws or regulations affecting the health care industry, (3) the effects related
to the continued implementation of the sequestration spending reductions
required under the Budget Control Act of 2011, and related legislation extending
these reductions, and the potential for future deficit reduction legislation
that may alter these spending reductions, which include cuts to Medicare
payments, or create additional spending reductions, (4) increases in the amount
and risk of collectability of uninsured accounts and deductibles and copayment
amounts for insured accounts, (5) the ability to achieve operating and financial
targets, and attain expected levels of patient volumes and control the costs of
providing services, (6) possible changes in Medicare, Medicaid and other state
programs, including Medicaid supplemental payment programs or Medicaid waiver
programs, that may impact reimbursements to health care providers and insurers
and the size of the uninsured or underinsured population, (7) the highly
competitive nature of the health care business, (8) changes in service mix,
revenue mix and surgical volumes, including potential declines in the population
covered under third-party payer agreements, the ability to enter into and renew
third-party payer provider agreements on acceptable terms and the impact of
consumer-driven health plans and physician utilization trends and practices,
(9) the efforts of health insurers, health care providers, large employer groups
and others to contain health care costs, (10) the outcome of our continuing
efforts to monitor, maintain and comply with appropriate laws, regulations,
policies and procedures, (11) increases in wages and the ability to attract and
retain qualified management and personnel, including affiliated physicians,
nurses and medical and technical support personnel, (12) the availability and
terms of capital to fund the expansion of our business and improvements to our
existing facilities, (13) changes in accounting practices, (14) changes in
general economic conditions nationally and regionally in our markets, (15) the
emergence of and effects related to infectious diseases, (16) future
divestitures which may result in charges and possible impairments of long-lived
assets, (17) changes in business strategy or development plans, (18) delays in
receiving payments for services provided, (19) the outcome of pending and any
future tax audits, disputes and litigation associated with our tax positions,
(20) potential adverse impact of known and unknown government investigations,
litigation and other claims that may be made against us, (21) the impact of
potential cybersecurity incidents or security breaches, (22) our ongoing ability
to demonstrate meaningful use of certified electronic health record ("EHR")
technology, (23) the impact of natural disasters, such as hurricanes and floods,
or similar events beyond our control, (24) the effects of the 2017 Tax Cuts and
Jobs Act (the "Tax Act"), including potential legislation or interpretive
guidance that may be issued by federal and state taxing authorities or other
standard-setting bodies, and (25) other risk factors described in our annual
report on Form

10-K

for the year ended December 31, 2018 and our other filings with the Securities
and Exchange Commission. As a consequence, current plans, anticipated actions
and future financial position and results of operations may differ from those
expressed in any forward-looking statements made by or on behalf of HCA. You are
cautioned not to unduly rely on such forward-looking statements when evaluating
the information presented in this report, which forward-looking statements
reflect management's views only as of the date of this report.
We undertake no obligation to revise or update any forward-looking statements,
whether as a result of new information, future events or otherwise.

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Table of Contents

                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Third Quarter 2019 Operations Summary
Revenues increased to $12.694 billion in the third quarter of 2019 from
$11.451 billion in the third quarter of 2018. Net income attributable to HCA
Healthcare, Inc. totaled $612 million, or $1.76 per diluted share, for the
quarter ended September 30, 2019, compared to $759 million, or $2.15 per diluted
share, for the quarter ended September 30, 2018. Third quarter results for 2019
and 2018 include losses on retirement of debt of $211 million, or $0.47 per
diluted share, and $9 million, or $0.02 per diluted share, respectively. During
the third quarter of 2018, we recorded a reduction to the provision for income
taxes of $28 million, or $0.08 per diluted share, for tax credits related to
certain 2017 hurricane-related expenses. Our provisions for income taxes for the
third quarters of 2019 and 2018 also included tax benefits of $3 million, or
$0.01 per diluted share, and $23 million, or $0.07 per diluted share,
respectively, related to employee equity award settlements. All "per diluted
share" disclosures are based upon amounts net of the applicable income taxes.
Shares used for diluted earnings per share were 347.487 million shares for the
quarter ended September 30, 2019 and 353.639 million shares for the quarter
ended September 30, 2018. During 2018 and the first nine months of 2019, we
repurchased 14.070 million shares and 5.880 million shares of our common stock,
respectively.
Revenues increased 10.9% on a consolidated basis and increased 6.3% on a same
facility basis for the quarter ended September 30, 2019, compared to the quarter
ended September 30, 2018. The increase in consolidated revenues can be primarily
attributed to the combined impact of a 3.1% increase in revenue per equivalent
admission and a 7.5% increase in equivalent admissions. The same facility
revenues increase primarily resulted from the combined impact of a 2.0% increase
in same facility revenue per equivalent admission and a 4.2% increase in same
facility equivalent admissions.
During the quarter ended September 30, 2019, consolidated admissions and same
facility admissions increased 5.9% and 3.2%, respectively, compared to the
quarter ended September 30, 2018. Surgeries increased 4.9% on a consolidated
basis and 2.5% on a same facility basis during the quarter ended September 30,
2019, compared to the quarter ended September 30, 2018. Emergency department
visits increased 6.1% on a consolidated basis and 4.1% on a same facility basis
during the quarter ended September 30, 2019, compared to the quarter ended
September 30, 2018. Consolidated and same facility uninsured admissions
increased 3.4% and 2.1%, respectively, for the quarter ended September 30, 2019,
compared to the quarter ended September 30, 2018.
Cash flows from operating activities increased $405 million from $1.721 billion
for the third quarter of 2018 to $2.126 billion for the third quarter of 2019.
The increase in cash provided by operating activities was primarily related to
the combined effect of an increase in net income, excluding losses on retirement
of debt, of $70 million, positive changes of $142 million related to income
taxes, positive changes of $82 million related to working capital items and an
increase in depreciation expense of $65 million.
Results of Operations
Revenue/Volume Trends
Our revenues generally relate to contracts with patients in which our
performance obligations are to provide health care services to the patients.
Revenues are recorded during the period our obligations to provide health care
services are satisfied. Our performance obligations for inpatient services are
generally satisfied over periods that average approximately five days, and
revenues are recognized based on charges incurred in relation to total expected
charges. Our performance obligations for outpatient services are generally
satisfied over a period of less than one day. The contractual relationships with
patients, in most cases, also involve a third-party payer (Medicare, Medicaid,
managed care health plans and commercial insurance companies, including plans
offered through the health insurance exchanges) and the transaction prices for
the services provided are dependent upon

                                       30

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Table of Contents

                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
the terms provided by (Medicare and Medicaid) or negotiated with (managed care
health plans and commercial insurance companies) the third-party payers. The
payment arrangements with third-party payers for the services we provide to the
related patients typically specify payments at amounts less than our standard
charges. Medicare generally pays for inpatient and outpatient services at
prospectively determined rates based on clinical, diagnostic and other factors.
Services provided to patients having Medicaid coverage are generally paid at
prospectively determined rates per discharge, per identified service or per
covered member. Agreements with commercial insurance carriers, managed care and
preferred provider organizations generally provide for payments based upon
predetermined rates per diagnosis, per diem rates or discounted
fee-for-service
rates. Management continually reviews the contractual estimation process to
consider and incorporate updates to laws and regulations and the frequent
changes in managed care contractual terms resulting from contract renegotiations
and renewals.
Revenues increased 10.9% from $11.451 billion in the third quarter of 2018 to
$12.694 billion in the third quarter of 2019. Our revenues are based upon the
estimated amounts we expect to be entitled to receive from patients and
third-party payers. Estimates of contractual allowances under managed care and
commercial insurance plans are based upon the payment terms specified in the
related contractual agreements. Revenues related to uninsured patients and
uninsured copayment and deductible amounts for patients who have health care
coverage may have discounts applied (uninsured discounts and contractual
discounts). We also record estimated implicit price concessions (based primarily
on historical collection experience) related to uninsured accounts to record
self-pay
revenues at the estimated amounts we expect to collect. Our revenues from
third-party payers and others (including uninsured patients) for the quarters
and nine months ended September 30, 2019 and 2018 are summarized in the
following table (dollars in millions):

                                                               Quarter
                                              2019        Ratio        2018        Ratio
Medicare                                    $  2,592        20.4 %   $  2,404        21.0 %
Managed Medicare                               1,615        12.7        1,344        11.7
Medicaid                                         361         2.8          338         3.0
Managed Medicaid                                 641         5.0          622         5.4
Managed care and insurers                      6,554        51.7        6,026        52.6
International (managed care and insurers)        282         2.2          273         2.4
Other                                            649         5.2          444         3.9

Revenues                                    $ 12,694       100.0 %   $ 11,451       100.0 %











                                                             Nine Months
                                              2019        Ratio        2018        Ratio
Medicare                                    $  7,997        21.2 %   $  7,353        21.4 %
Managed Medicare                               4,799        12.7        4,088        11.9
Medicaid                                       1,124         3.0          976         2.8
Managed Medicaid                               1,808         4.8        1,769         5.1
Managed care and insurers                     19,405        51.1       18,081        52.6
International (managed care and insurers)        863         2.3          873         2.5
Other                                          1,817         4.9        1,263         3.7

Revenues                                    $ 37,813       100.0 %   $ 34,403       100.0 %







                                       31

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Table of Contents

                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)




Consolidated and same facility revenue per equivalent admission increased 3.1%
and 2.0%, respectively, in the third quarter of 2019, compared to the third
quarter of 2018. Consolidated and same facility equivalent admissions increased
7.5% and 4.2%, respectively, in the third quarter of 2019, compared to the third
quarter of 2018. Consolidated and same facility outpatient surgeries increased
5.2% and 2.6%, respectively, in the third quarter of 2019, compared to the third
quarter of 2018. Consolidated and same facility inpatient surgeries increased
4.4% and 2.2%, respectively, in the third quarter of 2019, compared to the third
quarter of 2018. Consolidated and same facility emergency department visits
increased 6.1% and 4.1%, respectively, in the third quarter of 2019, compared to
the third quarter of 2018.
To quantify the total impact of the trends related to uninsured accounts, we
believe it is beneficial to view total uncompensated care, which is comprised of
charity care, uninsured discounts and implicit price concessions. A summary of
the estimated cost of total uncompensated care for the quarters and nine months
ended September 30, 2019 and 2018 follows (dollars in millions):

                                                       Quarter              

Nine Months

                                                  2019         2018          2019          2018
Patient care costs (salaries and benefits,
supplies, other operating expenses and
depreciation and amortization)                  $ 11,060$ 9,946$ 32,619$ 29,684
Cost-to-charges
ratio (patient care costs as percentage of
gross patient charges)                              12.3 %       12.7 %        12.1 %        12.6 %
Total uncompensated care                        $  7,923$ 6,786$ 22,703$ 19,524
Multiply by the
cost-to-charges
ratio                                               12.3 %       12.7 %        12.1 %        12.6 %

Estimated cost of total uncompensated care $ 975$ 862$ 2,747$ 2,460

Total uncompensated care as a percentage of the sum of revenues and total
uncompensated care was 38.4% and 37.2% for the quarters ended September 30, 2019
and 2018, respectively, and 37.5% and 36.2% for the nine months ended
September 30, 2019 and 2018, respectively.
Same facility uninsured admissions increased by 919 admissions, or 2.1%, in the
third quarter of 2019 compared to the third quarter of 2018. Same facility
uninsured admissions increased 5.1%, in the second quarter of 2019 compared to
the second quarter of 2018. Same facility uninsured admissions were flat in the
first quarter of 2019 compared to the first quarter of 2018. Same facility
uninsured admissions in 2018, compared to 2017, increased 7.4% in the fourth
quarter, increased 8.8% in the third quarter, increased 7.8% in the second
quarter, and increased 10.1% in the first quarter.

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Table of Contents

                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
The approximate percentages of our admissions related to Medicare, managed
Medicare, Medicaid, managed Medicaid, managed care and insurers and the
uninsured for the quarters and nine months ended September 30, 2019 and 2018 are
set forth in the following table.

                                Quarter           Nine Months
                            2019      2018       2019      2018
Medicare                       28 %      29 %       29 %      30 %
Managed Medicare               18        17         19        17
Medicaid                        5         5          5         5
Managed Medicaid               12        12         12        12
Managed care and insurers      28        28         27        28
Uninsured                       9         9          8         8

                              100 %     100 %      100 %     100 %






The approximate percentages of our inpatient revenues related to Medicare,
managed Medicare, Medicaid, managed Medicaid, managed care and insurers
and the uninsured
for the quarters and nine months ended September 30, 2019 and 2018 are set forth
in the following table.

                                Quarter           Nine Months
                            2019      2018       2019      2018
Medicare                       28 %      28 %       28 %      28 %
Managed Medicare               14        13         15        14
Medicaid                        4         4          4         4
Managed Medicaid                6         6          5         6
Managed care and insurers      47        49         47        48
Uninsured                       1         -          1         -

                              100 %     100 %      100 %     100 %






At September 30, 2019, we had 91 hospitals in the states of Texas and Florida.
During the third quarter of 2019, 56% of our admissions and 48% of our revenues
were generated by these hospitals. Uninsured admissions in Texas and Florida
represented 72% of our uninsured admissions during the third quarter of 2019.
We receive a significant portion of our revenues from government health
programs, principally Medicare and Medicaid, which are highly regulated and
subject to frequent and substantial changes. In December 2017, the Centers for
Medicare & Medicaid Services ("CMS") announced that it will phase out federal
matching funds for Designated State Health Programs under waivers granted under
Section 1115 of the Social Security Act. Texas currently operates its Healthcare
Transformation and Quality Improvement Program pursuant to a Medicaid waiver. In
December 2017, CMS approved an extension of this waiver through September 30,
2022, but indicated that it will phase out some of the federal funding. Our
Texas Medicaid revenues included Medicaid supplemental payments of $103 million
and $101 million during the third quarters of 2019 and 2018, respectively, and
$317 million and $296 million during the first nine months of 2019 and 2018,
respectively.
In addition, we receive supplemental payments in several other states. We are
aware these supplemental payment programs are currently being reviewed by
certain state agencies and some states have made requests to

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Table of Contents

                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
CMS to replace their existing supplemental payment programs. It is possible
these reviews and requests will result in the restructuring of such supplemental
payment programs and could result in the payment programs being reduced or
eliminated. Because deliberations about these programs are ongoing, we are
unable to estimate the financial impact the program structure modifications, if
any, may have on our results of operations.
Operating Results Summary
The following is a comparative summary of results of operations for the quarters
and nine months ended September 30, 2019 and 2018 (dollars in millions):

                                                                         Quarter
                                                              2019                     2018
                                                       Amount       Ratio       Amount       Ratio
Revenues                                              $ 12,694       100.0     $ 11,451       100.0

Salaries and benefits                                    5,971        47.0        5,377        46.9
Supplies                                                 2,090        16.5        1,890        16.5
Other operating expenses                                 2,352        18.5        2,097        18.4
Equity in earnings of affiliates                            (4 )         -           (9 )      (0.1 )
Depreciation and amortization                              647         5.1          582         5.1
Interest expense                                           448         3.5          442         3.9
Gains on sales of facilities                                 -           -           (6 )      (0.1 )
Losses on retirement of debt                               211         1.7            9         0.1

                                                        11,715        92.3       10,382        90.7

Income before income taxes                                 979         7.7        1,069         9.3
Provision for income taxes                                 215         1.7          173         1.5

Net income                                                 764         6.0          896         7.8
Net income attributable to noncontrolling interests        152         1.2  

137 1.2

Net income attributable to HCA Healthcare, Inc.$ 612 4.8

   $    759         6.6

% changes from prior year:
Revenues                                                  10.9 %                    7.1 %
Income before income taxes                                (8.4 )                   37.5
Net income attributable to HCA Healthcare, Inc.          (19.3 )                   78.3
Admissions(a)                                              5.9                      3.2
Equivalent admissions(b)                                   7.5                      4.4
Revenue per equivalent admission                           3.1              

2.5

Same facility % changes from prior year(c):
Revenues                                                   6.3                      7.4
Admissions(a)                                              3.2                      3.1
Equivalent admissions(b)                                   4.2                      3.4
Revenue per equivalent admission                           2.0                      3.9






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Table of Contents

                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Operating Results Summary (continued)

                                                                       Nine Months
                                                              2019                     2018
                                                       Amount       Ratio       Amount       Ratio
Revenues                                              $ 37,813       100.0     $ 34,403       100.0

Salaries and benefits                                   17,455        46.2       15,940        46.3
Supplies                                                 6,249        16.5        5,722        16.6
Other operating expenses                                 7,013        18.6        6,325        18.5
Equity in earnings of affiliates                           (23 )      (0.1 )        (25 )      (0.1 )
Depreciation and amortization                            1,902         4.9        1,697         4.9
Interest expense                                         1,386         3.7        1,309         3.8
Gains on sales of facilities                               (17 )         -         (420 )      (1.2 )
Losses on retirement of debt                               211         0.6            9           -

                                                        34,176        90.4       30,557        88.8

Income before income taxes                               3,637         9.6        3,846        11.2
Provision for income taxes                                 765         2.0          702         2.1

Net income                                               2,872         7.6        3,144         9.1
Net income attributable to noncontrolling interests        438         1.2  

421 1.2

Net income attributable to HCA Healthcare, Inc.$ 2,434 6.4

   $  2,723         7.9

% changes from prior year:
Revenues                                                   9.9 %                    7.3 %
Income before income taxes                                (5.4 )                   28.0
Net income attributable to HCA Healthcare, Inc.          (10.6 )                   56.4
Admissions(a)                                              4.6                      4.1
Equivalent admissions(b)                                   6.2                      4.7
Revenue per equivalent admission                           3.5              

2.5

Same facility % changes from prior year(c):
Revenues                                                   5.7                      6.6
Admissions(a)                                              2.1                      2.7
Equivalent admissions(b)                                   3.0                      2.7
Revenue per equivalent admission                           2.6                      3.8





(a) Represents the total number of patients admitted to our hospitals and is used

by management and certain investors as a general measure of inpatient volume.

(b) Equivalent admissions are used by management and certain investors as a

general measure of combined inpatient and outpatient volume. Equivalent

admissions are computed by multiplying admissions (inpatient volume) by the

sum of gross inpatient revenues and gross outpatient revenues and then

dividing the resulting amount by gross inpatient revenues. The equivalent

admissions computation "equates" outpatient revenues to the volume measure

(admissions) used to measure inpatient volume, resulting in a general measure

    of combined inpatient and outpatient volume.




(c) Same facility information excludes the operations of hospitals and their

related facilities which were either acquired or divested during the current

    and prior period.






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Table of Contents

                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended September 30, 2019 and 2018
Revenues increased to $12.694 billion in the third quarter of 2019 from
$11.451 billion in the third quarter of 2018. Net income attributable to HCA
Healthcare, Inc. totaled $612 million, or $1.76 per diluted share, for the
quarter ended September 30, 2019, compared to $759 million, or $2.15 per diluted
share, for the quarter ended September 30, 2018. Third quarter results for 2019
and 2018 include losses on retirement of debt of $211 million, or $0.47 per
diluted share, and $9 million, or $0.02 per diluted share, respectively. During
the third quarter of 2018, we recorded a reduction to the provision for income
taxes of $28 million, or $0.08 per diluted share, for tax credits related to
certain 2017 hurricane-related expenses. Our provisions for income taxes for the
third quarters of 2019 and 2018 also included tax benefits of $3 million, or
$0.01 per diluted share, and $23 million, or $0.07 per diluted share,
respectively, related to employee equity award settlements. All "per diluted
share" disclosures are based upon amounts net of the applicable income taxes.
Shares used for diluted earnings per share were 347.487 million shares for the
quarter ended September 30, 2019 and 353.639 million shares for the quarter
ended September 30, 2018. During 2018 and the first nine months of 2019, we
repurchased 14.070 million shares and 5.880 million shares of our common stock,
respectively.
Revenues increased 10.9% primarily due to the combined impact of revenue per
equivalent admission growth of 3.1% and a 7.5% increase in equivalent admissions
for the third quarter of 2019 compared to the third quarter of 2018. Same
facility revenues increased 6.3% primarily due to the combined impact of a 2.0%
increase in same facility revenue per equivalent admission and a 4.2% increase
in same facility equivalent admissions for the third quarter of 2019 compared to
the third quarter of 2018.
Salaries and benefits, as a percentage of revenues, were 47.0% in the third
quarter of 2019 and 46.9% in the third quarter of 2018. Salaries and benefits
per equivalent admission increased 3.3% in the third quarter of 2019 compared to
the third quarter of 2018. Same facility labor rate increases averaged 2.7% for
the third quarter of 2019 compared to the third quarter of 2018.
Supplies, as a percentage of revenues, were 16.5% in each of the third quarters
of 2019 and 2018. Supply costs per equivalent admission increased 2.9% in the
third quarter of 2019 compared to the third quarter of 2018. Supply costs per
equivalent admission increased 2.2% for medical devices, 9.4% for pharmacy
supplies and 0.8% for general medical and surgical items in the third quarter of
2019 compared to the third quarter of 2018.
Same facility supply costs per equivalent admission increased 0.9% in the third
quarter of 2019 compared to the third quarter of 2018. Same facility supply
costs per equivalent admission increased 1.5% for medical devices and 1.6% for
general medical and surgical items and declined 2.4% for pharmacy supplies in
the third quarter of 2019 compared to the third quarter of 2018.
Other operating expenses, as a percentage of revenues, were 18.5% in the third
quarter of 2019 and 18.4% in the third quarter of 2018. Other operating expenses
is primarily comprised of contract services, professional fees, repairs and
maintenance, rents and leases, utilities, insurance (including professional
liability insurance) and nonincome taxes. Provisions for losses related to
professional liability risks were $89 million and $60 million for the third
quarters of 2019 and 2018, respectively. During the third quarters of 2019 and
2018, we recorded reductions of $50 million, or $0.11 per diluted share, and
$70 million, or $0.15 per diluted share, respectively, to our provision for
professional liability risks related to the receipt of updated actuarial
information.
Equity in earnings of affiliates was $4 million and $9 million in the third
quarters of 2019 and 2018, respectively.

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Table of Contents

                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended September 30, 2019 and 2018 (continued)
Depreciation and amortization increased $65 million, from $582 million in the
third quarter of 2018 to $647 million in the third quarter of 2019. The increase
in depreciation relates to both acquired facilities and increased capital
expenditures at our existing facilities.
Interest expense was $448 million in the third quarter of 2019 and $442 million
in the third quarter of 2018. Our average debt balance was $34.693 billion for
the third quarter of 2019 compared to $33.091 billion for the third quarter of
2018. The average effective interest rate for our long-term debt declined to
5.1% from 5.3% for the quarters ended September 30, 2019 and 2018, respectively.
During the third quarter of 2018, we recorded net gains on sales of facilities
of $6 million.
During June 2019, we issued $5.000 billion aggregate principal amount of senior
secured notes comprised of $2.000 billion aggregate principal amount of 4 1/8%
notes due 2029, $1.000 billion aggregate principal amount of 5 1/8% notes due
2039 and $2.000 billion aggregate principal amount of 5 1/4% notes due 2049.
During July 2019, we redeemed all $600 million outstanding aggregate principal
amount of 4.250% senior secured notes due 2019, all $3.000 billion outstanding
aggregate principal amount of 6.500% senior secured notes due 2020 and all
$1.350 billion outstanding aggregate principal amount of 5.875% senior secured
notes due 2022. The pretax loss on retirement of debt for these redemptions was
$211 million. During August 2018, we issued $2.000 billion aggregate principal
amount of senior notes comprised of $1.000 billion aggregate principal amount of
5.375% notes due 2026 and $1.000 billion aggregate principal amount of 5.625%
notes due 2028. We used the net proceeds for general corporate purposes,
including funding the purchase of a hospital, and the redemption of all
$1.500 billion aggregate principal amount of our existing 3.750% senior secured
notes maturing in March 2019. The pretax loss on retirement of debt was
$9 million.
The effective tax rates were 26.0% and 18.6% for the third quarters of 2019 and
2018, respectively. The effective tax rate computations exclude net income
attributable to noncontrolling interests as it relates to consolidated
partnerships. Our provisions for income taxes for the third quarters of 2019 and
2018 included tax benefits of $3 million and $23 million, respectively, related
to employee equity award settlements. Our provision for income taxes for the
third quarter of 2018 also included $28 million of reductions for tax credits
related to certain 2017 hurricane-related expenses. Excluding the effect of
these adjustments, the effective tax rate for the third quarters of 2019 and
2018 would have been 26.5% and 24.1%, respectively.
Net income attributable to noncontrolling interests increased from $137 million
for the third quarter of 2018 to $152 million for the third quarter of 2019. The
largest component of the increase related to the operations of our surgery
center partnerships.
Nine Months Ended September 30, 2019 and 2018
Revenues increased to $37.813 billion in the first nine months of 2019 from
$34.403 billion in the first nine months of 2018. Net income attributable to HCA
Healthcare, Inc. totaled $2.434 billion, or $6.98 per diluted share, for the
first nine months ended September 30, 2019, compared to $2.723 billion, or $7.65
per diluted share, for the first nine months ended September 30, 2018. Results
for the first nine months of 2019 and 2018 included net gains on sales of
facilities of $17 million, or $0.04 per diluted share, and $420 million, or
$0.89 per diluted share, and losses on retirement of debt of $211 million, or
$0.47 per diluted share, and $9 million, or $0.02 per diluted share,
respectively. Revenues for the first nine months of 2019 include $86 million, or
$0.19 per diluted share, related to the resolution of transaction price
differences regarding certain
out-of-network
services performed in prior periods. During the nine months ended September 30,
2018, we recorded a reduction to the provision for income taxes of $28 million,
or $0.08

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                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Nine Months Ended September 30, 2019 and 2018 (continued)
per diluted share, for tax credits related to certain 2017 hurricane-related
expenses. Our provision for income taxes for the first nine months of 2019 and
2018 included tax benefits of $56 million, or $0.16 per diluted share, and
$119 million, or $0.33 per diluted share, respectively, related to employee
equity award settlements. All "per diluted share" disclosures are based upon
amounts net of the applicable income taxes. Shares used for diluted earnings per
share were 348.712 million shares for the nine months ended September 30, 2019
and 356.124 million shares for the nine months ended September 30, 2018. During
2018 and the first nine months of 2019, we repurchased 14.070 million shares and
5.880 million shares of our common stock, respectively.

Revenues increased 9.9% primarily due to the combined impact of revenue per
equivalent admission growth of 3.5% and a 6.2% increase in equivalent admissions
for the first nine months of 2019 compared to the first nine months of 2018.
Same facility revenues increased 5.7% primarily due to the combined impact of a
2.6% increase in same facility revenue per equivalent admission and a 3.0%
increase in same facility equivalent admissions for the first nine months of
2019 compared to the first nine months of 2018.
Salaries and benefits, as a percentage of revenues, were 46.2% in the first nine
months of 2019 and 46.3% in the first nine months of 2018. Salaries and benefits
per equivalent admission increased 3.2% in the first nine months of 2019
compared to the first nine months of 2018. Same facility labor rate increases
averaged 2.7% for the first nine months of 2019 compared to the first nine
months of 2018.
Supplies, as a percentage of revenues, were 16.5% in the first nine months of
2019 and 16.6% in the first nine months of 2018. Supply costs per equivalent
admission increased 2.9% in the first nine months of 2019 compared to the first
nine months of 2018. Supply costs per equivalent admission increased 2.7% for
medical devices, 8.1% for pharmacy supplies and 0.9% for general medical and
surgical items in the first nine months of 2019 compared to the first nine
months of 2018.
Same facility supply costs per equivalent admission increased 1.0% in the first
nine months of 2019 compared to the first nine months of 2018. Same facility
supply costs per equivalent admission increased 1.1% for medical devices and
2.4% for general medical and surgical items and declined 2.6% for pharmacy
supplies in the first nine months of 2019 compared to the first nine months of
2018.
Other operating expenses, as a percentage of revenues, were 18.6% in the first
nine months of 2019 and 18.5% in the first nine months of 2018. Other operating
expenses is primarily comprised of contract services, professional fees, repairs
and maintenance, rents and leases, utilities, insurance (including professional
liability insurance) and nonincome taxes. Provisions for losses related to
professional liability risks were $358 million and $312 million for the first
nine months of 2019 and 2018, respectively. During the first nine months of 2019
and 2018, we recorded reductions of $50 million, or $0.11 per diluted share, and
$70 million, or $0.15 per diluted share, respectively, to our provision for
professional liability risks related to the receipt of updated actuarial
information.
Equity in earnings of affiliates was $23 million and $25 million in the first
nine months of 2019 and 2018, respectively.
Depreciation and amortization increased $205 million, from $1.697 billion in the
first nine months of 2018 to $1.902 billion in the first nine months of 2019.
The increase in depreciation related to both acquired facilities and increased
capital expenditures at our existing facilities.
Interest expense was $1.386 billion in the first nine months of 2019 and
$1.309 billion in the first nine months of 2018. Our average debt balance was
$34.422 billion for the first nine months of 2019 compared to

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                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Nine Months Ended September 30, 2019 and 2018 (continued)
$33.129 billion for the first nine months of 2018. The average effective
interest rate for our long-term debt increased to 5.4% from 5.3% for the nine
months ended September 30, 2019 and 2018, respectively.
During the first nine months of 2019 and 2018, we recorded net gains on sales of
facilities of $17 million and $420 million, respectively. The net gains on sales
of facilities for 2018 related primarily to the sale of the two hospital
facilities in our Oklahoma market.
During June 2019, we issued $5.000 billion aggregate principal amount of senior
secured notes comprised of $2.000 billion aggregate principal amount of 4 1/8%
notes due 2029, $1.000 billion aggregate principal amount of 5 1/8% notes due
2039 and $2.000 billion aggregate principal amount of 5 1/4% notes due 2049.
During July 2019, we redeemed all $600 million outstanding aggregate principal
amount of 4.250% senior secured notes due 2019, all $3.000 billion outstanding
aggregate principal amount of 6.500% senior secured notes due 2020 and all
$1.350 billion outstanding aggregate principal amount of 5.875% senior secured
notes due 2022. The pretax loss on retirement of debt for these redemptions was
$211 million. During August 2018, we issued $2.000 billion aggregate principal
amount of senior notes comprised of $1.000 billion aggregate principal amount of
5.375% notes due 2026 and $1.000 billion aggregate principal amount of 5.625%
notes due 2028. We used the net proceeds for general corporate purposes,
including funding the purchase of a hospital, and the redemption of all
$1.500 billion aggregate principal amount of our existing 3.750% senior secured
notes maturing in March 2019. The pretax loss on retirement of debt was
$9 million.
The effective tax rates were 23.9% and 20.5% for the first nine months of 2019
and 2018, respectively. The effective tax rate computations exclude net income
attributable to noncontrolling interests as it relates to consolidated
partnerships. Our provisions for income taxes for the first nine months of 2019
and 2018 included tax benefits of $56 million and $119 million, respectively,
related to employee equity award settlements. Our provisions for income taxes
for the first nine months of 2018 also included $28 million of reductions for
tax credits related to certain 2017 hurricane-related expenses. Excluding the
effect of these adjustments, the effective tax rate for the first nine months of
2019 and 2018 would have been 25.7% and 24.8%, respectively.
Net income attributable to noncontrolling interests increased from $421 million
for the first nine months of 2018 to $438 million for the first nine months of
2019. The largest component of the increase related to the operations of our
surgery center partnerships.
Liquidity and Capital Resources
Cash provided by operating activities totaled $5.097 billion in the first nine
months of 2019 compared to $4.586 billion in the first nine months of 2018. The
$511 million increase in cash provided by operating activities in the first nine
months of 2019 compared to the first nine months of 2018 related primarily to
the combined effect of an increase in net income, excluding gains on sales of
facilities and losses on retirement of debt, of $333 million and an increase in
depreciation expense of $205 million. The combined interest payments and net tax
payments in the first nine months of 2019 and 2018 were $2.206 billion and
$2.124 billion, respectively. Working capital totaled $3.645 billion at
September 30, 2019 and $2.644 billion at December 31, 2018.
Cash used in investing activities was $4.375 billion in the first nine months of
2019 compared to $2.615 billion in the first nine months of 2018. Acquisitions
of hospitals and health care entities increased from $1.056 billion in the first
nine months of 2018 to $1.592 billion in the first nine months of 2019,
primarily related to an acquisition of a seven-hospital health system in North
Carolina. Excluding acquisitions, capital expenditures were $2.884 billion in
the first nine months of 2019 and $2.420 billion in the first nine months of

                                       39

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                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
2018. Capital expenditures, excluding acquisitions, are expected to approximate
$3.8 billion in 2019. At September 30, 2019, there were projects under
construction which had estimated additional costs to complete and equip over the
next five years of approximately $3.2 billion. We expect to finance capital
expenditures with internally generated and borrowed funds. Cash received from
disposals of hospitals and health care entities declined $753 million for the
first nine months of 2019 compared to the first nine months of 2018 primarily
related to the receipt of $758 million in 2018 from the sale of the two hospital
facilities in our Oklahoma market.
Cash used in financing activities totaled $661 million in the first nine months
of 2019 compared to $2.114 billion in the first nine months of 2018. During the
first nine months of 2019, net cash flows used in financing activities included
a net increase of $1.132 billion in our indebtedness, payments of cash dividends
of $414 million, repurchases of common stock of $759 million, distributions to
noncontrolling interests of $404 million and payments of debt issuance costs of
$71 million. During the first nine months of 2018, net cash flows used in
financing activities included a net increase of $18 million in our indebtedness,
payment of cash dividends of $366 million, repurchases of common stock of
$1.195 billion and distributions to noncontrolling interests of $315 million.
We are a highly leveraged company with significant debt service requirements.
Our debt totaled $34.245 billion at September 30, 2019. Our interest expense was
$1.386 billion for the first nine months of 2019 and $1.309 billion for the
first nine months of 2018.
In addition to cash flows from operations, available sources of capital include
amounts available under our senior secured credit facilities ($2.708 billion and
$2.978 billion available as of September 30, 2019 and October 31, 2019,
respectively) and anticipated access to public and private debt markets.
During January 2019, we issued $1.500 billion aggregate principal amount of
senior unsecured notes comprised of $1.000 billion aggregate principal amount of
5.875% notes due 2029 and $500 million aggregate principal amount of 5.625%
notes due 2028. We used the net proceeds to fund the purchase of a
seven-hospital health system located in western North Carolina.
During June 2019, we issued $5.000 billion aggregate principal amount of senior
secured notes comprised of $2.000 billion aggregate principal amount of 4 1/8%
notes due 2029, $1.000 billion aggregate principal amount of 5 1/8% notes due
2039 and $2.000 billion aggregate principal amount of 5 1/4% notes due 2049.
During July 2019, we redeemed all $600 million outstanding aggregate principal
amount of 4.250% senior secured notes due 2019, all $3.000 billion outstanding
aggregate principal amount of 6.500% senior secured notes due 2020 and all
$1.350 billion outstanding aggregate principal amount of 5.875% senior secured
notes due 2022.
During July 2019, we entered into a joinder agreement to refinance our existing
$1.120 billion senior secured term

A-5

loan credit facility maturing on June 10, 2020 with a new $1.120 billion senior secured term

A-6

 loan credit facility maturing on July 16, 2024.
Investments of our professional liability insurance subsidiaries, held to
maintain statutory equity levels and to provide liquidity to pay claims, totaled
$453 million and $409 million at September 30, 2019 and December 31, 2018,
respectively. An insurance subsidiary maintained net reserves for professional
liability risks of $179 million and $183 million at September 30, 2019 and
December 31, 2018, respectively. Our facilities are insured by a 100% owned
insurance subsidiary for losses up to $50 million per occurrence; however, this
coverage is generally subject, in most cases, to a $15 million per occurrence
self-insured retention. Net reserves for the self-insured professional liability
risks retained were $1.581 billion and $1.509 billion at September 30, 2019 and
December 31, 2018, respectively. Claims payments, net of reinsurance recoveries,
during the next

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                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
12 months are expected to approximate $449 million. We estimate that
approximately $409 million of the expected net claim payments during the next
12 months will relate to claims subject to the self-insured retention.
Management believes that cash flows from operations, amounts available under our
senior secured credit facilities and our anticipated access to public and
private debt markets will be sufficient to meet expected liquidity needs during
the next 12 months.
Market Risk
We are exposed to market risk related to changes in market values of securities.
The investments in our 100% owned insurance subsidiaries were $453 million at
September 30, 2019. These investments are carried at fair value, with changes in
unrealized gains and losses being recorded as adjustments to other comprehensive
income. At September 30, 2019, we had a net unrealized gain of $19 million on
the insurance subsidiaries' investments.
We are exposed to market risk related to market illiquidity. Investments in debt
and equity securities of our 100% owned insurance subsidiaries could be impaired
by the inability to access the capital markets. Should the 100% owned insurance
subsidiaries require significant amounts of cash in excess of normal cash
requirements to pay claims and other expenses on short notice, we may have
difficulty selling these investments in a timely manner or be forced to sell
them at a price less than what we might otherwise have been able to in a normal
market environment. We may be required to recognize other-than-temporary
impairments on our investment securities in future periods should issuers
default on interest payments or should the fair market valuations of the
securities deteriorate due to ratings downgrades or other issue-specific
factors.
We are also exposed to market risk related to changes in interest rates, and we
periodically enter into interest rate swap agreements to manage our exposure to
these fluctuations. Our interest rate swap agreements involve the exchange of
fixed and variable rate interest payments between two parties, based on common
notional principal amounts and maturity dates. The notional amounts of the swap
agreements represent balances used to calculate the exchange of cash flows and
are not our assets or liabilities. Our credit risk related to these agreements
is considered low because the swap agreements are with creditworthy financial
institutions. The interest payments under these agreements are settled on a net
basis. These derivatives have been recognized in the financial statements at
their respective fair values. Changes in the fair value of these derivatives,
which are designated as cash flow hedges, are included in other comprehensive
income, and changes in the fair value of derivatives which have not been
designated as hedges are recorded in operations.
With respect to our interest-bearing liabilities, approximately $4.249 billion
of long-term debt at September 30, 2019 was subject to variable rates of
interest, while the remaining balance in long-term debt of $29.996 billion at
September 30, 2019 was subject to fixed rates of interest. Both the general
level of interest rates and, for the senior secured credit facilities, our
leverage affect our variable interest rates. Our variable debt is comprised
primarily of amounts outstanding under the senior secured credit facilities.
Borrowings under the senior secured credit facilities bear interest at a rate
equal to an applicable margin plus, at our option, either (a) a base rate
determined by reference to the higher of (1) the federal funds rate plus 0.50%
or (2) the prime rate of Bank of America or (b) a LIBOR rate for the currency of
such borrowing for the relevant interest period. The applicable margin for
borrowings under the senior secured credit facilities may fluctuate according to
a leverage ratio. The average effective interest rate for our long-term debt was
5.4% and 5.3% for the nine months ended September 30, 2019 and 2018,
respectively.
The estimated fair value of our total long-term debt was $37.162 billion at
September 30, 2019. The estimates of fair value are based upon the quoted market
prices for the same or similar issues of long-term debt

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                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Market Risk (continued)
with the same maturities. Based on a hypothetical 1% increase in interest rates,
the potential annualized reduction to future pretax earnings would be
approximately $42 million. To mitigate the impact of fluctuations in interest
rates, we generally target a portion of our debt portfolio to be maintained at
fixed rates.
We are exposed to currency translation risk related to our foreign operations.
We currently do not consider the market risk related to foreign currency
translation to be material to our consolidated financial statements or our
liquidity.
Tax Examinations
The Internal Revenue Service began an examination of the Company's 2016 and 2017
federal income tax returns during 2019. We are also subject to examination by
state and foreign taxing authorities. Management believes HCA Healthcare, Inc.
and its predecessors, subsidiaries and affiliates properly reported taxable
income and paid taxes in accordance with applicable laws and agreements
established with IRS, state and foreign taxing authorities and final resolution
of any disputes will not have a material, adverse effect on our results of
operations or financial position. However, if payments due upon final resolution
of any issues exceed our recorded estimates, such resolutions could have a
material, adverse effect on our results of operations or financial position.
                                 Operating Data

                                                                   2019           2018
Number of hospitals in operation at:
March 31                                                              185            178
June 30                                                               184            178
September 30                                                          184            179
December 31                                                                          179
Number of freestanding outpatient surgical centers in
operation at:
March 31                                                              124            120
June 30                                                               125            122
September 30                                                          125            122
December 31                                                                          123
Licensed hospital beds at(a):
March 31                                                           48,455         46,745
June 30                                                            48,483         46,723
September 30                                                       48,588         47,060
December 31                                                                       47,199
Weighted average licensed beds(b):
Quarter:
First                                                              48,036         46,686
Second                                                             48,429         46,667
Third                                                              48,535         46,909
Fourth                                                                            47,159
Year                                                                              46,857
Average daily census(c):
Quarter:
First                                                              28,966         28,130





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  Table of Contents
                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
                           Operating Data (continued)

                                       2019            2018
Second                                   27,808          26,047
Third                                    27,502          25,991
Fourth                                                   26,510
Year                                                     26,663
Admissions(d):
Quarter:
First                                   523,196         507,873
Second                                  518,253         494,610
Third                                   527,284         497,899
Fourth                                                  503,371
Year                                                  2,003,753
Equivalent admissions(e):
Quarter:
First                                   889,956         849,164
Second                                  903,419         851,047
Third                                   918,964         854,940
Fourth                                                  865,255
Year                                                  3,420,406
Average length of stay (days)(f):
Quarter:
First                                       5.0             5.0
Second                                      4.9             4.8
Third                                       4.8             4.8
Fourth                                                      4.8
Emergency room visits(g):
Quarter:
First                                 2,287,440       2,302,112
Second                                2,253,337       2,148,338
Third                                 2,269,364       2,139,375
Fourth                                                2,174,606
Year                                                  8,764,431
Outpatient surgeries(h):
Quarter:
First                                   240,846         232,483
Second                                  253,441         246,013
Third                                   249,177         236,801
Fourth                                                  256,240
Year                                                    971,537
Inpatient surgeries(i):
Quarter:
First                                   137,363         135,036
Second                                  140,473         137,403
Third                                   143,215         137,156
Fourth                                                  138,625
Year                                                    548,220





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  Table of Contents
                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
                           Operating Data (continued)

                                                     2019      2018
Days revenues in accounts receivable(j):
Quarter:
First                                                   53        50
Second                                                  52        52
Third                                                   52        52
Fourth                                                            51
Outpatient revenues as a % of patient revenues(k):
Quarter:
First                                                   38 %      37 %
Second                                                  39 %      39 %
Third                                                   39 %      39 %
Fourth                                                            38 %
Year                                                              38 %



(a) Licensed beds are those beds for which a facility has been granted approval

    to operate from the applicable state licensing agency.






(b) Represents the average number of licensed beds, weighted based on periods

    owned.





(c) Represents the average number of patients in our hospital beds each day.

(d) Represents the total number of patients admitted to our hospitals and is used

by management and certain investors as a general measure of inpatient volume.

(e) Equivalent admissions are used by management and certain investors as a

general measure of combined inpatient and outpatient volume. Equivalent

admissions are computed by multiplying admissions (inpatient volume) by the

sum of gross inpatient revenues and gross outpatient revenues and then

dividing the resulting amount by gross inpatient revenues. The equivalent

admissions computation "equates" outpatient revenues to the volume measure

(admissions) used to measure inpatient volume resulting in a general measure

    of combined inpatient and outpatient volume.





(f) Represents the average number of days admitted patients stay in our

    hospitals.





(g) Represents the number of patients treated in our emergency rooms.

(h) Represents the number of surgeries performed on patients who were not

admitted to our hospitals. Pain management and endoscopy procedures are not

included in outpatient surgeries. Reclassifications between inpatient surgery

cases and outpatient surgery cases for 2018 have been made to conform to the

    2019 presentation.





(i) Represents the number of surgeries performed on patients who have been

admitted to our hospitals. Pain management and endoscopy procedures are not

included in inpatient surgeries. Reclassifications between inpatient surgery

cases and outpatient surgery cases for 2018 have been made to conform to the

    2019 presentation.





(j) Revenues per day is calculated by dividing revenues for the quarter by the

days in the quarter. Days revenues in accounts receivable is then calculated

as accounts receivable at the end of the quarter divided by revenues per day.

(k) Represents the percentage of patient revenues related to patients who are not

    admitted to our hospitals.







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