Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nyse  >  Universal Health Services    UHS

UNIVERSAL HEALTH SERVICES

(UHS)
  Report  
Delayed Quote. Delayed Nyse - 12/06 04:02:36 pm
144.71 USD   +2.02%
12/04UNIVERSAL HEALTH SERVICES : Ex-dividend day for
FA
11/20UNIVERSAL HEALTH SERVICES, INC. : Announces Dividend
PR
11/20UNIVERSAL HEALTH SERVICES : Dividends
CO
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsPress ReleasesOfficial PublicationsSector news

UNIVERSAL HEALTH SERVICES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

share with twitter share with LinkedIn share with facebook
share via e-mail
0
11/08/2019 | 04:22pm EST

Overview

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


As of September 30, 2019, we owned and/or operated 353 inpatient facilities and
40 outpatient and other facilities including the following located in 37 states,
Washington, D.C., the United Kingdom and Puerto Rico:

Acute care facilities located in the U.S.:

  • 26 inpatient acute care hospitals;


  • 12 free-standing emergency departments, and;


  • 6 outpatient centers & 1 surgical hospital.

Behavioral health care facilities (327 inpatient facilities and 21 outpatient facilities):


Located in the U.S.:

  • 186 inpatient behavioral health care facilities, and;


  • 19 outpatient behavioral health care facilities.

Located in the U.K.:

  • 138 inpatient behavioral health care facilities, and;


  • 2 outpatient behavioral health care facilities.

Located in Puerto Rico:

• 3 inpatient behavioral health care facilities.



As a percentage of our consolidated net revenues, net revenues from our acute
care hospitals, outpatient facilities and commercial health insurer accounted
for 54% and 52% during the three-month periods ended September 30, 2019 and
2018, respectively, and 54% and 53% during the nine-month period ended September
30, 2019 and 2018, respectively. Net revenues from our behavioral health care
facilities and commercial health insurer accounted for 46% and 48% of our
consolidated net revenues during the three-month periods ended September 30,
2019 and 2018, respectively, and 46% and 47% during the nine-month periods ended
September 30, 2019 and 2018, respectively.



Our behavioral health care facilities located in the U.K. generated net revenues
of approximately $135 million and $130 million during the three-month periods
ended September 30, 2019 and 2018, respectively, and $415 million and $364
million for the nine-month periods ended September 30, 2019 and 2018,
respectively. Total assets at our U.K. behavioral health care facilities were
approximately $1.175 billion as of September 30, 2019 and $1.224 billion as of
December 31, 2018.

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 Quarterly Report,
and should particularly consider any risk factors that we set forth in this
Quarterly Report and in other reports or documents that we file from time to
time with the Securities and Exchange Commission (the "SEC"). In this Quarterly
Report, we state our beliefs of future events and of our future financial
performance. This Quarterly 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 strategies, financing plans,
expectations that regulatory developments or other matters 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, 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 detailed in our filings with the SEC including those set forth herein and
in our Annual Report on Form 10-K for the year ended December 31, 2018 in
Item 1A. Risk Factors and in Item 7.

                                       29

--------------------------------------------------------------------------------

Management's Discussion and Analysis of Financial Condition and Results of Operations-Forward Looking Statements and 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 could cause actual performance or results to differ
materially from those expressed in the statements. Such factors include, among
other things, the following:

• our ability to comply with the existing laws and government regulations,

and/or changes in laws and government regulations;

• 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. Legislation has already been enacted that has
        eliminated the penalty for failing to maintain health coverage that was
        part of the original Legislation. President Trump has already taken

executive actions: (i) requiring all federal agencies with authorities and

responsibilities under the Legislation to "exercise all authority and

discretion available to them to waiver, defer, grant exemptions from, or

delay" parts of the Legislation that place "unwarranted economic and

regulatory burdens" on states, individuals or health care providers; (ii)

the issuance of a final rule in June, 2018 by the Department of Labor to

enable the formation of association health plans that would be exempt from

certain Legislation requirements such as the provision of essential health

benefits; (iii) the issuance of a final rule in August, 2018 by the

Department of Labor, Treasury, and Health and Human Services to expand the

availability of short-term, limited duration health insurance, (iv)

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; (v)

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; (vi) the issuance of a final rule in June, 2019

by the Departments of Labor, Treasury, and Health and Human Services that

would incentivize the use of health reimbursement arrangements by

employers to permit employees to purchase health insurance in the

individual market, and; (vii) directing the issuance of federal rulemaking

        by executive agencies to increase transparency of healthcare price and
        quality information. The uncertainty resulting from these Executive Branch
        policies has led to reduced Exchange enrollment in 2018 and 2019 and is
        expected to further worsen the individual and small group market risk
        pools in future years. It is also anticipated that these and future
        policies may create additional cost and reimbursement pressures on
        hospitals, including ours. In addition, while attempts to repeal the

entirety of the Affordable Care Act ("ACA") have not been successful to

date, a key provision of the ACA was repealed as part of the Tax Cuts and

Jobs Act and on December 14, 2018, a federal U.S. District Court Judge in

Texas ruled the entire ACA is unconstitutional. While that ruling is

stayed and has been appealed, it has caused greater uncertainty regarding

the future status of the ACA. If all or any parts of the ACA are found to

be unconstitutional, it could have a material adverse effect on our

business, financial condition and results of operations. See below in

Sources of Revenue and Health Care Reform for additional disclosure;

• 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;

• our ability to enter into managed care provider agreements on acceptable

        terms and the ability of our competitors to do the same, including
        contracts with United/Sierra Healthcare in Las Vegas, Nevada;

• 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 Item 1. Legal Proceedings,

        and the effects of adverse publicity relating to such matters;


    •   the potential unfavorable impact on our business of deterioration in

national, regional and local economic and business conditions, including a

worsening of unfavorable credit market conditions;

• competition from other healthcare providers (including physician owned

facilities) in certain markets;

• technological and pharmaceutical improvements that increase the cost of

providing, or reduce the demand for healthcare;

• 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;


  • demographic changes;

• 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;


                                       30

--------------------------------------------------------------------------------

• the impact of severe weather conditions, including the effects of hurricanes;

• 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 Medicaid revenues in excess of $100 million

annually from each of California, Texas, Nevada, Washington, D.C.,

Pennsylvania and Illinois); CMS-approved Medicaid supplemental programs in

certain states including Texas, Mississippi, Illinois, Oklahoma, Nevada,

Arkansas, California and Indiana, and; state 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, particularly in the above-mentioned states, will not have a
        material adverse effect on our future results of operations;

• our ability to continue to obtain capital on acceptable terms, including

borrowed funds, to fund the future growth of our business;

• our inpatient acute care and behavioral health care facilities may

experience decreasing admission and length of stay trends;

• 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;

• in August, 2011, the Budget Control Act of 2011 (the "2011 Act") was

enacted into law. 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. 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;

• 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;


  • changes in our business strategies or development plans;


• in June, 2016, the United Kingdom affirmatively voted in a non-binding

referendum in favor of the exit of the United Kingdom from the European

Union (the "Brexit") and it has been 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, currently scheduled for January 31, 2020. The

government of the United Kingdom and the European Union have negotiated an

agreement by which the United Kingdom would withdraw from the European

        Union, but on October 22, 2019, the British legislature rejected the
        government's timetable for ratifying the withdrawal agreement,
        necessitating the most recent postponement of Brexit. As a result, the
        United Kingdom's government decided to set aside the bill to ratify and

implement the withdrawal agreement and to call for a general election,

which is scheduled for December 12, 2019. When or whether the United

Kingdom will actually exit the European Union continues to be uncertain.

        The actual exit of the United Kingdom from the European Union could cause
        disruptions to and create uncertainty surrounding our business. Any of
        these effects of Brexit (and the announcement thereof), and others we
        cannot anticipate, could harm our business, financial condition and
        results of operations;


  • fluctuations in the value of our common stock, and;


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


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.

                                       31

--------------------------------------------------------------------------------

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in our consolidated financial statements and
accompanying notes. We consider our critical accounting policies to be those
that require us to make significant judgments and estimates when we prepare our
consolidated financial statements. For a summary of our significant accounting
policies, please see Note 1 to the Consolidated Financial Statements as included
in our Annual Report on Form 10-K for the year ended December 31, 2018.

Revenue Recognition:  On January 1, 2018, we adopted, using the modified
retrospective approach, ASU 2014-09 and ASU 2016-08, "Revenue from Contracts
with Customers (Topic 606)" and "Revenue from Contracts with Customers:
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)",
respectively, which provides guidance for revenue recognition. The standard's
core principle is that a company will recognize revenue when it transfers
promised goods or services to customers in an amount that reflects the
consideration to which the company expects to be entitled in exchange for those
goods or services. The most significant change from the adoption of the new
standard relates to our estimation for the allowance for doubtful accounts.
Under the previous standards, our estimate for amounts not expected to be
collected based upon our historical experience, were reflected as provision for
doubtful accounts, included within net revenue. Under the new standard, our
estimate for amounts not expected to be collected based on historical experience
will continue to be recognized as a reduction to net revenue, however, not
reflected separately as provision for doubtful accounts. Under the new standard,
subsequent changes in estimate of collectability due to a change in the
financial status of a payer, for example a bankruptcy, will be recognized as bad
debt expense in operating charges. The adoption of this ASU in 2018, and amounts
recognized as bad debt expense and included in other operating expenses, did not
have a material impact on our consolidated financial statements.



See Note 12 to the Consolidated Financial Statements-Revenue, 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.


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 agings of the receivables and historical collection experience,
consistent with our estimates for provisions for doubtful accounts under ASC
605. 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.

Under ASC 605, our hospitals established a partial reserve for self-pay accounts
in the allowance for doubtful accounts for both unbilled balances and those that
have been billed and were under 90 days old. All self-pay accounts were fully
reserved at 90 days from the date of discharge. Third party liability accounts
were fully reserved in the allowance for doubtful accounts when the balance aged
past 180 days from the date of discharge. Patients that express an inability to
pay were reviewed for potential sources of financial assistance including our
charity care policy. If the patient was deemed unwilling to pay, the account was
written-off as bad debt and transferred to an outside collection agency for
additional collection effort. Under ASC 606, while similar processes and
methodologies are considered, these revenue adjustments are considered at the
time the services are provided in determination of the transaction price.

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 less than 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
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

                                       32

--------------------------------------------------------------------------------
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 do not have a material impact on
our results of operations during the three or nine-month periods ended September
30, 2019 or the year ended December 31, 2018 since our facilities make estimates
at each financial reporting period to adjust revenue based on historical
collections. Under ASC 605, these estimates were reported in the provision for
doubtful accounts.

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.

The following tables show the amounts recorded at our acute care hospitals for
charity care and uninsured discounts, based on charges at established rates, for
the three and nine-month periods ended September 30, 2019 and 2018:

Uncompensated care:

Amounts in millions                                 Three Months Ended                                               Nine Months Ended
                                 September 30,                   September 30,                   September 30,                   September 30,
                                       2019            %               2018            %               2019            %               2018            %
Charity care                    $           152          26 %   $           204          41 %   $           438          27 %   $           536          39 %
Uninsured discounts                         424          74 %               297          59 %              1157          73 %               848          61 %
Total uncompensated care        $           576         100 %   $           501         100 %   $         1,595         100 %   $         1,384         100 %

Estimated cost of providing uncompensated care:


The estimated costs 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.



                                                 Three Months Ended                          Nine Months Ended
                                       September 30,           September 30,        September 30,          September 30,
Amounts in millions                           2019                    2018                 2019                  2018
Estimated cost of providing charity
care                                  $             18       $              26     $             51       $            66
Estimated cost of providing
uninsured discounts related care                    50                      37                  133                   104
Estimated cost of providing
uncompensated care                    $             68       $              63     $            184       $           170


Self-Insured/Other Insurance Risks: We provide for self-insured risks including
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 Reno, 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 6 to the Consolidated Financial Statements-Commitments and Contingencies, for additional disclosure related to our professional and general liability, workers' compensation liability and property insurance.

The total accrual for our professional and general liability claims and workers' compensation claims was $323 million as of September 30, 2019, of which $82 million is included in current liabilities. The total accrual for our professional and general liability

                                       33

--------------------------------------------------------------------------------

claims and workers' compensation claims was $315 million as of December 31, 2018, of which $82 million is included in current liabilities.

Recent Accounting Standards: For a summary of accounting standards, please see Note 14 to the Consolidated Financial Statements, as included herein.

Results of Operations

Three-month periods ended September 30, 2019 and 2018:

The following table summarizes our results of operations and is used in the discussion below for the three-month periods ended September 30, 2019 and 2018 (dollar amounts in thousands):



                                                Three months ended             Three months ended
                                                September 30, 2019             September 30, 2018
                                                             % of Net                       % of Net
                                              Amount         Revenues        Amount         Revenues
Net revenues                                $ 2,822,453          100.0 %   $ 2,648,913          100.0 %
Operating charges:
Salaries, wages and benefits                  1,408,226           49.9 %     1,316,710           49.7 %
Other operating expenses                        762,174           27.0 %       651,442           24.6 %
Supplies expense                                313,936           11.1 %       285,201           10.8 %
Depreciation and amortization                   121,528            4.3 %       112,286            4.2 %
Lease and rental expense                         27,660            1.0 %        26,110            1.0 %
Subtotal-operating expenses                   2,633,524           93.3 %     2,391,749           90.3 %
Income from operations                          188,929            6.7 %       257,164            9.7 %
Interest expense, net                            41,447            1.5 %        39,506            1.5 %
Other (income) expense, net                       9,407            0.3 %       (11,409 )         (0.4 )%
Income before income taxes                      138,075            4.9 %       229,067            8.6 %
Provision for income taxes                       37,205            1.3 %        54,186            2.0 %
Net income                                      100,870            3.6 %       174,881            6.6 %
Less: Income attributable to
noncontrolling interests                          3,680            0.1 %         3,135            0.1 %
Net income attributable to UHS              $    97,190            3.4 %   $   171,746            6.5 %




Net revenues increased 6.6%, or $174 million, to $2.82 billion during the
three-month period ended September 30, 2019 as compared to $2.65 billion during
the third quarter of 2018. The net increase was primarily attributable to: (i) a
$153 million or 6.0% increase in net revenues generated from our acute care
hospital services and behavioral health services operated during both periods
(which we refer to as "same facility"), and; (ii) $21 million of other combined
net increases due primarily to an increase in provider tax assessments which had
no impact on net income attributable to UHS as reflected above since the amounts
offset between net revenues and other operating expenses..

Income before income taxes (before deduction for income attributable to noncontrolling interests) decreased $91 million to $138 million during the three-month period ended September 30, 2019 as compared to $229 million during the comparable quarter of 2018. The $91 million net decrease was due to:

• a decrease of $98 million resulting from a provision for asset impairment

recorded during the third quarter of 2019, as discussed below in Other

Operating Results - Provision for Asset Impairment-Foundations Recovery

Network;

• an increase of $48 million due to the increase recorded during the third

quarter of 2018 to the reserve established in connection with the civil

aspects of the government's investigation of certain of our behavioral

health care facilities, see Item 1 - Legal Proceedings for additional

disclosure;

• a net decrease of $21 million due to a decrease in Other income/expense,

net, due primarily to: (i) a $26 million unfavorable change market value

of shares of certain marketable securities held for investment and

classified as available for sale (a pre-tax unrealized loss of $15 million

incurred during the third quarter of 2019 as compared to a pre-tax

unrealized gain of $11 million recorded during the third quarter of 2018),

partially offset by; (ii) $5 million of other combined net favorable

        changes consisting primarily of a $6 million gain on asset disposal
        recorded during the third quarter of 2019;

• an increase of $1 million at our acute care facilities as discussed below

        in Acute Care Hospital Services


                                       34

--------------------------------------------------------------------------------

• an increase of $1 million at our behavioral health care facilities, as

        discussed below in Behavioral Health Services (excluding the impact of the
        above-mentioned $98 million provision for asset impairment recorded during

the third quarter of 2019 in connection with Foundations Recovery Network,

        LLC);


    •   a decrease of $2 million due to an increase in interest expense, as
        discussed below in Other Operating Results-Interest Expense, and;


  • $20 million of other combined net decreases.


Net income attributable to UHS decreased $75 million to $97 million during the
three-month period ended September 30, 2019 as compared to $172 million during
the comparable prior year quarter. This decrease was attributable to:

• a $91 million decrease in income before income taxes, as discussed above;

• a decrease of $1 million due to an increase in income attributable to

noncontrolling interests, and;

• an increase of $17 million resulting from a decrease in the provision for

        income taxes due primarily to: (i) the income tax benefit recorded in
        connection with the $92 million decrease in pre-tax income; (ii) a
        decrease of $2 million resulting from our adoption of ASU 2016-09,
        partially offset by; (iii) a $6 million increase in the provision for

income taxes recorded during the third quarter of 2019 resulting from the

        net estimated federal and state income taxes due on the portion of the
        reserve established in connection with the civil aspects of the
        government's investigation of certain of our behavioral health care

facilities that is estimated to be non-deductible for income tax purposes

(see additional disclosure below in Other Operating Results-Provision for

Income Taxes and Effective Tax Rates)

Nine-month periods ended September 30, 2019 and 2018:

The following table summarizes our results of operations and is used in the discussion below for the nine-month periods ended September 30, 2019 and 2018 (dollar amounts in thousands):



                                               Nine months ended              Nine months ended
                                               September 30, 2019             September 30, 2018
                                                            % of Net                       % of Net
                                             Amount         Revenues        Amount         Revenues
Net revenues                               $ 8,482,012          100.0 %   $ 8,017,782          100.0 %
Operating charges:
Salaries, wages and benefits                 4,157,253           49.0 %     3,922,832           48.9 %
Other operating expenses                     2,079,518           24.5 %     1,896,745           23.7 %
Supplies expense                               927,256           10.9 %       867,863           10.8 %
Depreciation and amortization                  362,736            4.3 %       334,970            4.2 %
Lease and rental expense                        80,320            0.9 %        79,932            1.0 %
Subtotal-operating expenses                  7,607,083           89.7 %     7,102,342           88.6 %
Income from operations                         874,929           10.3 %       915,440           11.4 %
Interest expense, net                          123,574            1.5 %       115,082            1.4 %
Other (income) expense, net                      6,176            0.1 %       (26,717 )         (0.3 )%
Income before income taxes                     745,179            8.8 %       827,075           10.3 %
Provision for income taxes                     165,646            2.0 %       192,814            2.4 %
Net income                                     579,533            6.8 %       634,261            7.9 %
Less: Income attributable to
noncontrolling interests                         9,855            0.1 %        12,631            0.2 %
Net income attributable to UHS             $   569,678            6.7 %   $   621,630            7.8 %




Net revenues increased 5.8%, or $464 million, to $8.48 billion during the
nine-month period ended September 30, 2019 as compared to $8.02 billion during
the first nine months of 2018. The net increase was primarily attributable to:
(i) a $414 million or 5.3% increase in net revenues generated from our acute
care hospital services and behavioral health services operated during both
periods, and; (ii) $50 million of other combined net increases due primarily to
the revenues generated at 25 behavioral health facilities located in the U.K.
acquired during the third quarter of 2018 in connection with our acquisition of
The Danshell Group, and an increase in provider tax assessments which had no
impact on net income attributable to UHS as reflected above since the amounts
offset between net revenues and other operating expenses.

                                       35

--------------------------------------------------------------------------------

Income before income taxes (before deduction for income attributable to noncontrolling interests) decreased $82 million to $745 million during the nine-month period ended September 30, 2019 as compared to $827 million during the comparable period of 2018. The $82 million net decrease was due to:

• a decrease of $98 million resulting from a provision for asset impairment

recorded during the third quarter of 2019, as discussed below in Other

Operating Results - Provision for Asset Impairment-Foundations Recovery

Network;

• a net increase of $59 million due to a favorable change in the pre-tax

increases recorded during each of the nine-month periods ended September

30, 2019 and 2018 to the reserve established in connection with the civil

aspects of the government's investigation of certain of our behavioral

health care facilities ($11 million pre-tax reserve increase recorded

during the first nine months of 2019 as compared to a $70 million pre-tax

reserve increase recorded during the first nine months of 2018), see Item

1 - Legal Proceedings for additional disclosure;

• a net decrease of $33 million due to a decrease in Other income/expense,

net, due primarily to: (i) a $31 million unfavorable change in the market

value of shares of certain marketable securities held for investment and

classified as available for sale (a pre-tax unrealized loss of $13 million

incurred during the first nine months of 2019 as compared to a pre-tax

unrealized gain of $18 million recorded during the first nine months of

2018), and; (ii) $2 million of other combined net unfavorable changes

        consisting primarily of a $3 million decrease in gains on asset
        disposals;

• an increase of $15 million at our acute care facilities as discussed below

in Acute Care Hospital Services

• an increase of $12 million at our behavioral health care facilities, as

        discussed below in Behavioral Health Services (excluding the impact of the
        above-mentioned $98 million provision for asset impairment recorded during

the third quarter of 2019 in connection with Foundations Recovery Network,

        LLC);


    •   a decrease of $8 million due to an increase in interest expense, as
        discussed below in Other Operating Results-Interest Expense, and;


  • $29 million of other combined net decreases.


Net income attributable to UHS decreased $52 million to $570 million during the
nine-month period ended September 30, 2019 as compared to $622 million during
the comparable prior year period. This increase was attributable to:

• an $82 million decrease in income before income taxes, as discussed above;

• an increase of $3 million due to a decrease in income attributable to

noncontrolling interests, and;

• an increase of $27 million resulting from a decrease in the provision for

        income taxes due primarily to: (i) the income tax benefit recorded in
        connection with the $85 million decrease in pre-tax income; (ii) a
        decrease of $11 million resulting from our adoption of ASU 2016-09 which

decreased our provision for income taxes by approximately $12 million

during the first nine months of 2019, as compared to a decrease of

approximately $1 million during the first nine months of 2018, partially

        offset by; (iii) a $6 million increase in the provision for income taxes
        recorded during the nine-month ended September 30, 2019 (recorded during
        the third quarter of 2019) resulting from the net estimated federal and
        state income taxes due on the portion of the reserve established in
        connection with the civil aspects of the government's investigation of
        certain of our behavioral health care facilities that is estimated to be

non-deductible for income tax purposes (see additional disclosure below in

        Other Operating Results-Provision for Income Taxes and Effective Tax
        Rates)


Acute Care Hospital Services

Same Facility Basis Acute Care Hospital Services


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 GAAP and as
presented in the condensed consolidated financial statements and notes thereto
as contained in this Quarterly Report on Form 10-Q.

                                       36

--------------------------------------------------------------------------------
The following table summarizes the results of operations for our acute care
facilities on a same facility basis and is used in the discussion below for the
three and nine-month periods ended September 30, 2019 and 2018 (dollar amounts
in thousands):



                                          Three months ended             Three months ended             Nine months ended               Nine months ended
                                          September 30, 2019             September 30, 2018             September 30, 2019              September 30, 2018
                                                       % of Net                       % of Net                       % of Net                        % of Net
                                        Amount         Revenues        Amount         Revenues        Amount         Revenues         Amount         Revenues
Net revenues                          $ 1,502,383          100.0 %   $ 1,375,116          100.0 %   $ 4,491,738          100.0 %    $ 4,173,618          100.0 %
Operating charges:
Salaries, wages and benefits              652,804           43.5 %       596,903           43.4 %     1,894,713           42.2 %      1,762,797           42.2 %
Other operating expenses                  343,845           22.9 %       312,383           22.7 %     1,015,237           22.6 %        929,224           22.3 %
Supplies expense                          263,198           17.5 %       235,272           17.1 %       776,231           17.3 %        718,543           17.2 %
Depreciation and amortization              76,028            5.1 %        68,647            5.0 %       225,624            5.0 %        207,962            5.0 %
Lease and rental expense                   16,168            1.1 %        14,052            1.0 %        45,078            1.0 %         43,043            1.0 %
Subtotal-operating expenses             1,352,043           90.0 %     1,227,257           89.2 %     3,956,883           88.1 %      3,661,569           87.7 %
Income from operations                    150,340           10.0 %       147,859           10.8 %       534,855           11.9 %        512,049           12.3 %
Interest expense, net                         305            0.0 %           382            0.0 %           828            0.0 %          1,344            0.0 %
Other (income) expense, net                    13            0.0 %             -              -             (32 )         (0.0 )%        (2,498 )         (0.1 )%
Income before income taxes            $   150,022           10.0 %   $   147,477           10.7 %   $   534,059           11.9 %    $   513,203

12.3 %

Three-month periods ended September 30, 2019 and 2018:


During the three-month period ended September 30, 2019, as compared to the
comparable prior year quarter, net revenues from our acute care hospital
services, on a same facility basis, increased $127 million or 9.3%. Income
before income taxes (and before income attributable to noncontrolling interests)
increased $3 million, or 2%, amounting to $150 million or 10.0% of net revenues
during the third quarter of 2019 as compared to $147 million or 10.7% of net
revenues during the third quarter of 2018. Despite the increased net revenues
experienced at our acute care hospitals during the third quarter of 2019, as
compared to the comparable quarter of 2018, the income before income taxes
generated at these facilities increased only slightly due to disproportionate
increases to salaries, wages and benefits and certain other operating expenses
associated with providing services to an increased volume of patients.

During the three-month period ended September 30, 2019, net revenue per adjusted
admission increased 1.6% while net revenue per adjusted patient day increased
2.0%, as compared to the comparable quarter of 2018. During the three-month
period ended September 30, 2019, as compared to the comparable prior year
quarter, inpatient admissions to our acute care hospitals increased 6.6% and
adjusted admissions (adjusted for outpatient activity) increased 7.4%. Patient
days at these facilities increased 6.2% and adjusted patient days increased 7.0%
during the three-month period ended September 30, 2019 as compared to the
comparable prior year quarter. The average length of inpatient stay at these
facilities was 4.5 days during each of the three-month periods ended September
30, 2019 and 2018. The occupancy rate, based on the average available beds at
these facilities, was 63% and 61% during the three-month periods ended September
30, 2019 and 2018, respectively.

Nine-month periods ended September 30, 2019 and 2018:


During the nine-month period ended September 30, 2019, as compared to the
comparable prior year period, net revenues from our acute care hospital
services, on a same facility basis, increased $318 million or 7.6%. Income
before income taxes (and before income attributable to noncontrolling interests)
increased $21 million, or 4%, amounting to $534 million or 11.9% of net revenues
during the first nine months 2019 as compared to $513 million or 12.3% of net
revenues during the comparable period of 2018.

During the nine-month period ended September 30, 2019, net revenue per adjusted
admission increased 1.5% while net revenue per adjusted patient day increased
1.7%, as compared to the comparable period of 2018. During the nine-month period
ended September 30, 2019, as compared to the comparable prior year period,
inpatient admissions to our acute care hospitals increased 5.7% and adjusted
admissions (adjusted for outpatient activity) increased 5.8%. Patient days at
these facilities increased 5.4% and adjusted patient days increased 5.5% during
the nine-month period ended September 30, 2019 as compared to the comparable
prior year period. The average length of inpatient stay at these facilities was
4.5 days and 4.6 days during the nine-month periods ended September 30, 2019 and
2018, respectively. The occupancy rate, based on the average available beds at
these facilities, was 64% and 63% during the nine-month periods ended September
30, 2019 and 2018, respectively.

All Acute Care Hospitals


The following table summarizes the results of operations for all our acute care
operations during the three and nine-month periods ended September 30, 2019 and
2018. 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

                                       37

--------------------------------------------------------------------------------
before income taxes, and; (iii) certain other amounts including, if applicable,
the results of recently acquired/opened ancillary businesses. Dollar amounts
below are reflected in thousands.



                                          Three months ended             Three months ended             Nine months ended               Nine months ended
                                          September 30, 2019             September 30, 2018             September 30, 2019              September 30, 2018
                                                       % of Net                       % of Net                       % of Net                        % of Net
                                        Amount         Revenues        Amount         Revenues        Amount         Revenues         Amount         Revenues
Net revenues                          $ 1,528,535          100.0 %   $ 1,383,050          100.0 %   $ 4,575,088          100.0 %    $ 4,232,673          100.0 %
Operating charges:
Salaries, wages and benefits              653,792           42.8 %       596,932           43.2 %     1,897,144           41.5 %      1,762,826           41.6 %
Other operating expenses                  370,325           24.2 %       320,317           23.2 %     1,099,625           24.0 %        988,279           23.3 %
Supplies expense                          263,462           17.2 %       235,272           17.0 %       777,309           17.0 %        718,543           17.0 %
Depreciation and amortization              76,318            5.0 %        68,647            5.0 %       226,489            5.0 %        207,962            4.9 %
Lease and rental expense                   16,235            1.1 %        14,052            1.0 %        45,270            1.0 %         43,043            1.0 %
Subtotal-operating expenses             1,380,132           90.3 %     1,235,220           89.3 %     4,045,837           88.4 %      3,720,653           87.9 %
Income from operations                    148,403            9.7 %       147,830           10.7 %       529,251           11.6 %        512,020           12.1 %
Interest expense, net                         305            0.0 %           382            0.0 %           828            0.0 %          1,344            0.0 %
Other (income) expense, net                    13            0.0 %             0              -             (32 )         (0.0 )%        (2,498 )         (0.1 )%
Income before income taxes            $   148,085            9.7 %   $   147,448           10.7 %   $   528,455           11.6 %    $   513,174           12.1 %



Three-month periods ended September 30, 2019 and 2018:


During the three-month period ended September 30, 2019, as compared to the
comparable prior year quarter, net revenues from our acute care hospital
services increased $145 million or 10.5% to $1.53 billion as compared to $1.38
billion due to: (i) a $127 million, or 9.3%, increase same facility revenues, as
discussed above, and; (ii) other combined net increase of $18 million due
primarily to increased provider tax assessments incurred during the third
quarter of 2019 as compared to the third quarter of 2018.



Income before income taxes increased $1 million, or less than 1%, to $148
million or 9.7% of net revenues during the third quarter of 2019 as compared to
$147 million or 10.7% of net revenues during the third quarter of 2018. The $3
million increase in income before income taxes from our acute care hospital
services, on a same facility basis, was partially offset by $2 million of other
combined net unfavorable changes.



Nine-month periods ended September 30, 2019 and 2018:


During the nine-month period ended September 30, 2019, as compared to the
comparable prior year period, net revenues from our acute care hospital services
increased $342 million or 8.1% to $4.58 billion as compared to $4.23 billion due
to: (i) a $318 million, or 7.6%, increase same facility revenues, as discussed
above, and; (ii) other combined net increase of $24 million due primarily to
increased provider tax assessments incurred during the first nine months of 2019
as compared to the comparable period of 2018.



Income before income taxes increased $15 million, or 3%, to $528 million or
11.6% of net revenues during the first nine months of 2019 as compared to $513
million or 12.1% of net revenues during the comparable period of 2018. The
increase resulted primarily from the $21 million increase in income before
income taxes from our acute care hospital services, on a same facility basis, as
discussed above, partially offset by $5 million of other combined net
unfavorable changes.



Behavioral Health Services

Our Same Facility basis results (which is a non-GAAP measure), which include the
operating results for facilities and businesses operated in both the current
year and prior year period, 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, impact of the reserve
established in connection with the civil aspects of the government's
investigation of certain of our behavioral health care facilities, 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 GAAP and as presented in the condensed consolidated financial statements
and notes thereto as contained in this Quarterly Report on Form 10-Q.



The following table summarizes the results of operations for our behavioral
health care facilities, on a same facility basis, and is used in the discussions
below for the three and nine-month periods ended September 30, 2019 and 2018
(dollar amounts in thousands):

                                       38

--------------------------------------------------------------------------------

Same Facility-Behavioral Health

                                               Three months ended             Three months ended             Nine months ended              Nine months ended
                                               September 30, 2019             September 30, 2018             September 30, 2019             September 30, 2018
                                                            % of Net                       % of Net                       % of Net                        % of Net
                                             Amount         Revenues        Amount         Revenues        Amount         Revenues        Amount          Revenues
Net revenues                               $ 1,256,549          100.0 %   $ 1,230,406          100.0 %   $ 3,770,023          100.0 %   $ 3,673,717          100.0 %
Operating charges:
Salaries, wages and benefits                   679,995           54.1 %       651,145           52.9 %     2,000,128           53.1 %     1,924,344           52.4 %
Other operating expenses                       238,637           19.0 %       237,698           19.3 %       707,624           18.8 %       701,869           19.1 %
Supplies expense                                50,301            4.0 %        49,291            4.0 %       148,418            3.9 %       146,842            4.0 %
Depreciation and amortization                   40,688            3.2 %        39,134            3.2 %       119,655            3.2 %       113,606            3.1 %
Lease and rental expense                        11,202            0.9 %        11,296            0.9 %        33,125            0.9 %        34,520            0.9 %
Subtotal-operating expenses                  1,020,823           81.2 %       988,564           80.3 %     3,008,950           79.8 %     2,921,181           79.5 %
Income from operations                         235,726           18.8 %       241,842           19.7 %       761,073           20.2 %       752,536           20.5 %
Interest expense, net                              359            0.0 %           397            0.0 %         1,103            0.0 %         1,234            0.0 %
Other (income) expense, net                      1,058            0.1 %         1,325            0.1 %         1,058            0.0 %         1,325            0.0 %
Income before income taxes                 $   234,309           18.6 %   $   240,120           19.5 %   $   758,912           20.1 %   $   749,977           20.4 %

Three-month periods ended September 30, 2019 and 2018:


On a same facility basis during the third quarter of 2019, as compared to the
third quarter of 2018, net revenues generated from our behavioral health
services increased $26 million, or 2.1%, to $1.26 billion from $1.23 billion.
Income before income taxes decreased $6 million, or 2%, to $234 million or 18.6%
of net revenues during the three-month period ended September 30, 2019, as
compared to $240 million or 19.5% of net revenues during the comparable quarter
of 2018.

During the three-month period ended September 30, 2019, net revenue per adjusted
admission increased 2.0% and net revenue per adjusted patient day increased
2.2%, as compared to the comparable quarter of 2018. On a same facility basis,
inpatient admissions and adjusted admissions to our behavioral health facilities
increased 0.1% and 0.5%, respectively, during the three-month period ended
September 30, 2019 as compared to the comparable quarter of 2018. Patient days
were unchanged and adjusted patient days increased 0.4% during the three-month
period ended September 30, 2019, respectively, as compared to the comparable
prior year quarter. The average length of inpatient stay at these facilities was
13.1 days and 13.2 days during the three-month periods ended September 30, 2019
and 2018, respectively. The occupancy rate, based on the average available beds
at these facilities, was 75% and 76% during the three-month periods ended
September 30, 2019 and 2018, respectively.

Although the average length of inpatient stay at these facilities was relatively
flat during the third quarter of 2019, as compared to the third quarter of 2018,
admission growth slowed, in part, due to labor shortages in selected geographies
which reduced our ability to fully meet the demand of patients eligible for
admission.

Nine-month periods ended September 30, 2019 and 2018:


On a same facility basis during the first nine months of 2019, as compared to
the comparable period of 2018, net revenues generated from our behavioral health
services increased $96 million, or 2.6%, to $3.77 billion from $3.67 billion.
Income before income taxes increased $9 million, or 1%, to $759 million or 20.1%
of net revenues during the nine-month period ended September 30, 2019, as
compared to $750 million or 20.4% of net revenues during the comparable period
of 2018.

During the nine-month period ended September 30, 2019, net revenue per adjusted
admission increased 1.5% and net revenue per adjusted patient day increased
2.3%, as compared to the comparable period of 2018. On a same facility basis,
inpatient admissions and adjusted admissions to our behavioral health facilities
increased 1.2% and 1.3%, respectively, during the nine-month period ended
September 30, 2019, as compared to the comparable period of 2018. Patient days
and adjusted patient days increased 0.4% and 0.5% during the nine-month period
ended September 30, 2019, as compared to the comparable prior year period. The
average length of inpatient stay at these facilities was 13.1 days and 13.2 days
during the nine-month periods ended September 30, 2019 and 2018, respectively.
The occupancy rate, based on the average available beds at these facilities, was
76% and 77% during the nine-month periods ended September 30, 2019 and 2018.

All Behavioral Health Care Facilities


The following table summarizes the results of operations for all our behavioral
health care services during the three and nine-month periods ended September 30,
2019 and 2018. 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; (iii) a provision for asset impairment
recorded during the third quarter of 2019 (included in other operating expenses)
in connection with Foundations Recovery Network, LLC, and; (iv) certain other
amounts 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.

                                       39

--------------------------------------------------------------------------------

                                                Three months ended              Three months ended             Nine months ended               Nine months ended
                                                September 30, 2019              September 30, 2018             September 30, 2019              September 30, 2018
                                                             % of Net                        % of Net                       % of Net                        % of Net
                                              Amount         Revenues         Amount         Revenues        Amount         Revenues         Amount         Revenues
Net revenues                                $ 1,291,816          100.0 %    $ 1,262,472          100.0 %   $ 3,898,440          100.0 %    $ 3,774,551          100.0 %
Operating charges:
Salaries, wages and benefits                    690,084           53.4 %        661,240           52.4 %     2,049,731           52.6 %      1,955,220           51.8 %
Other operating expenses                        363,328           28.1 %        262,337           20.8 %       891,250           22.9 %        778,698           20.6 %
Supplies expense                                 50,692            3.9 %         49,958            4.0 %       149,809            3.8 %        148,965            3.9 %
Depreciation and amortization                    42,436            3.3 %         40,718            3.2 %       127,327            3.3 %        118,948            3.2 %
Lease and rental expense                         11,822            0.9 %         11,931            0.9 %        35,185            0.9 %         36,489            1.0 %
Subtotal-operating expenses                   1,158,362           89.7 %      1,026,184           81.3 %     3,253,302           83.5 %      3,038,320           80.5 %
Income from operations                          133,454           10.3 %        236,288           18.7 %       645,138           16.5 %        736,231           19.5 %
Interest expense, net                               359            0.0 %            397            0.0 %         1,103            0.0 %          1,234            0.0 %
Other (income) expense, net                      (4,924 )         (0.4 )%         1,721            0.1 %        (4,138 )         (0.1 )%           636            0.0 %
Income before income taxes                  $   138,019           10.7 %    $   234,170           18.5 %   $   648,173           16.6 %    $   734,361           19.5 %

Three-month periods ended September 30, 2019 and 2018:


During the three-month period ended September 30, 2019, as compared to the
comparable prior year quarter, net revenues generated from our behavioral health
services increased $29 million or 2.3% due to primarily to: (i) the
above-mentioned $26 million or 2.1% increase in net revenues on a same facility
basis, and; (ii) a $3 million other combined net increase.

Income before income taxes decreased $96 million, or 41%, to $138 million or
10.7% of net revenues during the third quarter of 2019 as compared to $234
million or 18.5% of net revenues during the third quarter of 2018. The decrease
in income before income taxes at our behavioral health facilities was
attributable to:

      •  a $6 million decrease at our behavioral health facilities on a same
         facility basis, as discussed above;

• a $98 million decrease from a provision for asset impairment recorded in

connection with Foundations Recovery Network, LLC, which was acquired by

us in 2015, as discussed below in Other Operating Results - Provision for

Asset Impairment-Foundations Recovery Network, and;

$8 million of other combined net increases including a $6 million gain on

asset disposal recorded during the third quarter of 2019.

Nine-month periods ended September 30, 2019 and 2018:


During the nine-month period ended September 30, 2019, as compared to the
comparable prior year period, net revenues generated from our behavioral health
services increased $124 million or 3.3% due to primarily to: (i) the
above-mentioned $96 million or 2.6% increase in net revenues on a same facility
basis, and; (ii) an $28 million other combined net increase due primarily to the
revenues generated at 25 behavioral health facilities located in the U.K.
acquired during the third quarter of 2018 in connection with our acquisition of
The Danshell Group.

Income before income taxes decreased $86 million, or 12%, to $648 million or
16.6% of net revenues during the first nine months of 2019 as compared to $734
million or 19.5% of net revenues during the comparable period of 2018. The
decrease in income before income taxes at our behavioral health facilities was
attributable to:

      •  a $9 million increase at our behavioral health facilities on a same
         facility basis, as discussed above;

• a $98 million decrease from a provision for asset impairment recorded in

connection with Foundations Recovery Network, LLC, which was acquired by

us in 2015, as discussed below in Other Operating Results - Provision for

Asset Impairment-Foundations Recovery Network, and;

$3 million of other combined net increases including a $6 million gain on

asset disposal recorded during the third quarter of 2019.

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.,

                                       40

--------------------------------------------------------------------------------
medical/surgical, intensive care or behavioral health) and the geographic
location of the hospital. Inpatient occupancy levels fluctuate 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.

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, economic recovery stimulus packages, responses to
natural disasters, and the federal budget deficit in general may affect the
availability of federal 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 Patient Protection and
Affordable Care Act (the "ACA"). The Healthcare and Education Reconciliation Act
of 2010 (the "Reconciliation Act"), which contains a number of amendments to the
ACA, was signed into law on March 30, 2010. Two primary goals of the ACA,
combined with the Reconciliation Act (collectively referred to as 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 provides for decreases in the annual market basket update for
federal fiscal years 2010 through 2019, a productivity offset to the market
basket update beginning October 1, 2011 for Medicare Part B reimbursable items
and services and beginning October 1, 2012 for Medicare inpatient hospital
services. 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
2020. The Legislation implements 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 program by reducing their existing Medicaid funding.
Therefore, states can choose to accept or not to participate 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 granted, and is expected to grant additional, section 1115
demonstration waivers providing for work and community engagement requirements
for certain Medicaid eligible individuals. It is anticipated this will 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 ACA 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 ACA unconstitutional. The court also held that because the
individual mandate is "essential" to the ACA and is inseverable from the rest of
the law, the entire ACA is unconstitutional. Because the court issued a
declaratory judgment and did not enjoin the law, the ACA remains in place
pending its appeal. The District Court for the Northern District of Texas ruling
has been appealed to the U.S. Court of Appeals for the Fifth Circuit, and will
likely be appealed to the United States Supreme Court. We are unable to predict
the final outcome of this legal challenge and its financial impact on our future
results of operation.

The various provisions in the Legislation that directly or indirectly affect
Medicare and Medicaid reimbursement are scheduled to take 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

                                       41
--------------------------------------------------------------------------------
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 penalty, effective January 1, 2019, related to the
individual mandate 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. In relevant part, President Trump has
already taken executive actions: (i) requiring all federal agencies with
authorities and responsibilities under the Legislation to "exercise all
authority and discretion available to them to waive, defer, grant exemptions
from, or delay" parts of the Legislation that place "unwarranted economic and
regulatory burdens" on states, individuals or health care providers; (ii) the
issuance of a final rule in June, 2018 by the Department of Labor to enable the
formation of health plans that would be exempt from certain Legislation
essential health benefits requirements; (iii) the issuance of a final rule in
August, 2018 by the Department of Labor, Treasury, and Health and Human Services
to expand the availability of short-term, limited duration health insurance;
(iv) 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, (v) 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; (vi) the
issuance of a final rule in June, 2019 by the Departments of Labor, Treasury,
and Health and Human Services that would incentivize the use of health
reimbursement arrangements by employers to permit employees to purchase health
insurance in the individual market, and; (vii) directing the issuance of federal
rulemaking by executive agencies to increase transparency of healthcare price
and quality information. The uncertainty resulting from these Executive Branch
policies led to reduced Exchange enrollment in 2018 and 2019 and is expected to
further worsen the individual and small group market risk pools in future
years. In May, 2019, the Congressional Budget Office projected that 32 million
people will be uninsured in 2020. It is also anticipated that these and future
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,

                                       42

--------------------------------------------------------------------------------
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 12 to the Consolidated Financial Statements-Revenue.



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, 2019, CMS published its IPPS 2020 final payment rule which provides
for a 3.0% 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 ACA-mandated adjustments are
considered, without consideration for changes related to the required Medicare
DSH payment changes and increase to the Medicare Outlier threshold, the overall
increase in IPPS payments is approximately 2.8%. Including DSH payments and
certain other adjustments, we estimate our overall increase from the final IPPS
2020 rule (covering the period of October 1, 2019 through September 30, 2020)
will approximate 2.1%. This projected impact from the IPPS 2020 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 Budget Control Act of 2011, Bipartisan Budget Act of 2015, and
Bipartisan Budget Act of 2018, as discussed below. CMS completed its full
phase-in to use uncompensated care data from the 2015 Worksheet S-10 hospital
cost reports to allocate approximately $8.5 billion in the DSH Uncompensated
Care Pool.

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. 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.

In August, 2018, CMS published its IPPS 2019 final payment rule which provides
for a 2.9% 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 ACA-mandated adjustments are
considered, without consideration for the decreases related to the required
Medicare DSH payment changes and decrease to the Medicare Outlier threshold, the
overall increase in IPPS payments is approximately 0.5%. Including the estimated
increase to our DSH payments (approximating 2.1%) and certain other adjustments,
we estimate our overall increase from the final IPPS 2019 rule (covering the
period of October 1, 2018 through September 30, 2019) will

                                       43

--------------------------------------------------------------------------------
approximate 2.7%. This projected impact from the IPPS 2019 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 Budget Control Act of 2011,
Bipartisan Budget Act of 2015, and Bipartisan Budget Act of 2018, as discussed
below. CMS continued to phase-in the use of uncompensated care data from both
the 2014 and 2015 Worksheet S-10 hospital cost reports, two-third weighting as
part of the proxy methodology to allocate approximately $8 billion in the DSH
Uncompensated Care Pool.

In August, 2017, CMS published its IPPS 2018 final payment rule which provides
for a 2.9% 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 ACA-mandated adjustments are
considered, without consideration for the decreases related to the required
Medicare DSH payment changes and increase to the Medicare Outlier threshold, the
overall increase in IPPS payments would approximate 2.3%. Including the
estimated decrease to our DSH payments (approximating 0.1%) and certain other
adjustments, we estimate our overall increase from the final IPPS 2018 rule
(covering the period of October 1, 2017 through September 30, 2018) will
approximate 1.8%. This projected impact from the IPPS 2018 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 Budget Control Act of 2011,
Bipartisan Budget Act of 2015, and Bipartisan Budget Act of 2018, as discussed
below. CMS began using uncompensated care data from the 2014 hospital cost
report Worksheet S-10, one-third weighting as part of the proxy methodology to
allocate approximately $7 billion in the DSH Uncompensated Care Pool. This final
rule change resulted in wide variations among all hospitals nationwide in the
distribution of these DSH funds compared to previous years.

In August, 2011, the Budget Control Act of 2011 (the "2011 Act") was enacted
into law. Included in this law are 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. The Bipartisan Budget Act of
2015, enacted on November 2, 2015, and the Bipartisan Budget Act of 2019,
enacted on August 2, 2019, continued the 2% reductions to Medicare reimbursement
imposed under the 2011 Act through 2029.

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, 2019, CMS published its Psych PPS final rule for the federal fiscal
year 2020. Under this final rule, payments to our psychiatric hospitals and
units are estimated to increase by 1.7% compared to federal fiscal year 2019.
This amount includes the effect of the 2.9% market basket update less a 0.75%
adjustment as required by the ACA and a 0.4% productivity adjustment.

In August, 2018, CMS published its Psych PPS final rule for the federal fiscal
year 2019. Under this final rule, payments to our psychiatric hospitals and
units are estimated to increase by 1.35% compared to federal fiscal year 2018.
This amount includes the effect of the 2.90% market basket update less a 0.75%
adjustment as required by the ACA and a 0.8% productivity adjustment.

In August, 2017, CMS published its Psych PPS final rule for the federal fiscal
year 2018. Under this final rule, payments to our psychiatric hospitals and
units are estimated to increase by 1.25% compared to federal fiscal year 2017.
This amount includes the effect of the 2.6% market basket update less a 0.75%
adjustment as required by the ACA and a 0.6% productivity adjustment.

In December, 2018, the U.S. District Court for the District of Columbia ruled
that the U.S. Department of Health and Human Services ("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 Drug
Discount Program and granted a permanent injunction against the payment
reduction. In May, 2019, the U.S. District Court for the District of Columbia
directed CMS to determine a remedy as well as provide a status report on this
remedy by early August, 2019 for this Medicare OPPS payment matter. However,
recognizing both the complexity of the OPPS payment system as well as its budget
neutral rate setting system, the Court refrained from imposing a remedy. Instead
the Judge in the case called for additional briefing from the Plaintiffs and
Defendants on the proper scope and implementation for relief. The case has been
appealed by HHS. In the 2020 OPPS final rule, CMS retained the rate reduction in
dispute, but indicated their intent to potentially use the results of a future
340B hospital survey to collect drug acquisition cost data for CY 2018 and 2019
when crafting a remedy. In the event this 340B hospital survey data is not used
to devise a remedy, CMS also indicated that it intends

                                       44

--------------------------------------------------------------------------------
to consider the public input to inform of the steps they would take to propose a
remedy for CY 2018 and 2019 in the CY 2021 rulemaking. We are unable to predict
the ultimate outcome of any appeal and the type of relief that may be ordered by
the Courts. We estimate that the CMS 2018 change in the 340B payment policy
increased our 2018 Medicare OPPS payments by approximately $8 million, which has
been fully reserved in our results of operations for the year, and estimate that
a comparable amount was scheduled to be earned during 2019.

In November, 2019, CMS published its OPPS final rule for 2020. The hospital
market basket increase is 3.0%. The Medicare statute requires a productivity
adjustment reduction of 0.4% to the 2020 OPPS market basket resulting in a 2020
update to OPPS payment rates by 2.6%. When other statutorily required
adjustments and hospital patient service mix are considered, we estimate that
our overall Medicare OPPS update for 2020 will aggregate to a net increase of
2.7% which includes a 7.7% increase to behavioral health division partial
hospitalization rates. When the behavioral health division's partial
hospitalization rate impact is excluded, we estimate that our Medicare 2020 OPPS
payments will result in a 1.9% increase in payment levels for our acute care
division, as compared to 2019. For CY 2020, CMS will use the FY 2020 hospital
IPPS post-reclassified wage index for urban and rural areas as the wage index
for the OPPS to determine the wage adjustments for both the OPPS payment rate
and the copayment standardized amount.

In the 2020 Medicare OPPS proposed rule, CMS indicated its intent to implement
certain Price Transparency rules as required by the June 24, 2019 Presidential
Executive Order related to Improving Price and Quality Transparency in American
Healthcare to Put Patients First. CMS proposed that (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) requirements for 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. In the 2020 OPPS final rule, CMS indicated that it had
received numerous comments on its proposed requirements, and that it intends to
summarize and respond to public comments on the proposed policies in a
forthcoming final rule.

In November, 2018, CMS published its OPPS final rule for 2019. The hospital
market basket increase is 2.9%. The Medicare statute requires a productivity
adjustment reduction of 0.8% and 0.75% reduction to the 2019 OPPS market basket
resulting in a 2019 update to OPPS payment rates by 1.35%. When other
statutorily required adjustments and hospital patient service mix are
considered, we estimate that our overall Medicare OPPS update for 2019 will
aggregate to a net increase of 1.1% which includes a 5.7% increase to behavioral
health division partial hospitalization rates. When the behavioral health
division's partial hospitalization rate impact is excluded, we estimate that our
Medicare 2019 OPPS payments will result in a 0.4% increase in payment levels for
our acute care division, as compared to 2018.

In November, 2017, CMS published its OPPS final rule for 2018. The hospital
market basket increase is 2.7%. The Medicare statute requires a productivity
adjustment reduction of 0.6% and 0.75% reduction to the 2018 OPPS market basket
resulting in a 2018 OPPS market basket update at 1.35%. When other statutorily
required adjustments and hospital patient service mix are considered, we
estimate that our overall Medicare OPPS update for 2018 will aggregate to a net
increase of 4.2% which includes a 0.8% increase to behavioral health division
partial hospitalization rates. When the behavioral health division's partial
hospitalization rate impact is excluded, we estimate that our Medicare 2018 OPPS
payments will result in a 4.8% increase in payment levels for our acute care
division, as compared to 2017.  Additionally, the Medicare inpatient-only (IPO)
list includes procedures that are only paid under the Hospital Inpatient
Prospective Payment System. Each year, CMS uses established criteria to review
the IPO list and determine whether or not any procedures should be removed from
the list. CMS removed total knee arthroplasty (TKA) from the IPO list effective
January 1, 2018. Additionally, CMS redistributed $1.6 billion in cost savings
within the OPPS system attributable to changes in the federal 340B hospital drug
pricing payment methodology in 2018 but, as discussed above, this 340B-related
payment methodology is currently under legal challenge. The impact of these IPO
and 340B changes are reflected in the above noted estimated acute care division
percentage change in OPPS reimbursement.

In November, 2016, CMS published its OPPS final rule for 2017. The hospital
market basket increase is 2.7%. The Medicare statute requires a productivity
adjustment reduction of 0.3% and 0.75% reduction to the 2017 OPPS market basket
resulting in a 2017 OPPS market basket update at 1.65%. When other statutorily
required adjustments and hospital patient service mix are considered, we
estimate that our overall Medicare OPPS update for 2017 resulted in a net
increase of 1.5% which included a -1.3% decrease to behavioral health division
partial hospitalization rates. When the behavioral health division's partial
hospitalization rate impact is excluded, we estimate that our Medicare 2017 OPPS
payments resulted in a 2.1% increase in payment levels for our acute care
division, as compared to 2016.

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

                                       45

--------------------------------------------------------------------------------
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 Medicaid revenues in
excess of $100 million annually from each of California, Texas, Nevada,
Washington, D.C., Pennsylvania and Illinois); CMS-approved Medicaid supplemental
programs in certain states including Texas, Mississippi, Illinois, Oklahoma,
Nevada, Arkansas, California and Indiana, and; state 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,
particularly in the above-mentioned states, will not have a material adverse
effect on our future results of operations.



The ACA 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 ACA
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 ACA may be
additionally penalized by corresponding reductions to Medicaid disproportionate
share hospital payments beginning in 2020, 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.


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.



For state fiscal year 2017, Texas Medicaid continued to operate under a
CMS-approved Section 1115 five-year Medicaid waiver demonstration program
extended by CMS for fifteen months to December 31, 2017. During the first five
years of this program that started in state fiscal year 2012, the THHSC
transitioned away from UPL payments to new waiver incentive payment programs, UC
and DSRIP payments. During demonstration periods ending December 31, 2017, THHSC
continued to, make incentive payments under the program after certain qualifying
criteria were met by hospitals. Supplemental payments are also subject to
aggregate statewide caps based on CMS approved Medicaid waiver amounts.



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, 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 annual UC pool size in the

                                       46

--------------------------------------------------------------------------------
amount of $3.9 billion for demonstration years ("DYs") 9, 10 and 11 (October 1,
2019 to September 30, 2022). We estimate the impact on of these UC program
changes could result in a 5% to 10% increase to UC payments in DYs 9 to 11 as
compared to our DY 8 UC payments.



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.



On November 16, 2018, THHSC published a final rule effective in federal fiscal
years 2018 and 2019 that changes the definition of a rural hospital for the
purposes of determining Texas UC payments and the applicable UC payment
reduction. The application of UC payment reduction allows the THHSC to comply
with the overall statewide UC payment cap required under the special terms and
condition of the approved 1115 Waiver. Two of our acute care hospitals, which
have been designated as a Rural Referral Center by CMS and which are located in
an urban Metropolitan Statistical Area, recorded: (i) increased UC
payments/revenue for the federal fiscal year ending September 30, 2018, and;
(ii) decreased UC payments/revenue for the federal fiscal year beginning October
1, 2018. The net impact of these changes had a favorable impact on our 2018
results of operations and are included in the amounts reflected below in the
State Medicaid Supplemental Payment Program table.

Texas Delivery System Reform Incentive Payments:


In addition, the Texas Medicaid Section 1115 Waiver includes 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 May, 2014, CMS
formally approved specific DSRIP projects for certain of our hospitals for
demonstration years 3 to 5 (our facilities did not materially participate in the
DSRIP pool during demonstration years 1 or 2). DSRIP payments are contingent on
the hospital meeting certain pre-determined milestones, metrics and clinical
outcomes. Additionally, DSRIP payments are contingent on a governmental entity
providing an IGT for the non-federal share component of the DSRIP payment. THHSC
generally approves DSRIP reported metrics, milestones and clinical outcomes on a
semi-annual basis in June and December. Under the CMS approval noted above, the
Waiver renewal requires the transition of the DSRIP program to one focused on
"health system performance measurement and improvement." THHSC must submit a
transition plan describing "how it will further develop its delivery system
reforms without DSRIP funding and/or phase out DSRIP funded activities and meet
mutually agreeable milestones to demonstrate its ongoing progress." The size of
the DSRIP pool will remain unchanged for the initial two years of the waiver
renewal with unspecified decreases in years three and four of the renewal, FFY
2020 and 2021, respectively. In FFY 2022, DSRIP funding under the waiver is
eliminated. For FFY 2020 and 2021, we estimate these changes will result in a $3
million and $4 million decrease in DSRIP payments, respectively. For FFY 2022,
we will no longer receive DSRIP funds due to the elimination of this funding
source by CMS in the Waiver renewal. In September 2019, HHSC submitted a DSRIP
Transition Plan to CMS as required by the 1115 Waiver Special Terms and
Conditions #37 that outlines a transition from the current DSRIP program to a
Value-Based Purchasing ("VBP") type payment model. The draft plan will be
finalized with CMS by March 31, 2020. The effective date of the new VBP payment
model (if approved by CMS) is not yet known. Similarly, details of the VBP model
are still under development. As a result, we are unable to estimate the
financial impact of this payment change.



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
three and nine-month periods ended September 30, 2019 and 2018. The Provider
Taxes are recorded in other operating expenses on the Condensed Consolidated
Statements of Income as included herein.

                                       47

--------------------------------------------------------------------------------
                                                            (amounts in millions)
                                          Three Months Ended                      Nine Months Ended
                                   September 30,      September 30,        September 30,      September 30,
                                       2019               2018                 2019               2018
Texas UC/UPL:
Revenues                          $            41    $            39      $            94    $            83
Provider Taxes                                (13 )              (12 )                (35 )              (29 )
Net benefit                       $            28    $            27      $            59    $            54

Texas DSRIP:
Revenues                          $             0    $             0      $            23    $            13
Provider Taxes                                  2                  0                   (8 )               (5 )
Net benefit                       $             2    $             0      $            15    $             8

Various other state programs:
Revenues                          $            76    $            53      $           202    $           165
Provider Taxes                                (35 )              (16 )               (103 )              (86 )
Net benefit                       $            41    $            37      $            99    $            79

Total all Provider Tax programs:
Revenues                          $           117    $            92      $           319    $           261
Provider Taxes                                (46 )              (28 )               (146 )             (120 )
Net benefit                       $            71    $            64      $           173    $           141


Included in the Texas UC/UPL amounts reflected above for the three and
nine-month periods ended September 30, 2019, was approximately $12 million
received during the third quarter of 2019 (approximately $3 million of which
relates to prior years). We estimate that our aggregate net benefit from the
Texas and various other state Medicaid supplemental payment programs will
approximate $225 million (net of Provider Taxes of $193 million) during the year
ending December 31, 2019. This estimate is 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 2018 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.

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 2020 DSH fiscal year (covering the period
of October 1, 2019 through September 30, 2020).

In connection with these DSH programs, included in our financial results
(including our behavioral health care facilities located in Texas) was an
aggregate of approximately $12 million and $9 million during the three-month
periods ended September 30, 2019 and 2018, respectfully, and $40 million and $28
million during the nine-month periods ended September 30, 2019 and 2018,
respectively. We expect the aggregate reimbursements to our hospitals pursuant
to the Texas and South Carolina 2019 fiscal year programs to be approximately
$48 million.

The ACA and subsequent federal legislation provides for a significant reduction
in Medicaid disproportionate share payments in federal fiscal year 2020 (see
below in Sources of Revenues and Health Care Reform-Medicaid Revisions for
additional disclosure). The U.S. Department of Health and Human Services 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

                                       48

--------------------------------------------------------------------------------
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,
Medicaid DSH payments in South Carolina and Texas could be reduced by
approximately 32% and 23%, respectively, from projected 2019 DSH payment levels
beginning in FFY 2020.



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"), No. 17-cv-844 (D.D.C. March 2, 2018), appeal docketed, No.
18-5135 (D.C. Cir. May 9, 2018) 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 and it is unclear if the
plaintiffs in the case will appeal the decision to the Supreme Court of the
United States. Separate legal challenges on this same issue are pending in
circuit courts in the Fifth, Sixth, and Eighth Circuits which may impact CMS's
guidance on the 2017 Rule regarding the federal HSL. Including $5 million of UC
reimbursements received in September, 2019, which are also potentially subject
to the CHAT litigation, the cumulative Medicaid DSH and UC reimbursements
related to our behavioral health hospitals located in Texas, that have been
reserved for in our financial statements, amounted to $28 million and $14
million as of September 30, 2019 and 2018, respectively.



Nevada SPA:



In Nevada, CMS approved a state plan amendment ("SPA") in August, 2014 that
implemented a hospital supplemental payment program retroactive to January 1,
2014. This SPA has been approved for additional state fiscal years including the
2020 fiscal year covering the period of July 1, 2019 through June 30, 2020.



In connection with this program, included in our financial results was
approximately $7 million during each of the three-month periods ended September
30, 2019 and 2018, respectively, and $21 million and $19 million during the
nine-month periods ended September 30, 2019 and 2018, respectively. We estimate
that our reimbursements pursuant to this program will approximate $28 million
during the year ended December 31, 2019.



California SPA:



In California, CMS issued formal approval of the 2017-19 Hospital Fee Program in
December, 2017 retroactive to January 1, 2017 through June 30, 2019. This
approval included 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 payment component. Upon approval by
CMS, the managed care payment component will consist of two categories of
payments, "pass-through" payments and "directed" payments. The pass-through
payments will be 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. CMS has approved the
"directed" payment component methodology for the period of July 1, 2017 through
June 30, 2019. The timing of CMS's approval of the "pass through" component is
uncertain. In September, 2019, the state submitted a request to renew the
Hospital Fee Program for the period July 1, 2019 to December 31, 2021. The
timing of CMS's approval of this new program is uncertain. In connection with
the existing program, included in our financial results was approximately $15
million and $17 million during the three-month periods ended September 30, 2019
and 2018, respectively, and $23 million ($7 million relates to prior years) and
$22 million ($7 million related to prior years) during the nine-month periods
ended September 30, 2019 and 2018, respectively. We estimate that our
reimbursements pursuant to this program will approximate $29 million during the
year ended December 31, 2019. The aggregate impact of the California
supplemental payment program, as outlined above, is included in the above State
Medicaid Supplemental Payment Program table.



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, Mississippi, Illinois, Nevada, Arkansas,
California and Indiana. 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 qualify for future funds
under these programs, or reductions in reimbursements, could have a material
adverse effect on our future results of operations.



                                       49

--------------------------------------------------------------------------------
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, 2018, CMS issued a proposed rule that
would permit 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, the Department of Health and Human Services ("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 new 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.

Pursuant to HITECH Act regulations, hospitals that do not qualify as a
meaningful user of EHR by 2015 are subject to a reduced market basket update to
the IPPS standardized amount in 2015 and each subsequent fiscal year. We believe
that all of our acute care hospitals have met the applicable meaningful use
criteria and therefore are not subject to a reduced market basked update to the
IPPS standardized amount in federal fiscal year 2015. 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.

Federal regulations require that Medicare EHR incentive payments be computed
based on the Medicare cost report that begins in the federal fiscal period in
which a hospital meets the applicable "meaningful use" requirements. Since the
annual Medicare cost report periods for each of our acute care hospitals ends on
December 31st, we will recognize Medicare EHR incentive income for each hospital
during the fourth quarter of the year in which the facility meets the
"meaningful use" criteria and during the fourth quarter of each applicable
subsequent year.

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.

                                       50

--------------------------------------------------------------------------------
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: Listed below are the Medicare, Medicaid and other health
care industry changes which have been, or are scheduled to be, implemented as a
result of the ACA.

Implemented Medicare Reductions and Reforms:

• The Reconciliation Act reduced the market basket update for inpatient and

outpatient hospitals and inpatient behavioral health facilities by 0.25% in each

of 2010 and 2011, by 0.10% in each of 2012 and 2013, 0.30% in 2014, 0.20% in each

of 2015 and 2016 and 0.75% in each of 2017, 2018 and 2019.

• The ACA implemented certain reforms to Medicare Advantage payments, effective in

    2011.
  • A Medicare shared savings program, effective in 2012.
  • A hospital readmissions reduction program, effective in 2012.
  • A value-based purchasing program for hospitals, effective in 2012.
  • A national pilot program on payment bundling, effective in 2013.

• Reduction to Medicare DSH payments, effective in 2014, as discussed above.




Medicaid Revisions:


• Expanded Medicaid eligibility and related special federal payments,

effective in 2014.

• The ACA (as amended by subsequent federal legislation) requires annual

aggregate reductions in federal DSH funding from federal fiscal year ("FFY")

2020 through FFY 2025. The aggregate annual reduction amounts are $4.0 billion

for FFY 2020 and $8.0 billion for FFY 2021 through FFY 2025. In September,

    2019, federal legislation was enacted which delays the reduction in the
    Medicaid DSH allotment through November 21, 2019.



Health Insurance Revisions:


• Large employer insurance reforms, effective in 2015.

• Individual insurance mandate and related federal subsidies, effective in 2014.

As noted above in Health Care Reform, the Tax Cuts and Jobs Act enacted into

law in December, 2017 eliminated the individual insurance federal mandate

penalty after December 31, 2018.

• Federally mandated insurance coverage reforms, effective in 2010 and forward.



The ACA seeks to increase competition among private health insurers by providing
for transparent federal and state insurance exchanges. The ACA also prohibits
private insurers from adjusting insurance premiums based on health status,
gender, or other specified factors. We cannot provide assurance that these
provisions will not adversely affect the ability of private insurers to pay for
services provided to insured patients, or that these changes will not have a
negative material impact on our results of operations going forward.

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.

                                       51
--------------------------------------------------------------------------------


The ACA required HHS to implement a value-based purchasing program for inpatient
hospital services which became effective on October 1, 2012. The ACA requires
HHS to reduce inpatient hospital payments for all discharges by a percentage
beginning at 1% in FFY 2013 and increasing by 0.25% each fiscal year up to 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. In its
fiscal year 2016 IPPS final rule, CMS funded the value-based purchasing program
by reducing base operating DRG payment amounts to participating hospitals by
1.75%. For FFY 2017, this reduction was increased to its maximum of 2%.



Hospital Acquired Conditions:


The ACA 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.

Readmission Reduction Program:


In the ACA, 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.

Accountable Care Organizations:


The ACA 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 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, such as the Next Generation ACO Model, which 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. It remains unclear
to what extent providers will pursue federal ACO status or whether the required
investment would be warranted by increased payment.



Bundled Payments for Care Improvement Advanced:


The Center for Medicare & Medicaid Innovation ("CMMI") is responsible for
establishing demonstration projects and other initiatives aimed to develop, test
and encourage the adoption of new methods for delivery and payment for health
care that create savings under the Federal Medicare and state Medicaid programs
while improving quality of care. For example, providers participating in bundled
payment initiatives agree to receive one payment for services provided to
Medicare beneficiaries for certain medical conditions or episodes of care,
accepting accountability for costs and quality of care across the continuum of
care. By rewarding providers for increasing quality and reducing costs, and
penalizing providers if costs exceed a set amount, these models are intended to
lead to higher quality and more coordinated care at a lower cost to the Medicare
beneficiary and overall program.  The CMMI has previously implemented a
voluntary bundled payment program known as the Bundled Payment for Care
Improvement ("BPCI").  Substantially all of our acute care hospitals were
participants in the BPCI program, which ended September 30, 2018.

CMMI implemented a new, second generation voluntary episode payment model,
Bundled Payments for Care Improvement Advanced (BPCI-Advanced or the Program),
with the first performance period beginning October 1, 2018.  BPCI-Advanced is
designed to test a new iteration of bundled payments for 32 Clinical Episodes
(29 inpatient and 3 outpatient) with an aim to align incentives among
participating health care providers to reduce expenditures and improve quality
of care for traditional Medicare beneficiaries. The first cohort of participants
entered BPCI-Advanced on October 1, 2018, and agreed to an initial performance
period that will run through December 31, 2023.  We have elected to participate
in BPCI-Advanced at seventeen (17) of our acute care hospitals across almost two
hundred (200) clinical episodes in collaboration with a third-party convener
which has extensive experience and success in BPCI. The ultimate success and
financial impact of the BPCI-Advanced program is contingent on multiple
variables so we are unable to estimate

                                       52

--------------------------------------------------------------------------------

the impact. However, given the breadth and scope of participation of our acute care hospitals in BPCI-Advanced, the impact could be significant (either favorably or unfavorably) depending on actual program results.


In addition to statutory and regulatory changes to the Medicare 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.

Other Operating Results

Interest Expense:


As reflected on the schedule below, interest expense was $41 million and $40
million during the three-month periods ended September 30, 2019 and 2018,
respectively, and $124 million and $115 million during the nine-month periods
ended September 30, 2019 and 2018, respectively (amounts in thousands):



                                             Three Months        Three Months         Nine Months         Nine Months
                                                 Ended               Ended               Ended               Ended
                                             September 30,       September 30,       September 30,       September 30,
                                                 2019                2018                2019                2018
Revolving credit & demand notes (a.)        $           813     $         3,880     $         2,403     $        10,362$300 million, 3.75% Senior Notes due 2019
(b.)                                                      -               2,812                   -               8,437
$700 million, 4.75% Senior Notes due
2022, net (c.)                                        8,069               8,070              24,209              24,210
$400 million, 5.00% Senior Notes due 2026
(d.)                                                  5,000               5,000              15,000              15,000
Term loan facility A (a.)                            18,258              15,847              56,827              44,736
Term loan facility B (a.)                             5,080                   -              15,720                   -
Accounts receivable securitization
program (e.)                                          3,226               3,502               9,877               9,379
Subtotal-revolving credit, demand notes,
Senior Notes,
  term loan facility and accounts
receivable
  securitization program                             40,446              39,111             124,036             112,124
Interest rate swap income, net                            -              (1,968 )            (3,400 )            (4,203 )
Amortization of financing fees                        1,282               2,242               3,838               6,729
Other combined interest expense                         660                 782               1,964               2,696
Capitalized interest on major projects                 (876 )              (625 )            (2,481 )            (1,579 )
Interest income                                         (65 )               (36 )              (383 )              (685 )
Interest expense, net                       $        41,447$        39,506$       123,574$       115,082




                                       53

--------------------------------------------------------------------------------

(a.) In October, 2018, we entered into a sixth amendment to our credit

agreement dated November 15, 2010 to, among other things: (i.) increase

the aggregate amount of the revolving commitments by $200 million to $1

billion; (ii) increase the aggregate amount of the term loan facility A

by approximately $290 million to $2 billion, and; (iii) extend the

maturity date of the credit agreement from August 7, 2019 to October 23,

2023. On October 31, 2018, we added a seven-year, Tranche B term loan

facility in the aggregate amount of $500 million pursuant to our credit

         agreement. The Tranche B term loan matures on October 31, 2025.




As of September 30, 2019, we had: (i) $1.963 billion of borrowings outstanding
under the term loan A facility; (ii) $496.3 million of borrowings outstanding
under the term loan B facility, and; (iii) no outstanding borrowings under the
$1 billion revolving credit facility.



(b.) On November 26, 2018 we redeemed the $300 million aggregate principal,

         3.75% Senior Notes due 2019. The 2019 Notes were redeemed for an
         aggregate price equal to 100.485% of the principal amount (premium of
         approximately $1 million) plus accrued interest to the redemption date.



(c.) In June, 2016, we completed the offering of an additional $400 million

aggregate principal amount of 4.75% Senior Notes due in 2022 (issued at a

         yield of 4.35%), the terms of which were identical to the terms of our
         $300 million aggregate principal amount of 4.75% Senior Notes due in

2022, issued in August, 2014. These Senior Notes, combined, are referred

         to as $700 million, 4.75% Senior Notes due in 2022.




    (d.) In June, 2016, we completed the offering of $400 million aggregate
         principal amount of 5.00% Senior Notes due in 2026.




    (e.) In April, 2018, we amended our accounts receivable securitization

program, which was scheduled to expire in December, 2018. Pursuant to the

amendment, the term has been extended through April 26, 2021, and the

borrowing limit has been increased to $450 million from $440 million

         ($365 million outstanding as of September 30, 2019).




Interest expense increased $2 million during the three-month period ended
September 30, 2019, as compared to the comparable period of 2018, due primarily
to: (i) a net $1 million increase in aggregate interest expense on our revolving
credit, demand notes, senior notes, term loan facility and accounts receivable
securitization program resulting from an increase in our aggregate average cost
of borrowings pursuant to these facilities (4.0% during the three months ended
September 30, 2019 as compared to 3.9% in the comparable quarter of 2018), as
well as an increase in the aggregate average outstanding borrowings ($4.01
billion during the three months ended September 30, 2019 as compared to $3.98
billion in the comparable 2018 quarter); (ii) $1 million of other combined
increases in interest expense consisting primarily of a $2 million unfavorable
change in interest rate swap income, partially offset by a $1 million decrease
in amortization of financing fees. The average effective interest rate on these
facilities, including amortization of deferred financing costs and original
issue discounts and designated interest rate swap expense was 4.1% and 3.9%
during the three-month periods ended September 30, 2019 and 2018, respectively.



Interest expense increased $8 million during the nine-month period ended
September 30, 2019, as compared to the comparable period of 2018, due primarily
to: (i) a net $12 million increase in aggregate interest expense on our
revolving credit, demand notes, senior notes, term loan facility and accounts
receivable securitization program resulting from an increase in our aggregate
average cost of borrowings pursuant to these facilities (4.1% during the nine
months ended September 30, 2019 as compared to 3.7% in the comparable period of
2018), as well as an increase in the aggregate average outstanding borrowings
($4.01 billion during the nine months ended September 30, 2019 as compared to
$3.97 billion in the comparable 2018 period), partially offset by; (ii) $3
million of other combined decreases in interest expense consisting primarily of
a $1 million decrease in interest rate swap income, $3 million decrease in
amortization of financing fees and a $1 million decrease in other interest
expenses. The average effective interest rate on these facilities, including
amortization of deferred financing costs and original issue discounts and
designated interest rate swap expense was 4.1% and 3.8% during the nine-month
periods ended September 30, 2019 and 2018, respectively.



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 the three and nine-month periods ended September 30, 2019 and 2018 (dollar amounts in thousands):


                                                   Three months ended                       Nine months ended
                                            September 30,       September 30,       September 30,       September 30,
                                                2019                2018                2019                2018
Provision for income taxes                 $        37,205$        54,186$       165,646$       192,814
Income before income taxes                         138,075             229,067             745,179             827,075
Effective tax rate                                    26.9 %              23.7 %              22.2 %              23.3 %




                                       54
--------------------------------------------------------------------------------
The provision for income taxes decreased $17 million during the three-month
period ended September 30, 2019, as compared to the comparable quarter of 2018,
due primarily to: (i) a decrease resulting from the tax benefit recorded on the
$92 million decrease in pre-tax income during the third quarter of 2019, as
compared to the comparable quarter of 2018, as discussed above in Results of
Operations, which includes a $98 million aggregate provision for asset
impairment recorded during the third quarter of 2019, as discussed below; (ii) a
decrease of $2 million resulting from our adoption of ASU 2016-09 which
decreased our provision for income taxes by approximately $2 million during the
third quarter of 2019, partially offset by; (iii) a $6 million increase recorded
during the third quarter of 2019 resulting from the net estimated federal and
state income taxes due on the portion of the DOJ Reserve established in
connection with the agreement in principle with the Department of Justice, Civil
Division, that is estimated to be non-deductible for income tax purposes.

The provision for income taxes decreased $27 million during the nine-month
period ended September 30, 2019, as compared to the comparable period of 2018,
due primarily to: (i) a decrease resulting from the tax benefit recorded on the
$82 million decrease in pre-tax income, as discussed above in Results of
Operations, which includes a $98 million aggregate provision for asset
impairment recorded during the third quarter of 2019, as discussed below; (ii) a
decrease of $11 million resulting from our adoption of ASU 2016-09 which
decreased our provision for income taxes by approximately $12 million during the
first nine months of 2019, as compared to a decrease of approximately $1 million
during the first nine months of 2018; (iii) a $4 million decrease resulting from
a favorable adjustment recorded during the nine-month period ended September 30,
2019 (recorded during the second quarter of 2019) related to a change in state
tax law, partially offset by; (iv) a $6 million increase recorded during the
nine-month ended September 30, 2019 (recorded during the third quarter of 2019)
resulting from the above-mentioned net estimated federal and state income taxes
due on the portion of the DOJ Reserve that is estimated to be non-deductible for
income tax purposes.


Provision for Asset Impairment-Foundations Recovery Network:


Our financial results for the three and nine-month periods ended September 30,
2019, include an aggregate pre-tax provision for asset impairment of $97.6
million recorded in connection with Foundations Recovery Network, L.L.C.
("Foundations"), which was acquired by us in 2015. This pre-tax provision for
asset impairment includes: (i) a $74.9 million impairment provision to write-off
the carrying value of the Foundations' tradename intangible asset, and; (ii) a
$22.7 million impairment provision to reduce the carrying value of real property
assets of certain Foundations' facilities.

This provision for asset impairment, which is included in other operating
expenses in our consolidated statements of income for the three and nine-month
periods ended September 30, 2019, was recorded after evaluation of the estimated
fair value of the Foundations' tradename as well as certain related real
property assets. The provision for asset impairment was impacted by the
following: (i) recent decisions made by management to cancel the opening of
future planned de novo facilities; (ii) reductions in projected future patient
volumes, revenues and cash flows based upon the operating trends and financial
results experienced by existing facilities, and; (iii) competitive pressures
experienced in certain markets.

Liquidity

Net cash provided by operating activities

Net cash provided by operating activities was $1.049 billion during the nine-month period ended September 30, 2019 and $949 million during the comparable period of 2018. The net increase of $100 million was primarily attributable to the following:

• a favorable change of $69 million resulting from an increase in net income

plus/minus depreciation and amortization expense, stock-based

compensation, provision for asset impairment and net gains on sales of

        assets;


  • a favorable change of $37 million in accounts receivable, and;


  • $6 million of other combined net unfavorable changes.


Days sales outstanding ("DSO"): Our DSO are calculated by dividing our net
revenue by the number of days in the nine-month periods. The result is divided
into the accounts receivable balance at September 30th of each year to obtain
the DSO. Our DSO were 50 days and 53 days at September 30, 2019 and 2018,
respectively.

Our accounts receivable as of September 30, 2019 and December 31, 2018 include
amounts due from Illinois of approximately $29 million and $32 million,
respectively. Collection of the outstanding receivables continues to be delayed
due to state budgetary and funding pressures. Approximately $13 million as of
September 30, 2019 and $18 million as of December 31, 2018, of the receivables
due from Illinois were outstanding in excess of 60 days, as of each respective
date. Although the accounts receivable due from Illinois could remain
outstanding for the foreseeable future, since we expect to eventually collect
all amounts due to us, no related reserves have been established in our
consolidated financial statements. However, we can provide no assurance that we
will eventually collect all amounts due to us from Illinois. Failure to
ultimately collect all outstanding amounts due to us from Illinois would have an
adverse impact on our future consolidated results of operations and cash flows.

                                       55

--------------------------------------------------------------------------------

Net cash used in investing activities

During the first nine months of 2019, we used $413 million of net cash in investing activities as follows:

$480 million spent on capital expenditures including capital
            expenditures for equipment, renovations and new projects at various
            existing facilities;




         •  $90 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;



$18 million spent on the purchase and implementation of information

            technology applications;




         •  $12 million spent to fund investments in and advances to joint
            ventures and other, and;




  • $7 million of proceeds received from sales of assets or businesses.


During the first nine months of 2018, we used $629 million of net cash in investing activities as follows:

$521 million spent on capital expenditures including capital
            expenditures for equipment, renovations and new projects at various
            existing facilities;



$108 million spent to acquire businesses and property consisting

            primarily of the acquisition of: (i) The Danshell Group,

consisting of

            25 behavioral health facilities located in the U.K. (acquired 

during

            the third quarter of 2018), and; (ii) a 109-bed behavioral 

health care

            facility located in Gulfport, Mississippi (acquired during the first
            quarter of 2018);



$25 million spent on the purchase and implementation of information

            technology applications;




         •  $26 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;




         •  $14 million spent to fund construction costs of a new behavioral
            health care facility which will be jointly owned by us and a
            third-party, and;



$13 million received in connection with the sale of a business and

            property including The Limes, an 18-bed facility located in the U.K.




In conjunction with the January 1, 2019 adoption of ASU 2017-12, "Targeted
Improvements to Accounting for Hedging Activities", we reclassified our
presentation of the net cash inflows or outflows, which were received or paid in
connection with foreign exchange contracts that hedge our net investment in
foreign operations against movements in exchange rates, to investing cash flows
on the consolidated statements of cash flows. As previously disclosed within our
footnotes, these cash flows were formerly reported as operating
activities. Prior period amounts have been reclassified from net cash provided
by operating activities to net cash used in investing activities to conform with
the current year presentation on the consolidated statements of cash flows.

Net cash used in financing activities

During the first nine months of 2019, we used $680 million of net cash in financing activities as follows:

• spent $68 million on net repayments of debt as follows: (i) $37 million

related to our term loan A facility; (ii) $25 million related to our

accounts receivable securitization program; (iii) $4 million related to our

term loan B facility, and; (iv) $2 million related to other debt facilities;

• generated $15 million of proceeds related to new borrowings pursuant to a

short-term, on-demand credit facility;

• spent $588 million to repurchase shares of our Class B Common Stock in

connection with: (i) open market purchases pursuant to our $2.7 billion

stock repurchase program ($542 million), and; (ii) income tax withholding

obligations related to stock-based compensation programs ($46 million);

• spent $12 million to pay profit distributions related to noncontrolling

interests in majority owned businesses;



   •  spent $36 million to pay quarterly cash dividends of $.20 per share in
      September, 2019 and $.10 per share in each of March and June, 2019, and;

• generated $8 million from the issuance of shares of our Class B Common Stock

      pursuant to the terms of employee stock purchase plans.


                                       56

--------------------------------------------------------------------------------

During the first nine months of 2018, we used $308 million of net cash in financing activities as follows:

• spent $100 million on net repayments of debt as follows: (i) $67 million

      related to our term loan A facility; (ii) $31 million related to a
      short-term credit facility, and; (iii) $2 million related to other debt
      facilities;

• generated $82 million of proceeds related to new borrowings pursuant to our

      revolving credit facility ($77 million) and accounts receivable
      securitization program ($5 million);

• spent $261 million to repurchase shares of our Class B Common Stock in

connection with: (i) open market purchases pursuant to our $1.2 billion

stock repurchase program ($252 million), and; (ii) income tax withholding

obligations related to stock-based compensation programs ($9 million);

• spent $8 million to pay profit distributions related to noncontrolling

      interests in majority owned businesses;


  • spent $28 million to pay quarterly cash dividends of $.10 per share;

• generated $8 million from the issuance of shares of our Class B Common Stock

      pursuant to the terms of employee stock purchase plans, and;


  • spent $1 million in financing costs.


During the remaining nine months of 2019, we expect to spend approximately $195
million to $245 million on capital expenditures which includes expenditures for
capital equipment, renovations and new projects at existing hospitals. We
believe 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


On October 23, 2018, we entered into a Sixth Amendment (the "Sixth Amendment")
to our credit agreement dated as of November 15, 2010, as amended on March 15,
2011, September 21, 2012, May 16, 2013, August 7, 2014 and June 7, 2016, among
UHS, as borrower, the several banks and other financial institutions from time
to time parties thereto, as lenders, JPMorgan Chase Bank, N.A., as
administrative agent, and the other agents party thereto (the "Senior Credit
Agreement"). The Sixth Amendment became effective on October 23, 2018.

The Sixth Amendment amended the Senior Credit Agreement to, among other things:
(i) increase the aggregate amount of the revolving credit facility to $1 billion
(increase of $200 million over the $800 million previous commitment); (ii)
increase the aggregate amount of the tranche A term loan commitments to $2
billion (increase of approximately $290 million over the $1.71 billion of
outstanding borrowings prior to the amendment), and; (iii) extended the maturity
date of the revolving credit and tranche A term loan facilities to October 23,
2023 from August 7, 2019.

On October 31, 2018, we added a seven-year tranche B term loan facility in the aggregate principal amount of $500 million pursuant to the Senior Credit Agreement. The tranche B term loan matures on October 31, 2025. We used the proceeds to repay borrowings under the revolving credit facility, the Securitization (as defined below), to redeem our $300 million, 3.75% Senior Notes that were scheduled to mature in 2019 and for general corporate purposes.


As of September 30, 2019, we had no borrowings outstanding pursuant to our $1
billion revolving credit facility and we had $967 million of available borrowing
capacity net of $12 million of outstanding letters of credit and $21 million of
outstanding borrowings pursuant to a short-term credit facility.

Pursuant to the terms of the Sixth Amendment, the tranche A term loan, which had
$1.963 billion of borrowings outstanding as of September 30, 2019, provides for
eight installment payments of $12.5 million per quarter which commenced in March
of 2019 and are scheduled to continue through December of 2020. Thereafter,
payments of $25 million per quarter are scheduled, commencing in March of 2021
until maturity in October of 2023, when all outstanding amounts will be due.

The tranche B term loan, which had $496 million of borrowings outstanding as of
September 30, 2019, provides for installment payments of $1.25 million per
quarter, which commenced on March 31, 2019 and are scheduled to continue until
maturity in October of 2025, when all outstanding amounts will be due.

Borrowings under the Senior 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 LIBOR rate plus 1%, in each case, plus
an applicable margin based upon our consolidated leverage ratio at the end of
each quarter ranging from 0.375% to 0.625% for revolving credit and term loan A
borrowings and 0.75% for tranche B borrowings, or (2) the one, two, three or six
month LIBOR rate (at our election), plus an applicable margin based upon our
consolidated leverage ratio at the end of each quarter ranging from 1.375% to
1.625% for revolving credit and term loan A borrowings and 1.75% for the tranche

                                       57

--------------------------------------------------------------------------------
B term loan. As of September 30, 2019, the applicable margins were 0.50% for
ABR-based loans and 1.50% for LIBOR-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 Senior 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 Senior Credit Agreement includes a material adverse change clause that must
be represented at each draw. The Senior Credit Agreement contains covenants that
include a limitation on sales of assets, mergers, change of ownership, liens and
indebtedness, transactions with affiliates, dividends and stock repurchases; and
requires compliance with financial covenants including maximum leverage. We are
in compliance with all required covenants as of September 30, 2019 and December
31, 2018.

In late April, 2018, we entered into the sixth amendment to our accounts
receivable securitization program ("Securitization") dated as of October 27,
2010 with a group of conduit lenders, liquidity banks, and PNC Bank, National
Association, as administrative agent, which provides for borrowings outstanding
from time to time by certain of our subsidiaries in exchange for undivided
security interests in their respective accounts receivable. The sixth amendment,
among other things, extended the term of the Securitization program through
April 26, 2021 and increased the borrowing capacity to $450 million (from $440
million previously). Although the program fee and certain other fees were
adjusted in connection with the sixth amendment, substantially all other
provisions of the Securitization program remained unchanged. Pursuant to the
terms of our Securitization program, substantially all of the patient-related
accounts receivable of our acute care hospitals ("Receivables") serve as
collateral for the outstanding borrowings. We have accounted for this
Securitization as borrowings. We maintain effective control over the Receivables
since, pursuant to the terms of the Securitization, the Receivables are sold
from certain of our subsidiaries to special purpose entities that are
wholly-owned by us. The Receivables, however, are owned by the special purpose
entities, can be used only to satisfy the debts of the wholly-owned special
purpose entities, and thus are not available to us except through our ownership
interest in the special purpose entities. The wholly-owned special purpose
entities use the Receivables to collateralize the loans obtained from the group
of third-party conduit lenders and liquidity banks. The group of third-party
conduit lenders and liquidity banks do not have recourse to us beyond the assets
of the wholly-owned special purpose entities that securitize the loans. At
September 30, 2019, we had $365 million of outstanding borrowings pursuant to
the terms of the Securitization and $85 million of available borrowing
capacity.

As of September 30, 2019, we had combined aggregate principal of $1.1 billion from the following senior secured notes:

$700 million aggregate principal amount of 4.75% senior secured notes due in

August, 2022 ("2022 Notes") which were issued as follows:

$300 million aggregate principal amount issued on August 7, 2014 at par.


         •  $400 million aggregate principal amount issued on June 3, 2016 at
            101.5% to yield 4.35%.



$400 million aggregate principal amount of 5.00% senior secured notes due

in June, 2026 ("2026 Notes") which were issued on June 3, 2016.



Interest on the 2022 Notes is payable on February 1 and August 1 of each year
until the maturity date of August 1, 2022. Interest on the 2026 Notes is payable
on June 1 and December 1 until the maturity date of June 1, 2026. The 2022 Notes
and 2026 Notes were offered 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"). The 2022
Notes and 2026 Notes have not been registered under the Securities Act and may
not be offered or sold in the United States absent registration or an applicable
exemption from registration requirements.



On November 26, 2018 we redeemed the $300 million aggregate principal, 3.75%
Senior Notes due in 2019. The 2019 Notes were redeemed for an aggregate price
equal to 100.485% of the principal amount, resulting in a premium paid of
approximately $1 million, plus accrued interest to the redemption date.

At September 30, 2019, the carrying value and fair value of our debt were
approximately $3.95 billion and $3.97 billion, respectively. At December 31,
2018, the carrying value and fair value of our debt were each approximately $4.0
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.

Our total debt as a percentage of total capitalization was approximately 42% at September 30, 2019 and 43% at December 31, 2018.


During 2015, we entered into nine forward starting interest rate swaps whereby
we paid a fixed rate on a total notional amount of $1.0 billion and received
one-month LIBOR. The average fixed rate payable on these swaps, all of which
matured on April 15, 2019, was 1.31%. Although we can provide no assurance that
we will ultimately do so, we are currently monitoring the interest rate
environment

                                       58

--------------------------------------------------------------------------------
and evaluating the terms of potential replacement interest rate swaps that we
may enter into for a large portion, or potentially all, of the $1 billion total
notional amount that expired on April 15, 2019.

We expect to finance all capital expenditures and acquisitions, 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 or through
refinancing the existing Senior Credit Agreement; (ii) the issuance of other
long-term debt, and/or; (iii) the issuance of equity. We believe that our
operating cash flows, cash and cash equivalents, 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,
including the refinancing of our above-mentioned Senior Credit Agreement that is
scheduled to mature in October, 2023. 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.

Off-Balance Sheet Arrangements


During the three months ended September 30, 2019, there have been no material
changes in the off-balance sheet arrangements consisting of standby letters of
credit and surety bonds. Effective January 1, 2019, we adopted ASU 2016-02 which
requires companies to, among other things, recognize lease assets and lease
liabilities on the balance sheet. As a result of our adoption of ASU 2016-02,
our consolidated balance sheet as of September 30, 2019 includes right of use
assets-operating leases ($329.3 million) and operating lease liabilities ($55.1
million current and $274.2 million noncurrent). Prior period financial
statements were not adjusted for the effects of this new standard. Reference is
made to Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Contractual Obligations and Off-Balance Sheet
Arrangements, in our Annual Report on Form 10-K for the year ended December 31,
2018.

As of September 30, 2019 we were party to certain off balance sheet arrangements
consisting of standby letters of credit and surety bonds which totaled $108
million consisting of: (i) $104 million related to our self-insurance programs,
and; (ii) $4 million of other debt and public utility guarantees.

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on UNIVERSAL HEALTH SERVICES
12/04UNIVERSAL HEALTH SERVICES : Ex-dividend day for
FA
11/20UNIVERSAL HEALTH SERVICES, INC. : Announces Dividend
PR
11/20UNIVERSAL HEALTH SERVICES : Dividends
CO
11/19Health Care Up As "Medicare For All" Relief Lingers -- Health Care Roundup
DJ
11/08UNIVERSAL HEALTH SERVICES : Management's Discussion and Analysis of Financial Co..
AQ
10/30Indonesia hikes state health insurer's premiums to plug deficit
RE
10/28UNIVERSAL HEALTH SERVICES, INC. : to Present at the 2019 Wolfe Research Healthca..
PR
10/25UNIVERSAL HEALTH SERVICES INC : Results of Operations and Financial Condition, F..
AQ
10/24UNIVERSAL HEALTH SERVICES : 3Q Earnings Snapshot
AQ
10/24UNIVERSAL HEALTH SERVICES, INC. : Reports 2019 Third Quarter Financial Results A..
PR
More news