HCA HEALTHCARE, INC.
Forward-Looking Statements
This quarterly report on
Form 10-Q
includes certain disclosures which contain "forward-looking statements" within
the meaning of the federal securities laws, which involve risks and
uncertainties. Forward-looking statements include statements regarding expected
share-based compensation expense, expected capital expenditures and expected net
claim payments and all other statements that do not relate solely to historical
or current facts, and can be identified by the use of words like "may,"
"believe," "will," "expect," "project," "estimate," "anticipate," "plan,"
"initiative" or "continue." These forward-looking statements are based on our
current plans and expectations and are subject to a number of known and unknown
uncertainties and risks, many of which are beyond our control, which could
significantly affect current plans and expectations and our future financial
position and results of operations. These factors include, but are not limited
to, (1) developments related to
COVID-19,
including, without limitation, the length and severity of the pandemic and the
spread of virus strains with new epidemiological characteristics; the volume of
canceled or rescheduled procedures and the volume of
COVID-19
patients cared for across our health systems; measures we are taking to respond
to the
COVID-19
pandemic; the impact and terms of government and administrative regulation and
stimulus (including the Families First Coronavirus Response Act, the Coronavirus
Aid, Relief and Economic Security ("CARES") Act, the Paycheck Protection Program
and Health Care Enhancement Act, the Consolidated Appropriations Act, 2021, the
American Rescue Plan Act of 2021 and other enacted and potential future
legislation); changes in revenues due to declining patient volumes, changes in
payer mix and deteriorating macroeconomic conditions (including increases in
uninsured and underinsured patients); potential increased expenses related to
labor, supply chain or other expenditures; workforce disruptions; supply
shortages and disruptions; and the timing, availability and adoption of
effective medical treatments and vaccines, (2) the impact of our substantial
indebtedness and the ability to refinance such indebtedness on acceptable terms,
as well as risks associated with disruptions in the financial markets and the
business of financial institutions as the result of the
COVID-19
pandemic which could impact us from a financial perspective, (3) the impact of
the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act of 2010 (collectively, the "Affordable Care
Act"), including the effects of changes or court challenges to the Affordable
Care Act or additional changes to its implementation, the possible enactment of
additional federal or state health care reforms and possible changes to other
federal, state or local laws or regulations affecting the health care industry,
including proposals to expand coverage of federally-funded insurance programs as
an alternative to private insurance or establish a single-payer system (such
reforms often referred to as "Medicare for All"), and also including any such
laws or governmental regulations which are adopted in response to the
COVID-19
pandemic, (4) the effects related to the implementation of sequestration
spending reductions required under the Budget Control Act of 2011, related
legislation extending these reductions, and those required under the
Pay-As-You-Go
Act of 2010 ("PAYGO Act") as a result of the federal budget deficit impact of
the American Rescue Plan Act of 2021, and the potential for future deficit
reduction legislation that may alter these spending reductions, which include
cuts to Medicare payments, or create additional spending reductions,
(5) increases in the amount and risk of collectability of uninsured accounts and
deductibles and copayment amounts for insured accounts, (6) the ability to
achieve operating and financial targets, and attain expected levels of patient
volumes and control the costs of providing services, (7) possible changes in
Medicare, Medicaid and other state programs, including Medicaid supplemental
payment programs or Medicaid waiver programs, that may impact reimbursements to
health care providers and insurers and the size of the uninsured or underinsured
population, (8) the highly competitive nature of the health care business,
(9) changes in service mix, revenue mix and surgical volumes, including
potential declines in the population covered under third-party payer agreements,
the ability to enter into and renew third-party payer provider agreements on
acceptable terms and the impact of consumer-driven health plans and physician
utilization trends and practices, (10) the efforts of health insurers, health
care providers, large employer groups and others to contain health care costs,
(11) the outcome of our continuing efforts to monitor, maintain and comply with
appropriate laws, regulations, policies and procedures, (12) increases in wages
and the ability to attract and retain qualified management and personnel,
including affiliated physicians, nurses and medical and
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)Forward-Looking Statements (continued)
technical support personnel, (13) the availability and terms of capital to fund
the expansion of our business and improvements to our existing facilities,
(14) changes in accounting practices, (15) changes in general economic
conditions nationally and regionally in our markets, including economic and
business conditions (and the impact thereof on the economy, financial markets
and banking industry) resulting from the
COVID-19
pandemic, (16) the emergence of and effects related to other pandemics,
epidemics and infectious diseases, (17) future divestitures which may result in
charges and possible impairments of long-lived assets, (18) changes in business
strategy or development plans, (19) delays in receiving payments for services
provided, (20) the outcome of pending and any future tax audits, disputes and
litigation associated with our tax positions, (21) potential adverse impact of
known and unknown government investigations, litigation and other claims that
may be made against us, (22) the impact of potential cybersecurity incidents or
security breaches, (23) our ongoing ability to demonstrate meaningful use of
certified electronic health record ("EHR") technology and the impact of
interoperability requirements, (24) the impact of natural disasters, such as
hurricanes and floods, or similar events beyond our control, (25) changes in the
U.S. federal, state, or foreign tax laws including interpretive guidance that
may be issued by taxing authorities or other standard setting bodies, and
(26) other risk factors described in our annual report on
Form 10-K
for the year ended December 31, 2020 and our other filings with the Securities
and Exchange Commission . As a consequence, current plans, anticipated actions
and future financial position and results of operations may differ from those
expressed in any forward-looking statements made by or on behalf of HCA. You are
cautioned not to unduly rely on such forward-looking statements when evaluating
the information presented in this report, which forward-looking statements
reflect management's views only as of the date of this report. We undertake no
obligation to revise or update any forward-looking statements, whether as a
result of new information, future events or otherwise.
COVID-19
Pandemic
On March 11, 2020 , the World Health Organization designated
COVID-19
as a global pandemic. Patient volumes and the related revenues for most of our
services were significantly impacted during the latter portion of the first
quarter and the first half of the second quarter of 2020 and have continued to
be impacted in 2021 as various policies were implemented by federal, state and
local governments in response to the
COVID-19
pandemic. During the second quarter of 2021, our patient volumes experienced a
strong rebound as the effects of the pandemic moderated and certain
pandemic-related restrictions and policies were eased. We believe the extent of
the
COVID-19
pandemic's impact on our operating results and financial condition has been and
will continue to be driven by many factors, most of which are beyond our control
and ability to forecast. Because of these uncertainties, we cannot estimate how
long or to what extent the pandemic will impact our operations.
Second Quarter 2021 Operations Summary
Revenues increased to $14.435 billion in the second quarter of 2021 from
$11.068 billion in the second quarter of 2020. Net income attributable to HCA
Healthcare, Inc. totaled $1.450 billion , or $4.36 per diluted share, for the
quarter ended June 30, 2021 , compared to $1.079 billion , or $3.16 per diluted
share, for the quarter ended June 30, 2020 . Revenues for the second quarter of
2021 include $33 million , or $0.07 per diluted share, related to the settlement
of Medicare outlier calculations for prior periods. Second quarter results for
2021 and 2020 include gains on sales of facilities of $8 million , or $0.02 per
diluted share, and losses on sales of facilities of $27 million , or $0.07 per
diluted share, respectively. Second quarter results for 2021 include losses on
retirement of debt of $12 million , or $0.03 per diluted share. Second quarter
results for 2020 include $822 million ($590 million net of tax), or $1.73 per
diluted share, of government stimulus income related to general distribution
Provider Relief Funds ("PRFs") and $60 million , or $0.13 per diluted share, of
employee retention payroll tax credits, both as provided for by the CARES Act.
During October 2020 , we announced we
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)Second Quarter 2021 Operations Summary (continued)
would return, or repay early, our share of the PRFs of approximately$1.6 billion and approximately$4.4 billion in Medicare accelerated payments (repaid during the fourth quarter of 2020). In the third quarter of 2020, we reversed the$822 million of government stimulus income that we recognized during the second quarter of 2020. All "per diluted share" disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 332.613 million shares for the quarter endedJune 30, 2021 and 341.599 million shares for the quarter endedJune 30, 2020 . During 2020 and the first six months of 2021, we repurchased 3.287 million shares and 19.738 million shares, respectively, of our common stock. Revenues increased 30.4% on a consolidated basis and 30.1% on a same facility basis for the quarter endedJune 30, 2021 , compared to the quarter endedJune 30, 2020 . The increase in consolidated revenues can be primarily attributed to the combined impact of a 2.9% increase in revenue per equivalent admission and a 26.7% increase in equivalent admissions. The same facility revenues increase primarily resulted from the combined impact of a 2.6% increase in same facility revenue per equivalent admission and a 26.8% increase in same facility equivalent admissions. During the quarter endedJune 30, 2021 , consolidated admissions and same facility admissions both increased 17.5% compared to the quarter endedJune 30, 2020 . Surgeries increased 37.7% on a consolidated basis and 37.1% on a same facility basis during the quarter endedJune 30, 2021 , compared to the quarter endedJune 30, 2020 . Emergency department visits increased 40.4% and 40.5% on a consolidated basis and on a same facility basis, respectively, during the quarter endedJune 30, 2021 , compared to the quarter endedJune 30, 2020 . Consolidated and same facility uninsured admissions both increased 6.6% for the quarter endedJune 30, 2021 , compared to the quarter endedJune 30, 2020 . During the second quarter of 2021, our patient volumes experienced a strong rebound as the effects of the pandemic moderated and certain pandemic-related restrictions and policies were eased. Cash flows from operating activities declined$6.472 billion , from$8.723 billion for the second quarter of 2020 to$2.251 billion for the second quarter of 2021. The$8.723 billion of cash flows from operating activities in the second quarter of 2020 included the$822 million of government stimulus income and$4.999 billion of contract liabilities-deferred revenues (primarily related to the Medicare accelerated payments), which were reversed during the third and fourth quarters of 2020, respectively. The decline in cash provided by operating activities also included the net impact of negative changes in working capital items of$1.242 billion , primarily related to an increase in accounts receivable, and income taxes of$579 million , offset by an increase in net income, excluding the government stimulus income, of$1.094 billion . Results of Operations Revenue/Volume Trends Our revenues generally relate to contracts with patients in which our performance obligations are to provide health care services to the patients. Revenues are recorded during the period our obligations to provide health care services are satisfied. Our performance obligations for inpatient services are generally satisfied over periods that average approximately five days, and revenues are recognized based on charges incurred in relation to total expected charges. Our performance obligations for outpatient services are generally satisfied over a period of less than one day. The contractual relationships with patients, in most cases, also involve a third-party payer (Medicare, Medicaid, managed care health plans and commercial insurance companies, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by (Medicare and Medicaid) or negotiated with (managed care health plans and commercial insurance companies) the third-party payers. The payment arrangements with third-party payers for the services 20
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
we provide to the related patients typically specify payments at amounts less
than our standard charges. Medicare generally pays for inpatient and outpatient
services at prospectively determined rates based on clinical, diagnostic and
other factors. Services provided to patients having Medicaid coverage are
generally paid at prospectively determined rates per discharge, per identified
service or per covered member. Agreements with commercial insurance carriers,
managed care and preferred provider organizations generally provide for payments
based upon predetermined rates per diagnosis, per diem rates or discounted
fee-for-service
rates. Management continually reviews the contractual estimation process to
consider and incorporate updates to laws and regulations and the frequent
changes in managed care contractual terms resulting from contract renegotiations
and renewals.
Revenues increased 30.4% from $11.068 billion in the second quarter of 2020 to
$14.435 billion in the second quarter of 2021. Our revenues are based upon the
estimated amounts we expect to be entitled to receive from patients and
third-party payers. Estimates of contractual adjustments under managed care and
commercial insurance plans are based upon the payment terms specified in the
related contractual agreements. Revenues related to uninsured patients and
uninsured copayment and deductible amounts for patients who have health care
coverage may have discounts applied (uninsured discounts and contractual
discounts). We also record estimated implicit price concessions (based primarily
on historical collection experience) related to uninsured accounts to record
self-pay
revenues at the estimated amounts we expect to collect. Patients treated at our
hospitals for
non-elective
care, who have income at or below 400% of the federal poverty level, are
eligible for charity care. Because we do not pursue collection of amounts
determined to qualify as charity care, they are not reported in revenues. Our
revenues by primary third-party payer classification and other (including
uninsured patients) for the quarters and six months ended June 30, 2021 and 2020
are summarized in the following table (dollars in millions):
Quarter
2021 Ratio 2020 Ratio
Medicare $ 2,612 18.1 % $ 2,272 20.5 %
Managed Medicare 2,104 14.6 1,488 13.4
Medicaid 503 3.5 564 5.1
Managed Medicaid 831 5.8 531 4.8
Managed care and insurers 7,417 51.3 5,631 50.9
International (managed care and insurers) 338 2.3 239 2.2
Other 630 4.4 343 3.1
Revenues $ 14,435 100.0 % $ 11,068 100.0 %
Six Months
2021 Ratio 2020 Ratio
Medicare $ 5,171 18.2 % $ 5,015 21.0 %
Managed Medicare 4,157 14.6 3,314 13.8
Medicaid 1,030 3.6 978 4.1
Managed Medicaid 1,556 5.5 1,197 5.0
Managed care and insurers 14,302 50.4 12,276 51.4
International (managed care and insurers) 671 2.4 531 2.2
Other 1,525 5.3 618 2.5
Revenues $ 28,412 100.0 % $ 23,929 100.0 %
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
Consolidated and same facility revenue per equivalent admission increased 2.9%
and 2.6%, respectively, in the second quarter of 2021, compared to the second
quarter of 2020. Consolidated and same facility equivalent admissions increased
26.7% and 26.8%, respectively, in the second quarter of 2021, compared to the
second quarter of 2020. Consolidated and same facility outpatient surgeries
increased 53.4% and 52.5%, respectively, in the second quarter of 2021, compared
to the second quarter of 2020. Consolidated and same facility inpatient
surgeries increased 15.1% and 15.0%, respectively, in the second quarter of
2021, compared to the second quarter of 2020. Consolidated and same facility
emergency department visits increased 40.4% and 40.5%, respectively, in the
second quarter of 2021, compared to the second quarter of 2020. During the
second quarter of 2021, our patient volumes experienced a strong recovery as the
effects of the pandemic moderated and certain pandemic-related restrictions and
policies were eased.
To quantify the total impact of the trends related to uninsured patient
accounts, we believe it is beneficial to view total uncompensated care, which is
comprised of charity care, uninsured discounts and implicit price concessions. A
summary of the estimated cost of total uncompensated care for the quarters and
six months ended June 30, 2021 and 2020 follows (dollars in millions):
Quarter Six Months
2021 2020 2021 2020
Patient care costs (salaries and benefits,
supplies, other operating expenses and
depreciation and amortization) $ 11,950 $ 9,916 $ 23,593 $ 21,258
Cost-to-charges
ratio (patient care costs as percentage of
gross patient charges) 11.1 % 12.6 % 11.2 % 12.2 %
Total uncompensated care $ 7,696 $ 6,729 $ 14,517 $ 14,602
Multiply by the
cost-to-charges
ratio 11.1 % 12.6 % 11.2 % 12.2 %
Estimated cost of total uncompensated care
Same facility uninsured admissions increased by 2,596 admissions, or 6.6%, in
the second quarter of 2021 compared to the second quarter of 2020. Same facility
uninsured admissions declined 15.7%, in the first quarter of 2021 compared to
the first quarter of 2020. Same facility uninsured admissions in 2020, compared
to 2019, declined 9.1% in the fourth quarter, declined 14.2% in the third
quarter, declined 10.0% in the second quarter, and increased 7.1% in the first
quarter. The declines in the first quarter of 2021, compared to the first
quarter of 2020, and the last three quarters of 2020, compared to the last three
quarters of 2019, were primarily due to the reimbursement received, as provided
for under the Families First Coronavirus Response Act and subsequent
legislation, for uninsured patients diagnosed with
COVID-19
and the resulting classification of those patients as an insured admission, as
well as general declines in patient volumes resulting from the pandemic's impact
on our operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
The approximate percentages of our admissions related to Medicare, managed
Medicare, Medicaid, managed Medicaid, managed care and insurers and the
uninsured for the quarters and six months ended
Quarter Six Months
2021 2020 2021 2020
Medicare 23 % 25 % 23 % 26 %
Managed Medicare 21 19 22 20
Medicaid 5 6 5 6
Managed Medicaid 13 12 13 12
Managed care and insurers 30 29 30 28
Uninsured 8 9 7 8
100 % 100 % 100 % 100 %
The approximate percentages of our inpatient revenues related to Medicare,
managed Medicare, Medicaid, managed Medicaid, managed care and insurers for the
quarters and six months ended June 30, 2021 and 2020 are set forth in the
following table.
Quarter Six Months
2021 2020 2021 2020
Medicare 24 % 26 % 24 % 28 %
Managed Medicare 17 15 17 15
Medicaid 5 7 5 6
Managed Medicaid 7 6 6 6
Managed care and insurers 47 46 48 45
100 % 100 % 100 % 100 %
At June 30, 2021 , we had 92 hospitals in the states of Texas and Florida . During
the quarter ended June 30, 2021 , 56% of our admissions and 49% of our revenues
were generated by these hospitals. Uninsured admissions in Texas and Florida
represented 72% of our uninsured admissions during the quarter ended June 30,
2021 .
We receive a significant portion of our revenues from government health
programs, principally Medicare and Medicaid, which are highly regulated and
subject to frequent and substantial changes. In December 2017 , the Centers for
Medicare & Medicaid Services ("CMS") announced that it will phase out federal
matching funds for Designated State Health Programs under waivers granted under
Section 1115 of the Social Security Act. Texas currently operates its Healthcare
Transformation and Quality Improvement Program pursuant to a Medicaid waiver. In
December 2017 , CMS approved an extension of this waiver through September 30,
2022 , but indicated that it will phase out some of the federal funding. Our
Texas Medicaid revenues included Medicaid supplemental payments of $148 million
and $186 million during the second quarters of 2021 and 2020, respectively, and
$286 million and $301 million during the first six months of 2021 and 2020,
respectively.
In addition, we receive supplemental payments in several other states. We are
aware these supplemental payment programs are currently being reviewed by
certain state agencies and some states have made requests to CMS to replace
their existing supplemental payment programs. It is possible these reviews and
requests will
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Revenue/Volume Trends (continued)
result in the restructuring of such supplemental payment programs and could
result in the payment programs being reduced or eliminated. Because
deliberations about these programs are ongoing, we are unable to estimate the
financial impact the program structure modifications, if any, may have on our
results of operations.
Key Performance Indicators
We present certain metrics and statistical information that management uses when
assessing our results of operations. We believe this information is useful to
investors as it provides insight to how management evaluates operational
performance and trends between reporting periods. Information on how these
metrics and statistical information are defined is provided in the following
tables summarizing operating results and operating data.
Operating Results Summary
The following is a comparative summary of results of operations for the quarters
and six months ended June 30, 2021 and 2020 (dollars in millions):
Quarter
2021 2020
Amount Ratio Amount Ratio
Revenues $ 14,435 100.0 $ 11,068 100.0
Salaries and benefits 6,385 44.2 5,330 48.2
Supplies 2,380 16.5 1,748 15.8
Other operating expenses 2,473 17.2 2,147 19.3
Government stimulus income - - (822 ) (7.4 )
Equity in earnings of affiliates (22 ) (0.2 ) (1 ) -
Depreciation and amortization 712 4.9 691 6.3
Interest expense 386 2.7 388 3.5
Losses (gains) on sales of facilities (8 ) (0.1 ) 27 0.2
Losses on retirement of debt 12 0.1 - -
12,318 85.3 9,508 85.9
Income before income taxes 2,117 14.7 1,560 14.1
Provision for income taxes 453 3.2 344 3.1
Net income 1,664 11.5 1,216 11.0
Net income attributable to noncontrolling interests 214 1.5 137 1.2
Net income attributable to
$ 1,079 9.8 % changes from prior year: Revenues 30.4 % (12.2 )% Income before income taxes 35.7 30.3 Net income attributable to HCA Healthcare, Inc. 34.3 37.9 Admissions(a) 17.5 (12.6 ) Equivalent admissions(b) 26.7 (20.0 ) Revenue per equivalent admission 2.9
9.7
Same facility % changes from prior year(c):
Revenues 30.1 (12.1 )
Admissions(a) 17.5 (12.8 )
Equivalent admissions(b) 26.8 (20.1 )
Revenue per equivalent admission 2.6 10.0
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Operating Results Summary (continued)
Six Months
2021 2020
Amount Ratio Amount Ratio
Revenues $ 28,412 100.0 $ 23,929 100.0
Salaries and benefits 12,686 44.6 11,448 47.8
Supplies 4,604 16.2 3,871 16.2
Other operating expenses 4,894 17.3 4,574 19.1
Government stimulus income - - (822 ) (3.4 )
Equity in earnings of affiliates (43 ) (0.2 ) (8 ) -
Depreciation and amortization 1,409 5.0 1,365 5.7
Interest expense 770 2.7 816 3.4
Losses (gains) on sales of facilities (10 ) - 20 0.1
Losses on retirement of debt 12 - 295 1.2
24,322 85.6 21,559 90.1
Income before income taxes 4,090 14.4 2,370 9.9
Provision for income taxes 846 3.0 456 1.9
Net income 3,244 11.4 1,914 8.0Net income attributable to noncontrolling interests 371 1.3
254 1.1
Net income attributable to
$ 1,660 6.9 % changes from prior year: Revenues 18.7 % (4.7 )% Income before income taxes 72.5 (10.8 ) Net income attributable to HCA Healthcare, Inc. 73.0 (8.9 ) Admissions(a) 5.8 (5.8 ) Equivalent admissions(b) 8.5 (10.1 ) Revenue per equivalent admission 9.5
6.0
Same facility % changes from prior year(c): Revenues 18.8 (5.5 ) Admissions(a) 5.8 (6.0 ) Equivalent admissions(b) 8.5 (10.2 ) Revenue per equivalent admission 9.5
5.3
(a) Represents the total number of patients admitted to our hospitals and is used
by management and certain investors as a general measure of inpatient volume.
(b) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenues and gross outpatient revenues and then
dividing the resulting amount by gross inpatient revenues. The equivalent
admissions computation "equates" outpatient revenues to the volume measure
(admissions) used to measure inpatient volume, resulting in a general measure
of combined inpatient and outpatient volume.
(c) Same facility information excludes the operations of hospitals and their
related facilities which were either acquired or divested during the current
and prior period.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)Results of Operations (continued)
Quarters EndedJune 30, 2021 and 2020 Revenues increased to$14.435 billion in the second quarter of 2021 from$11.068 billion in the second quarter of 2020. Net income attributable toHCA Healthcare, Inc. totaled$1.450 billion , or$4.36 per diluted share, for the quarter endedJune 30, 2021 , compared to$1.079 billion , or$3.16 per diluted share, for the quarter endedJune 30, 2020 . Revenues for the second quarter of 2021 include$33 million , or$0.07 per diluted share, related to the settlement of Medicare outlier calculations for prior periods. Second quarter results for 2021 and 2020 include gains on sales of facilities of$8 million , or$0.02 per diluted share, and losses on sales of facilities of$27 million , or$0.07 per diluted share, respectively. Second quarter results for 2021 include losses on retirement of debt of$12 million , or$0.03 per diluted share. Second quarter results for 2020 also include$822 million ($590 million net of tax), or$1.73 per diluted share, of government stimulus income related to general distribution PRFs and$60 million , or$0.13 per diluted share, of employee retention payroll tax credits, both as provided for by the CARES Act. DuringOctober 2020 , we announced we would return, or repay early, our share of the PRFs of approximately$1.6 billion and approximately$4.4 billion in Medicare accelerated payments (repaid during the fourth quarter of 2020). In the third quarter of 2020, we reversed the$822 million of government stimulus income that we recognized during the second quarter of 2020. All "per diluted share" disclosures are based upon amounts net of the applicable income taxes. Shares used for diluted earnings per share were 332.613 million shares for the quarter endedJune 30, 2021 and 341.599 million shares for the quarter endedJune 30, 2020 . During 2020 and the first six months of 2021, we repurchased 3.287 million shares and 19.738 million shares, respectively, of our common stock. Revenues increased 30.4% on a consolidated basis and 30.1% on a same facility basis for the quarter endedJune 30, 2021 , compared to the quarter endedJune 30, 2020 . The increase in consolidated revenues can be primarily attributed to the combined impact of a 2.9% increase in revenue per equivalent admission and a 26.7% increase in equivalent admissions. The same facility revenues increase primarily resulted from the combined impact of a 2.6% increase in same facility revenue per equivalent admission and a 26.8% increase in same facility equivalent admissions. Salaries and benefits, as a percentage of revenues, were 44.2% in the second quarter of 2021 and 48.2% in the second quarter of 2020. Salaries and benefits per equivalent admission declined 5.5% in the second quarter of 2021 compared to the second quarter of 2020. Same facility labor rate increases averaged 7.8% for the second quarter of 2021 compared to the second quarter of 2020 primarily due to certain cost reduction initiatives that impacted the second quarter of 2020. Supplies, as a percentage of revenues, were 16.5% in the second quarter of 2021 and 15.8% in the second quarter of 2020. Supply costs per equivalent admission increased 7.4% in the second quarter of 2021 compared to the second quarter of 2020 primarily due to the rebound in our surgical procedures in the second quarter of 2021 compared to the second quarter of 2020. Supply costs per equivalent admission increased 9.9% for medical devices and 10.1% for general medical and surgical items and declined 1.4% for pharmacy supplies in the second quarter of 2021 compared to the second quarter of 2020. Other operating expenses, as a percentage of revenues, were 17.2% in the second quarter of 2021 and 19.3% in the second quarter of 2020. Other operating expenses is primarily comprised of contract services, professional fees, repairs and maintenance, rents and leases, utilities, insurance (including professional liability insurance) and nonincome taxes. Provisions for losses related to professional liability risks were$135 million and$139 million for the second quarters of 2021 and 2020, respectively. During the second quarter of 2020, we recorded$822 million ($590 million net of tax) of government stimulus income related to general distribution funds received from the PRFs established by the CARES Act. 26
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Quarters Ended June 30, 2021 and 2020 (continued)
Equity in earnings of affiliates was $22 million and $1 million in the second
quarters of 2021 and 2020, respectively.
Depreciation and amortization increased $21 million , from $691 million in the
second quarter of 2020 to $712 million in the second quarter of 2021. The
increase in depreciation relates primarily to capital expenditures at our
existing facilities.
Interest expense was $386 million in the second quarter of 2021 and $388 million
in the second quarter of 2020. Our average debt balance was $31.892 billion for
the second quarter of 2021 compared to $31.921 billion for the second quarter of
2020. The average effective interest rate for our long-term debt was 4.9% for
both of the quarters ended June 30, 2021 and 2020.
During the second quarters of 2021 and 2020, we recorded gains on sales of
facilities of $8 million and losses on sales of facilities of $27 million ,
respectively.
During June 2021 , we issued $2.350 billion aggregate principal amount of senior
secured notes comprised of $850 million aggregate principal amount of 2 3/8%
notes due 2031 and $1.500 billion aggregate principal amount of 3 1/2% notes due
2051 (the "June 2021 Notes"). We also amended and restated our senior secured
revolving credit facility and our senior secured asset-based revolving credit
facility, including increasing availability under the asset-based revolving
credit facility to $4.500 billion , extending the maturity date on both
facilities to June 30, 2026 and entering into a new $1.500 billion term loan A-7
facility and a new $500 million term loan B-14 facility (the "Credit Agreement
Transactions"). We used the net proceeds from the June 2021 Notes and the Credit
Agreement Transactions to retire the existing $1.071 billion term loan A-6
facility, the existing $1.455 billion term loan B-12 facility and the existing
$1.131 billion term loan B-13 facility. The pretax loss on retirement of debt
was $12 million .
The effective tax rates were 23.8% and 24.2% for the second quarters of 2021 and
2020, respectively. The effective tax rate computations exclude net income
attributable to noncontrolling interests as it relates to consolidated
partnerships.
Net income attributable to noncontrolling interests increased from $137 million
for the second quarter of 2020 to $214 million for the second quarter of
2021. The increase in net income attributable to noncontrolling interests
related primarily to the operations of two of our Texas markets and our surgery
center partnerships. The
COVID-19
pandemic negatively impacted second quarter 2020 operations, and surgery center
operations were some of the most negatively impacted.
Six Months Ended June 30, 2021 and 2020
Revenues increased to $28.412 billion in the first six months of 2021 from
$23.929 billion in the first six months of 2020. Net income attributable to HCA
Healthcare, Inc. totaled $2.873 billion , or $8.50 per diluted share, for the
first six months ended June 30, 2021 , compared to $1.660 billion , or $4.84 per
diluted share, for the first six months ended June 30, 2020 . Results for the
first six months of 2021 included gains on sales of facilities of $10 million ,
or $0.02 per diluted share, and losses on retirement of debt of $12 million , or
$0.03 per diluted share. Results for the first six months of 2020 also included
losses on retirement of debt of $295 million , or $0.66 per diluted share, and
losses on sales of facilities of $20 million , or $0.06 per diluted share.
Revenues for the first six months of 2021 and 2020, respectively, include
$33 million , or $0.07 per diluted share, and $55 million , or
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Six Months Ended June 30, 2021 and 2020 (continued)
$0.12 per diluted share, related to the settlement of Medicare outlier
calculations for prior periods. Results for the first six months of 2020
included $822 million ($590 million net of tax), or $1.72 per diluted share, of
government stimulus income related to general distribution PRFs and $60 million ,
or $0.13 per diluted share, of employee retention payroll tax credits, both as
provided for by the CARES Act. During October 2020 , we announced we would
return, or repay early, our share of the PRFs of approximately $1.6 billion and
approximately $4.4 billion in Medicare accelerated payments (repaid during the
fourth quarter of 2020). In the third quarter of 2020, we reversed the
$822 million of government stimulus income that we recognized during the second
quarter of 2020. Our provision for income taxes for the first six months of 2021
and 2020 included tax benefits of $85 million , or $0.25 per diluted share, and
$54 million , or $0.16 per diluted share, respectively, related to employee
equity award settlements. All "per diluted share" disclosures are based upon
amounts net of the applicable income taxes. Shares used for diluted earnings per
share were 337.940 million shares for the six months ended June 30, 2021 and
342.848 million shares for the six months ended June 30, 2020 . During 2020 and
the first six months of 2021, we repurchased 3.287 million shares and
19.738 million shares, respectively, of our common stock.
Revenues increased 18.7% on a consolidated basis and 18.8% on a same facility
basis for the six months ended June 30, 2021 , compared to the six months ended
June 30, 2020 . The increase in both consolidated and same facility revenues can
be primarily attributed to the combined impact of 9.5% increases in revenue per
equivalent admission and 8.5% increases in equivalent admissions.
Salaries and benefits, as a percentage of revenues, were 44.6% in the first six
months of 2021 and 47.8% in the first six months of 2020. Salaries and benefits
per equivalent admission increased 2.2% in the first six months of 2021 compared
to the first six months of 2020. Same facility labor rate increases averaged
6.9% for the first six months of 2021 compared to the first six months of 2020.
Supplies, as a percentage of revenues, were 16.2% in both the first six months
of 2021 and 2020. Supply costs per equivalent admission increased 9.7% in the
first six months of 2021 compared to the first six months of 2020. Supply costs
per equivalent admission increased 8.3% for medical devices, 9.5% for pharmacy
supplies and 11.2% for general medical and surgical items in the first six
months of 2021 compared to the first six months of 2020.
Other operating expenses, as a percentage of revenues, were 17.3% in the first
six months of 2021 and 19.1% in the first six months of 2020. Other operating
expenses is primarily comprised of contract services, professional fees, repairs
and maintenance, rents and leases, utilities, insurance (including professional
liability insurance) and nonincome taxes. Provisions for losses related to
professional liability risks were $269 million and $279 million for the first
six months of 2021 and 2020, respectively.
During the first six months of 2020, we recorded $822 million ($590 million net
of tax) of government stimulus income related to general distribution funds
received from the PRFs established by the CARES Act.
Equity in earnings of affiliates was $43 million and $8 million in the first six
months of 2021 and 2020, respectively.
Depreciation and amortization increased $44 million , from $1.365 billion in the
first six months of 2020 to $1.409 billion in the first six months of 2021. The
increase in depreciation relates primarily to capital expenditures at our
existing facilities.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (continued)
Six Months Ended June 30, 2021 and 2020 (continued)
Interest expense was $770 million in the first six months of 2021 and
$816 million in the first six months of 2020. Our average debt balance was
$31.510 billion for the first six months of 2021 compared to $32.766 billion for
the first six months of 2020. The average effective interest rate for our
long-term debt declined to 4.9% for the six months ended June 30, 2021 from 5.0%
for the six months ended June 30, 2020 .
During the first six months of 2021 and 2020, we recorded net gains of
$10 million and net losses on sales of facilities of $20 million , respectively.
During June 2021 , we issued $2.350 billion aggregate principal amount of senior
secured notes comprised of $850 million aggregate principal amount of 2 3/8%
notes due 2031 and $1.500 billion aggregate principal amount of 3 1/2% notes due
2051 (the "June 2021 Notes"). We also amended and restated our senior secured
revolving credit facility and our senior secured asset-based revolving credit
facility, including increasing availability under the asset-based revolving
credit facility to $4.500 billion , extending the maturity date on both
facilities to June 30, 2026 and entering into a new $1.500 billion term loan A-7
facility and a new $500 million term
loan B-14
facility (the "Credit Agreement Transactions"). We used the net proceeds from
the June 2021 Notes and the Credit Agreement Transactions to retire the existing
$1.071 billion term
loan A-6
facility, the existing $1.455 billion term
loan B-12
facility and the existing $1.131 billion term
loan B-13
facility. The pretax loss on retirement of debt was $12 million . During February
2020 , we issued $2.700 billion aggregate principal amount of 3.50% senior
unsecured notes due 2030. During March 2020 , we used the net proceeds for the
redemption of all $1.000 billion outstanding aggregate principal amount of HCA
Healthcare, Inc.'s 6.25% senior notes due 2021 and, together with available
funds, for the redemption of all $2.000 billion outstanding aggregate principal
amount of HCA Inc.'s 7.50% senior notes due 2022. The pretax loss on retirement
of debt was $295 million .
The effective tax rates were 22.7% and 21.6% for the first six months of 2021
and 2020, respectively. The effective tax rate computations exclude net income
attributable to noncontrolling interests as it relates to consolidated
partnerships. Our provisions for income taxes for the first six months of 2021
and 2020 included tax benefits of $85 million and $54 million , respectively,
related to employee equity award settlements. Excluding the effect of these
adjustments, the effective tax rate for the first six months of 2021 and 2020
would have been 25.0% and 24.1%, respectively.
Net income attributable to noncontrolling interests increased from $254 million
for the first six months of 2020 to $371 million for the first six months of
2021. The increase in net income attributable to noncontrolling interests
related primarily to the operations of two of our Texas markets and our surgery
center partnerships.
Liquidity and Capital Resources
Cash provided by operating activities declined $5.859 billion , from
$10.098 billion for the first six months of 2020 to $4.239 billion for the first
six months of 2021. The $10.098 billion of cash flows from operating activities
in the first six months of 2020 included the $822 million of government stimulus
income and $4.999 billion of contract liabilities-deferred revenues (primarily
related to the Medicare accelerated payments), which were reversed during the
third and fourth quarters of 2020, respectively. The decline in cash provided by
operating activities also included the net impact of negative changes in working
capital items of $1.553 billion , primarily related to an increase in accounts
receivable, and income taxes of $363 million , offset by an increase in net
income, excluding the government stimulus income, losses and gains on sales of
facilities and losses on retirement of debt, of $1.732 billion . The combination
of interest payments and net income tax payments in the
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)Liquidity and Capital Resources (continued)
first six months of 2021 totaled$1.599 billion , compared to the net combination of interest payments and net income tax refunds in the first six months of 2020 of$838 million . Working capital totaled$3.860 billion atJune 30, 2021 and$3.629 billion atDecember 31, 2020 . Cash used in investing activities was$1.569 billion in the first six months of 2021 compared to$1.953 billion in the first six months of 2020. Acquisitions of hospitals and health care entities declined from$346 million in the first six months of 2020 to$98 million in the first six months of 2021. Excluding acquisitions, capital expenditures were$1.496 billion in the first six months of 2021 and$1.598 billion in the first six months of 2020. Planned capital expenditures are expected to approximate$3.7 billion in 2021. AtJune 30, 2021 , there were projects under construction which had estimated additional costs to complete and equip over the next five years of approximately$3.6 billion . We expect to finance capital expenditures with internally generated and borrowed funds. Cash used in financing activities totaled$3.346 billion in the first six months of 2021 compared to$4.116 billion in the first six months of 2020. During the first six months of 2021, net cash flows used in financing activities included a net increase of$1.406 billion in our indebtedness, payment of dividends of$325 million , repurchase of common stock of$3.814 billion and distributions to noncontrolling interests of$357 million . During the first six months of 2020, net cash flows used in financing activities included a net decline of$3.144 billion in our indebtedness, payment of dividends of$153 million , repurchase of common stock of$441 million and distributions to noncontrolling interests of$199 million . We are a highly leveraged company with significant debt service requirements. Our debt totaled$32.572 billion atJune 30, 2021 . Our interest expense was$770 million for the first six months of 2021 and$816 million for the first six months of 2020. In addition to cash flows from operations, available sources of capital include amounts available under our senior secured credit facilities ($5.620 billion and$5.550 billion available as ofJune 30, 2021 andJuly 31, 2021 , respectively) and anticipated access to public and private debt markets. Investments of our insurance subsidiaries, held to maintain statutory equity levels and to provide liquidity to pay claims, totaled$525 million and$504 million atJune 30, 2021 andDecember 31, 2020 , respectively. An insurance subsidiary maintained net reserves for professional liability risks of$154 million and$188 million atJune 30, 2021 andDecember 31, 2020 , respectively. Our facilities are insured by a 100% owned insurance subsidiary for losses up to$75 million per occurrence; however, this coverage is generally subject, in most cases, to a$15 million per occurrence self-insured retention. Additionally, the insurance subsidiary has entered into reinsurance contracts providing reimbursement for a certain portion of losses in excess of self-insured retentions. Net reserves for the self-insured professional liability risks retained were$1.850 billion and$1.736 billion atJune 30, 2021 andDecember 31, 2020 , respectively. Claims payments, net of reinsurance recoveries, during the next 12 months are expected to approximate$471 million . We estimate that approximately$431 million of the expected net claim payments during the next 12 months will relate to claims subject to the self-insured retention. DuringJune 2021 , we issued$2.350 billion aggregate principal amount of senior secured notes comprised of$850 million aggregate principal amount of 2 3/8% notes due 2031 and$1.500 billion aggregate principal amount of 3 1/2% notes due 2051 (the "June 2021 Notes"). We also amended and restated our senior secured revolving credit facility and our senior secured asset-based revolving credit facility, including increasing availability under the asset-based revolving credit facility to$4.500 billion , extending the maturity date on both facilities toJune 30, 2026 and entering into a new$1.500 billion term loan A-7 facility and a new$500 million 30
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)Liquidity and Capital Resources (continued)
term loan B-14 facility (the "Credit Agreement Transactions"). We used the net proceeds from theJune 2021 Notes and the Credit Agreement Transactions to retire the existing$1.071 billion term loan A-6 facility, the existing$1.455 billion term loan B-12 facility and the existing$1.131 billion term loan B-13 facility. Management believes that cash flows from operations, amounts available under our senior secured credit facilities and our anticipated access to public and private debt markets will be sufficient to meet expected liquidity needs during the next 12 months. Summarized Financial InformationHCA Inc. , a direct wholly-owned subsidiary ofHCA Healthcare, Inc. , is the primary obligor under a substantial portion of our indebtedness, including our senior secured credit facilities, senior secured notes and senior unsecured notes. The senior secured notes and senior unsecured notes issued byHCA Inc. are fully and unconditionally guaranteed on an unsecured basis byHCA Healthcare, Inc. The senior secured credit facilities and senior secured notes are fully and unconditionally guaranteed on a senior secured basis by substantially all existing and future, direct and indirect, 100% owned material domestic subsidiaries that are "Unrestricted Subsidiaries" under our Indenture datedDecember 16, 1993 (except for certain special purpose subsidiaries that only guarantee and pledge their assets under our senior secured asset-based revolving credit facility). For a list of subsidiary guarantors, see Exhibit 22 to this quarterly report on Form 10-Q. The subsidiary guarantees rank senior in right of payment to all subordinated indebtedness of each subsidiary guarantor, equally in right of payment with all senior indebtedness of the subsidiary guarantors and are structurally subordinated in right of payment to all indebtedness and other liabilities of any nonguarantor subsidiaries of the subsidiary guarantors (other than indebtedness and liabilities owed to one of the subsidiary guarantors). The subsidiary guarantees are secured by first-priority liens on the subsidiary guarantors' assets, subject to certain exceptions, that secure our senior secured cash flow credit facility on a first-priority basis. The subsidiary guarantees are secured by second-priority liens on the subsidiary guarantors' assets that secure our senior secured asset-based revolving credit facility on a first-priority basis and our senior secured cash flow credit facility on a second-priority basis. The subsidiary guarantees may be automatically and unconditionally released and discharged upon certain customary events, including in the event such guarantee is released under our senior secured credit facilities. The indentures governing the senior secured notes include a "savings clause" intended to limit each subsidiary guarantor's obligations as necessary to prevent the guarantee from constituting a fraudulent conveyance under applicable law, which could reduce a subsidiary guarantor's liability on its guarantee to zero. For further information regarding the guarantees, refer to the applicable indentures that are filed as exhibits to our annual report on Form 10-K for the year endedDecember 31, 2020 . 31
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Summarized Financial Information (continued)
Summarized financial information is presented on a combined basis and
transactions between the combining entities have been eliminated. Financial
information for nonguarantor entities has been excluded. The summarized
operating results information for the six months ended June 30, 2021 and year
ended December 31, 2020 and the summarized balance sheet information at June 30,
2021 and December 31, 2020 , for HCA Healthcare, Inc. , HCA Inc. and the
subsidiary guarantors (the Parent, Subsidiary Issuer and Subsidiary Guarantors)
follow (dollars in millions):
Six Months Ended June 30, 2021 and Year Ended December 31, 2020 :
Six Months Year
June 30, 2021 December 31, 2020
Revenues $ 16,984 $ 31,040
Income before income taxes 2,984 4,016
Net income 2,318 3,172
Net income attributable to Parent, Subsidiary
Issuer and Subsidiary Guarantors 2,274 3,091
At
June 30, 2021 December 31, 2020
Current assets $ 7,248 $ 7,442
Property and equipment, net 15,105 14,939
Goodwill and other intangible assets 5,760 5,763
Total noncurrent assets 22,007 21,771
Total assets 29,255 29,213
Current liabilities 5,065 5,316
Long-term debt, net 31,897 30,444
Intercompany balances 2,419 2,090
Income taxes and other liabilities 1,240 1,004
Total noncurrent liabilities 36,088 34,035
Stockholders' deficit attributable to Parent,
Subsidiary Issuer and Subsidiary Guarantors (12,013 ) (10,247 )
Noncontrolling interests 115 109
The first-priority liens securing the subsidiary guarantees discussed above
include liens on (i) substantially all of the capital stock of substantially all
wholly owned first-tier subsidiaries of HCA Inc. or of the subsidiary guarantors
(but limited to 65% of the stock of any such wholly owned first-tier subsidiary
that is a foreign subsidiary), subject to certain limited exceptions, and
(ii) substantially all indebtedness owing to HCA Inc. or to the subsidiary
guarantors, including any and all intercompany indebtedness owed by HCA
Healthcare, Inc. or any subsidiary thereof to HCA Inc. , or any subsidiary
guarantor. For a list of affiliates whose securities are pledged as collateral
for the senior secured notes, see Exhibit 22 to this quarterly report on Form
10-Q.
Under the first lien intercreditor agreement, the administrative agent for the
lenders under the cash flow credit facility, subject to the occurrence of
certain events, has the exclusive right to direct foreclosures and take other
actions with respect to these liens, and the trustee for the senior secured
notes has no right to take any such actions. In certain circumstances, including
upon certain events of default under the senior secured credit
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Summarized Financial Information (continued)
facilities and the senior secured notes, the collateral agent in respect of the
cash flow credit facility and the senior secured notes could proceed against the
collateral granted to it to secure such indebtedness, including the
aforementioned pledged capital stock and pledged indebtedness, and require such
collateral to be delivered to the collateral agent to the extent not already in
its possession for purposes of perfecting the lien on such assets. For further
information regarding the collateral, including events or circumstances that may
require delivery of the collateral, refer to the applicable indentures, the
first lien intercreditor agreement, the cash flow credit agreement and the
pledge agreement that are filed as exhibits to our annual report on Form
10-K
for the year ended December 31, 2020 .
There is no trading market for any of HCA Healthcare, Inc.'s affiliates whose
securities are pledged as collateral for the senior secured notes.
Rule
13-02
of Regulation
S-X
requires the presentation of summarized financial information of the combined
affiliates whose securities are pledged as collateral for the senior secured
notes unless such information is not material. The rule provides that such
information is not material if the assets, liabilities and results of operations
of the combined affiliates whose securities are pledged as collateral are not
materially different than the corresponding amounts presented in the
consolidated financial statements of the Registrant. Healthtrust, Inc. - The
Hospital Company ("Healthtrust") is the first-tier subsidiary of HCA Inc. , and
the common stock of Healthtrust is pledged as collateral for the senior secured
notes. Due to the corporate structure relationship of HCA Healthcare, Inc. and
Healthtrust, all of HCA Healthcare, Inc.'s operating subsidiaries, including all
other affiliates whose securities are pledged as collateral for the senior
secured notes, are also subsidiaries of Healthtrust. The corporate structure
relationship, combined with the application of push-down accounting in
Healthtrust's consolidated financial statements related to HCA Healthcare Inc.'s
debt and financial instruments, mean that the assets, liabilities and results of
operations of Healthtrust (and, therefore, of the combined affiliates whose
securities are pledged as collateral for the senior secured notes) are not
materially different than the corresponding amounts presented in the financial
statements of HCA Healthcare, Inc. As a result, summarized financial information
of affiliates whose securities are pledged as collateral for the senior secured
notes is not required to be presented under Rule
13-02.
Market Risk
We are exposed to market risk related to changes in market values of securities.
The investment securities held by our insurance subsidiaries were recorded at
$525 million at June 30, 2021 . These investments are carried at fair value, with
changes in unrealized gains and losses that are not credit-related being
recorded as adjustments to other comprehensive income. At June 30, 2021 , we had
a net unrealized gain of $23 million on the insurance subsidiaries' investments.
We are exposed to market risk related to market illiquidity. Investment
securities held by our insurance subsidiaries could be impaired by the inability
to access the capital markets. Should the insurance subsidiaries require
significant amounts of cash in excess of normal cash requirements to pay claims
and other expenses on short notice, we may have difficulty selling these
investments in a timely manner or be forced to sell them at a price less than
what we might otherwise have been able to in a normal market environment. We may
be required to recognize credit-related impairments on our investment securities
in future periods should issuers default on interest payments or should the fair
market valuations of the securities deteriorate due to ratings downgrades or
other issue-specific factors.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Market Risk (continued)
We are also exposed to market risk related to changes in interest rates, and we
periodically enter into interest rate swap agreements to manage our exposure to
these fluctuations. Our interest rate swap agreements involve the exchange of
fixed and variable rate interest payments between two parties, based on common
notional principal amounts and maturity dates. The notional amounts of the swap
agreements represent balances used to calculate the exchange of cash flows and
are not our assets or liabilities. Our credit risk related to these agreements
is considered low because the swap agreements are with creditworthy financial
institutions. The interest payments under these agreements are settled on a net
basis. These derivatives have been recognized in the financial statements at
their respective fair values. Changes in the fair value of these derivatives,
which are designated as cash flow hedges, are included in other comprehensive
income.
With respect to our interest-bearing liabilities, approximately $300 million of
long-term debt at June 30, 2021 was subject to variable rates of interest, while
the remaining balance in long-term debt of $32.272 billion at June 30, 2021 was
subject to fixed rates of interest. Both the general level of interest rates
and, for the senior secured credit facilities, our leverage affect our variable
interest rates. Our variable debt is comprised primarily of amounts outstanding
under the senior secured credit facilities. Borrowings under the senior secured
credit facilities bear interest at a rate equal to an applicable margin plus, at
our option, either (a) a base rate determined by reference to the higher of
(1) the federal funds rate plus 0.50% or (2) the prime rate of Bank of America
or (b) a LIBOR rate for the currency of such borrowing for the relevant interest
period. The applicable margin for borrowings under the senior secured credit
facilities may fluctuate according to a leverage ratio. The average effective
interest rate for our long-term debt was 4.9% and 5.0% for the six months ended
June 30, 2021 and 2020, respectively.
The estimated fair value of our total long-term debt was $37.022 billion at
June 30, 2021 . The estimates of fair value are based upon the quoted market
prices for the same or similar issues of long-term debt with the same
maturities. Based on a hypothetical 1% increase in variable interest rates, the
potential annualized reduction to future pretax earnings would be approximately
$3 million . To mitigate the impact of fluctuations in interest rates, we
generally target a portion of our debt portfolio to be maintained at fixed
rates.
We are exposed to currency translation risk related to our foreign operations.
We currently do not consider the market risk related to foreign currency
translation to be material to our consolidated financial statements or our
liquidity.
Tax Examinations
The Internal Revenue Service was conducting an examination of the Company's
2016, 2017 and 2018 federal income tax returns at June 30, 2021 . We are also
subject to examination by state and foreign taxing authorities. Management
believes HCA Healthcare, Inc. and its predecessors, subsidiaries and affiliates
properly reported taxable income and paid taxes in accordance with applicable
laws and agreements established with IRS , state and foreign taxing authorities
and final resolution of any disputes will not have a material, adverse effect on
our results of operations or financial position. However, if payments due upon
final resolution of any issues exceed our recorded estimates, such resolutions
could have a material, adverse effect on our results of operations or financial
position.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data
2021 2020
Number of hospitals in operation at:
March 31 186 186
June 30 187 186
September 30 187
December 31 185
Number of freestanding outpatient surgical centers in
operation at:
March 31 121 123
June 30 122 122
September 30 121
December 31 121
Licensed hospital beds at(a):
March 31 49,561 49,357
June 30 49,693 49,403
September 30 49,473
December 31 49,265
Weighted average beds in service(b):
Quarter:
First 42,363 42,177
Second 42,464 42,309
Third 42,426
Fourth 42,072
Year 42,246
Average daily census(c):
Quarter:
First 29,678 28,822
Second 28,901 24,844
Third 28,186
Fourth 29,065
Year 27,734
Admissions(d):
Quarter:
First 506,380 528,244
Second 532,041 452,992
Third 506,756
Fourth 521,917
Year 2,009,909
Equivalent admissions(e):
Quarter:
First 832,489 889,035
Second 916,212 723,136
Third 835,576
Fourth 864,583
Year 3,312,330
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (continued)
2021 2020
Average length of stay (days)(f): Quarter: First 5.3 5.0 Second 4.9 5.0 Third 5.1 Fourth 5.1 Year 5.1 Emergency room visits(g): Quarter: First 1,841,778 2,264,707 Second 2,128,428 1,516,116 Third 1,813,661 Fourth 1,855,823 Year 7,450,307 Outpatient surgeries(h): Quarter: First 231,228 226,319 Second 262,107 170,911 Third 232,493 Fourth 252,760 Year 882,483 Inpatient surgeries(i): Quarter: First 127,590 135,145 Second 136,460 118,591 Third 133,492 Fourth 135,157 Year 522,385 Days revenues in accounts receivable(j): Quarter: First 48 49 Second 48 50 Third 44 Fourth 45 Outpatient revenues as a % of patient revenues(k): Quarter: First 36 % 37 % Second 38 % 32 % Third 36 % Fourth 35 % Year 35 %
(a) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(b) Represents the average number of beds in service, weighted based on periods
owned.
(c) Represents the average number of patients in our hospital beds each day.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Operating Data (continued)
(d) Represents the total number of patients admitted to our hospitals and is used
by management and certain investors as a general measure of inpatient volume.
(e) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenues and gross outpatient revenues and then
dividing the resulting amount by gross inpatient revenues. The equivalent
admissions computation "equates" outpatient revenues to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
(f) Represents the average number of days admitted patients stay in our
hospitals.
(g) Represents the number of patients treated in our emergency rooms.
(h) Represents the number of surgeries performed on patients
admitted to our hospitals. Pain management and endoscopy procedures are not
included in outpatient surgeries.
(i) Represents the number of surgeries performed on patients
admitted to our hospitals. Pain management and endoscopy procedures are not
included in inpatient surgeries.
(j) Revenues per day is calculated by dividing revenues for the quarter by the
days in the quarter. Days revenues in accounts receivable is then calculated
as accounts receivable at the end of the quarter divided by revenues per day.
(k) Represents the percentage of patient revenues related to patients
admitted to our hospitals.
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