HCA HEALTHCARE : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

The accompanying consolidated financial statements present certain information
with respect to the financial position, results of operations and cash flows of
HCA Healthcare, Inc. which should be read in conjunction with the following
discussion and analysis. The terms "HCA," "Company," "we," "our," or "us," as
used herein, refer to HCA Healthcare, Inc. and its affiliates. The term
"affiliates" means direct and indirect subsidiaries of HCA Healthcare, Inc. and
partnerships and joint ventures in which such subsidiaries are partners.
Forward-Looking Statements
This annual report on Form
10-K
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, expected
dividends, expected share repurchases, 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; 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 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 and availability 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 court challenges to, any repeal of, or changes
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 continued implementation of the
sequestration spending reductions required under the Budget Control Act of 2011,
and related legislation extending these reductions, and the potential for future
deficit reduction legislation that may alter these spending reductions, which
include cuts to Medicare payments, or create additional spending reductions,
(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

                                       60

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Forward-Looking Statements (continued)

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 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 this annual report on Form
10-K.
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 and CARES Act Funding
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 as various policies that were implemented by federal, state and
local governments in response to the
COVID-19
pandemic, including policies that have caused many people to remain at home,
forced the closure of or limitations on certain businesses, and suspended
elective surgical procedures by health care facilities. While many of these
restrictions have been eased across the U.S. and most states have lifted
moratoriums on
non-emergent
procedures, restrictions remain in place or may be adopted or
re-imposed,
and the possibility exists that the public, particularly segments with a high
mortality risk, could remain wary of real or perceived opportunities for
exposure to the virus. We are unable to predict the future impact of the
pandemic on our operations.
During 2020, we received approximately $4.4 billion of accelerated Medicare
payments and approximately $1.8 billion in general and targeted distributions
from the Provider Relief Fund, both as provided for and established under the
CARES Act. During October 2020,
we announced our decision to return, or repay early, all of our share of the
Provider Relief Fund distributions and all of the Medicare accelerated payments.
During the

                                       61

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

COVID-19

Pandemic and CARES Act Funding (continued)

fourth quarter of 2020, we returned, or repaid early, approximately $6.1 billion
of these funds. The unreturned Provider Relief Funds of $83 million, related to
amounts received by certain of our partnership entities, are recorded under the
caption "other accrued expenses" in our consolidated balance sheet at December
31, 2020. Our share of these funds will be returned in 2021 after final
determination of amounts earned and distributable to the members of each
respective partnership.
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. Such factors include, but are not limited to: the
severity or duration of the pandemic, including whether there will be additional
periods of increases in the number of COVID-19 cases in the areas in which we
operate, the rollout and availability of effective medical treatments and
vaccines, the efficacy of public health controls, including vaccines, and the
impact of any mutations of the virus; the scope and duration of
stay-at-home
practices and business closures and restrictions; recommended or required
suspensions of elective procedures, continued declines in patient volumes for an
indeterminable length of time; increases in the number of uninsured and
underinsured patients as a result of higher sustained rates of unemployment;
incremental expenses required for supplies and personal protective equipment;
and changes in professional and general liability exposure. Because of these and
other uncertainties, we cannot estimate how long or how severely the pandemic
will impact our business. If we experience declines in cash flows and results of
operations, such declines could have an impact on the inputs and assumptions
used in significant accounting estimates, including estimated implicit price
concessions related to uninsured patient accounts, professional and general
liability reserves, and potential impairments of goodwill and long-lived assets.
2020 Operations Summary
Net income attributable to HCA Healthcare, Inc. totaled $3.754 billion, or
$10.93 per diluted share, for 2020, compared to $3.505 billion, or $10.07 per
diluted share, for 2019. The 2020 results included $60 million, or $0.13 per
diluted share, of employee retention payroll tax credits, as provided for by the
CARES Act. The 2020 results also include losses on sales of facilities of
$7 million, or $0.02 per diluted share, and losses on retirement of debt of
$295 million, or $0.66 per diluted share. The 2019 results include gains on
sales of facilities of $18 million, or $0.04 per diluted share, and losses on
retirement of debt of $211 million, or $0.47 per diluted share. Revenues for
2020 include $55 million, or $0.12 per diluted share, related to the settlement
of Medicare outlier calculations for prior periods and $69 million, or $0.15 per
diluted share, related to the resolution of transaction price differences
regarding certain services performed in prior periods. Revenues for 2019 include
$86 million, or $0.19 per diluted share, related to the resolution of
transaction price differences regarding certain services performed in prior
periods. During 2020 and 2019, we recorded reductions to the provision for
professional liability risks of $112 million, or $0.25 per diluted share, and
$50 million, or $0.11 per diluted share, respectively. Our provisions for income
taxes for 2020 and 2019 included tax benefits of $92 million, or $0.27 per
diluted share, and $65 million, or $0.19 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 343.605 million shares and
348.226 million shares for the years ended December 31, 2020 and 2019,
respectively.
Revenues increased to $51.533 billion for 2020 from $51.336 billion for 2019.
Revenues increased 0.4% and declined 0.1%, respectively, on a consolidated basis
and on a same facility basis for 2020, compared to 2019. The consolidated
revenues increase can be primarily attributed to the net impact of a 10.5%
increase in revenue per equivalent admission offset by a 9.2% decline in
equivalent admissions. The same facility revenues decline

                                       62

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

2020 Operations Summary (continued)

resulted primarily from the net impact of a 9.3% decline in same facility
equivalent admissions offset by a 10.1% increase in same facility revenue per
equivalent admission.
During 2020, consolidated admissions declined 4.7% and same facility admissions
declined 4.8%, compared to 2019. Inpatient surgical volumes declined 7.8% on
both a consolidated basis and on a same facility basis during 2020, compared to
2019. Outpatient surgical volumes declined 12.6% on a consolidated basis and
declined 12.4% on a same facility basis during 2020, compared to 2019. Emergency
room visits declined 18.7% on a consolidated basis and declined 18.8% on a same
facility basis during 2020, compared to 2019.
The estimated cost of total uncompensated care declined $250 million for 2020,
compared to 2019. Consolidated and same facility uninsured admissions both
declined 7.0%, and consolidated and same facility uninsured emergency room
visits declined 20.9% and 21.0%, respectively, for 2020, compared to 2019.
Interest expense totaled $1.584 billion for 2020, compared to $1.824 billion for
2019. The $240 million decline in interest expense for 2020 was due to declines
in both the average debt balance and the effective interest rate.
Cash flows from operating activities increased $1.630 billion, from
$7.602 billion for 2019 to $9.232 billion for 2020. The increase in cash flows
from operating activities was primarily related to the increase in net income,
excluding losses and gains on sales of facilities and losses on retirement of
debt, of $330 million and positive changes in working capital items of
$1.366 billion, primarily from the increases in accounts payable and accrued
expenses and the collection of accounts receivable.
Business Strategy
We are committed to providing the communities we serve with high quality,
cost-effective health care while growing our business and creating long-term
value for our stockholders. We strive to be the provider system of choice in the
communities we serve and to support our operations with unique enterprise
capabilities and best in class economies of scale. To achieve these objectives,
we align our efforts around the following growth agenda:
Grow Our Presence in Existing Markets.
We believe we are well positioned in a number of large and growing markets that
will allow us the opportunity to generate long-term, attractive growth through
the expansion of our presence in these markets. We plan to continue recruiting
and strategically collaborating with the physician community and developing
comprehensive service lines such as cardiology, neurology, oncology, orthopedics
and women's services. Additional components of our growth strategy include
providing access and convenience through developing various outpatient
facilities, including, but not limited to surgery centers, urgent care clinics,
freestanding emergency care facilities and imaging centers, as well as seeking
to improve coordination of care and patient retention across our markets.
Achieve Industry-Leading Performance in Clinical, Operational and Satisfaction
Measures.
Achieving high levels of patient safety, patient satisfaction and clinical
quality are central goals of our business. To achieve these goals, we have
implemented a number of initiatives including infection reduction initiatives,
hospitalist programs, advanced health information technology and evidence-based
medicine programs. We routinely analyze operational practices from our
best-performing hospitals to identify ways to implement organization-wide
performance improvements and reduce clinical variation. We believe these
initiatives will continue to improve

                                       63

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Business Strategy (continued)

patient care, help us achieve cost efficiencies and favorably position us in an
environment where our constituents are increasingly focused on quality, efficacy
and efficiency.
Recruit and Employ Physicians to Meet the Needs for High Quality Health
Services.
We depend on the quality and dedication of the health care providers and other
team members who serve at our facilities. We believe a critical component of our
growth strategy is our ability to successfully recruit and strategically
collaborate with physicians and other professionals to provide high quality
care. We attract and retain physicians by providing high quality, convenient
facilities with advanced technology, by expanding our specialty services and by
building our outpatient operations. We believe our continued investment in the
employment, recruitment and retention of physicians will improve the quality of
care at our facilities.
Continue to Leverage Our Scale and Market Positions to Grow the Company.
We believe there is significant opportunity to continue to grow our company by
fully leveraging the scale and scope of our organization. We continue to invest
in initiatives such as care navigators, clinical data exchange and centralized
patient transfer operations, which will enable us to improve coordination of
care and patient retention across our markets. We believe our centrally managed
business processes and ability to leverage cost-saving practices across our
extensive network will enable us to continue to manage costs effectively. We
continue to invest in our Parallon subsidiary group to leverage key components
of our support infrastructure, including revenue cycle management, health care
group purchasing, supply chain management and staffing functions.
Pursue a Disciplined Development Strategy.
We continue to believe there are significant growth opportunities in our
markets. We will continue to provide financial and operational resources to
analyze and develop our
in-market
opportunities. To complement our
in-market
growth agenda, we intend to focus on selectively developing and acquiring new
hospitals, outpatient facilities and other health care service providers. We
believe the challenges faced by the hospital industry may continue to spur
consolidation and we believe our size, scale, national presence and access to
capital will position us well to participate in any such consolidation.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities and the reported amounts
of revenues and expenses. Our estimates are based on historical experience and
various other assumptions we believe are reasonable under the circumstances. We
evaluate our estimates on an ongoing basis and make changes to the estimates and
related disclosures as experience develops or new information becomes known.
Actual results may differ from these estimates.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Revenues
Revenues are recorded during the period the health care services are provided,
based upon the estimated amounts due from payers. Estimates of contractual
allowances under managed care health plans are based upon the payment terms
specified in the related contractual agreements. Laws and regulations governing
the Medicare and Medicaid programs are complex and subject to interpretation.
The estimated reimbursement amounts are made on a payer-specific basis and are
recorded based on the best information available regarding management's

                                       64

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Policies and Estimates (continued)

Revenues (continued)

interpretation of the applicable laws, regulations and contract terms.
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. We have invested significant resources to refine and improve our
billing systems and the information system data used to make contractual
allowance estimates. We have developed standardized calculation processes and
related employee training programs to improve the utility of our patient
accounting systems.
Patients treated at hospitals for
non-elective
care, who have income at or below 400% of the federal poverty level, were
eligible for charity care, and we limit the patient responsibility amounts for
these patients to a percentage of their annual household income, computed on a
sliding scale based upon their annual income and the applicable percentage of
the federal poverty level. Patients treated at hospitals for non-elective care,
who have income above 400% of the federal poverty level, were eligible for
certain other discounts which limit the patient responsibility amounts for these
patients to a percentage of their annual household income, computed on a sliding
scale based upon their annual income and the applicable percentage of the
federal poverty level. We apply additional discounts to limit patient
responsibility for certain emergency services. The federal poverty level is
established by the federal government and is based on income and family size.
Because we do not pursue collection of amounts determined to qualify as charity
care, they are not reported in revenues. We provide discounts to uninsured
patients who do not qualify for Medicaid or charity care. We may attempt to
provide assistance to uninsured patients to help determine whether they may
qualify for Medicaid, other federal or state assistance, or charity care. If an
uninsured patient does not qualify for these programs, the uninsured discount is
applied.
Due to the complexities involved in the classification and documentation of
health care services authorized and provided, the estimation of revenues earned
and the related reimbursement are often subject to interpretations that could
result in payments that are different from our estimates. The adjustments to
estimated Medicare and Medicaid reimbursement amounts and disproportionate-share
funds related primarily to cost reports filed during the respective year
resulted in net increases to revenues of $70 million, $51 million and
$29 million in 2020, 2019 and 2018, respectively. The adjustments to estimated
reimbursement amounts related primarily to cost reports filed during previous
years resulted in a net reduction to revenues of $5 million in 2020 and net
increases to revenues of $13 million and $51 million in 2019 and 2018,
respectively. We expect adjustments during the next 12 months related to
Medicare and Medicaid cost report filings and settlements will result in net
increases to revenues generally similar to the amounts recorded during these
years.
Implicit price concessions relate primarily to amounts due directly from
patients. Estimated implicit price concessions are recorded for all uninsured
accounts, regardless of the age of those accounts. Accounts are written off when
all reasonable collection efforts have been performed. The estimates for
implicit price concessions are based upon management's assessment of historical
writeoffs and expected net collections, business and economic conditions, trends
in federal, state and private employer health care coverage and other collection
indicators. Management relies on the results of detailed reviews of historical
writeoffs and collections at facilities that represent a majority of our
revenues and accounts receivable (the "hindsight analysis") as a primary source
of information in estimating the collectability of our accounts receivable. We
perform the hindsight analysis quarterly, utilizing rolling twelve-months
accounts receivable collection and writeoff data. We believe our quarterly
updates to the estimated implicit price concession amounts at each of our
hospital facilities provide reasonable estimates of our revenues and valuations
of our accounts receivable. These routine, quarterly changes

                                       65

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Policies and Estimates (continued)

Revenues (continued)

in estimates have not resulted in material adjustments to the valuations of our
accounts receivable or
period-to-period
comparisons of our revenues. At December 31, 2020 and December 31, 2019,
estimated implicit price concessions of $6.108 billion and $6.953 billion,
respectively, had been recorded to adjust our revenues and accounts receivable
to the estimated amounts we expect to collect.
To quantify the total impact of and 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 years ended
December 31, follows (dollars in millions):

                                                          2020           2019           2018

Patient care costs (salaries and benefits, supplies, other operating expenses and depreciation and amortization)

$ 44,271       $ 

44,118 $ 40,035

Cost-to-charges

ratio (patient care costs as percentage of gross
patient charges)                                            12.0 %         12.0 %         12.4 %

Total uncompensated care                                $ 29,029       $ 31,105       $ 26,757
Multiply by the
cost-to-charges
ratio                                                       12.0 %         12.0 %         12.4 %

Estimated cost of total uncompensated care              $  3,483       $  

3,733 $ 3,318

Management expects a continuation of the challenges related to the collection of
the patient due accounts. Adverse changes in the percentage of our patients
having adequate health care coverage, increases in patient responsibility
amounts under certain health care coverages, general economic conditions,
patient accounting service center operations, payer mix, or trends in federal,
state, and private employer health care coverage could affect the collection of
accounts receivable, cash flows and results of operations.
Professional Liability Claims
We, along with virtually all health care providers, operate in an environment
with professional liability risks. Our facilities are insured by our 100% owned
insurance subsidiary for losses up to $50 million per occurrence, subject, in
most cases, to a $15 million per occurrence self-insured retention. The
insurance subsidiary has obtained reinsurance for professional liability risks
generally above a retention level of either $25 million or $35 million per
occurrence, depending on the jurisdiction for the related claim. We purchase
excess insurance on an occurrence reported basis for losses in excess of
$50 million per occurrence. Provisions for losses related to professional
liability risks were $435 million, $497 million and $447 million for the years
ended December 31, 2020, 2019 and 2018, respectively. During 2020, 2019 and
2018, we recorded reductions to the provision for professional liability risks
of $112 million, $50 million and $70 million, respectively, due to the receipt
of updated actuarial information.
Reserves for professional liability risks represent the estimated ultimate cost
of all reported and unreported losses incurred through the respective
consolidated balance sheet dates. The estimated ultimate cost includes estimates
of direct expenses and fees paid to outside counsel and experts, but does not
include the general overhead costs of our insurance subsidiary or corporate
office. Individual case reserves are established based upon the particular
circumstances of each reported claim and represent our estimates of the future
costs that will be paid on reported claims. Case reserves are reduced as claim
payments are made and are adjusted upward or downward as our estimates regarding
the amounts of future losses are revised. Once the case reserves for known

                                       66

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Policies and Estimates (continued)

Professional Liability Claims (continued)

claims are determined, information is stratified by loss layers and retentions,
accident years, reported years, and geographic location of our hospitals.
Several actuarial methods are employed to utilize this data to produce estimates
of ultimate losses and reserves for incurred but not reported claims, including:
paid and incurred extrapolation methods utilizing paid and incurred loss
development to estimate ultimate losses; frequency and severity methods
utilizing paid and incurred claims development to estimate ultimate average
frequency (number of claims) and ultimate average severity (cost per claim); and
Bornhuetter-Ferguson methods which add expected development to actual paid or
incurred experience to estimate ultimate losses. These methods use our
company-specific historical claims data and other information. Company-specific
claim reporting and payment data collected over an approximate
20-year
period is used in our reserve estimation process. This company-specific data
includes information regarding our business, including historical paid losses
and loss adjustment expenses, historical and current case loss reserves, actual
and projected hospital statistical data, professional liability retentions for
each policy year, geographic information and other data.
Reserves and provisions for professional liability risks are based upon
actuarially determined estimates. The estimated reserve ranges, net of amounts
receivable under reinsurance contracts, were $1.710 billion to $2.050 billion at
December 31, 2020 and $1.589 billion to $1.903 billion at December 31, 2019. Our
estimated reserves for professional liability claims may change significantly if
future claims differ from expected trends. We perform sensitivity analyses which
model the volatility of key actuarial assumptions and monitor our reserves for
adequacy relative to all our assumptions in the aggregate. Based on our
analysis, we believe the estimated professional liability reserve ranges
represent the reasonably likely outcomes for ultimate losses. We consider the
number and severity of claims to be the most significant assumptions in
estimating reserves for professional liabilities. A 2.5% change in the expected
frequency trend could be reasonably likely and would increase the reserve
estimate by $26 million or reduce the reserve estimate by $25 million. A 2.5%
change in the expected claim severity trend could be reasonably likely and would
increase the reserve estimate by $126 million or reduce the reserve estimate by
$116 million. We believe adequate reserves have been recorded for our
professional liability claims; however, due to the complexity of the claims, the
extended period of time to resolve the claims and the wide range of potential
outcomes, our ultimate liability for professional liability claims could change
by more than the estimated sensitivity amounts and could change materially from
our current estimates.
The reserves for professional liability risks cover approximately 2,300
individual claims at both December 31, 2020 and 2019 and estimates for
unreported potential claims. The time period required to resolve these claims
can vary depending upon the jurisdiction and whether the claim is settled or
litigated. The average time period between the occurrence and final resolution
for our professional liability claims is approximately four years, although the
facts and circumstances of each individual claim can result in an
occurrence-to-resolution
timeframe that varies from this average. The estimation of the timing of
payments beyond a year can vary significantly.
Reserves for professional liability risks were $1.963 billion and $1.827 billion
at December 31, 2020 and 2019, respectively. The current portion of these
reserves, $477 million and $457 million at December 31, 2020 and 2019,
respectively, is included in "other accrued expenses." Obligations covered by
reinsurance and excess insurance contracts are included in the reserves for
professional liability risks, as we remain liable to the extent reinsurers and
excess insurance carriers do not meet their obligations. Reserves for
professional liability risks (net of $39 million and $46 million receivable
under reinsurance and excess insurance contracts at December 31, 2020 and 2019,
respectively) were $1.924 billion and $1.781 billion at December 31, 2020 and
2019, respectively. The estimated total net reserves for professional liability
risks at December 31, 2020 and 2019 are

                                       67

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Policies and Estimates (continued)

Professional Liability Claims (continued)

comprised of $833 million and $695 million, respectively, of case reserves for
known claims and $1.091 billion and $1.086 billion, respectively, of reserves
for incurred but not reported claims.
Changes in our professional liability reserves, net of reinsurance recoverable,
for the years ended December 31, are summarized in the following table (dollars
in millions):

                                                         2020           2019           2018
Net reserves for professional liability claims,
January 1                                               $ 1,781        $ 1,692        $ 1,603
Provision for current year claims                           519            499            486
Favorable development related to prior years'
claims                                                      (84 )           (2 )          (39 )

Total provision                                             435            497            447

Payments for current year claims                              5              8              3
Payments for prior years' claims                            287            400            355

Total claim payments                                        292            408            358

Net reserves for professional liability claims,
December 31                                             $ 1,924        $ 1,781        $ 1,692



Income Taxes
We calculate our provision for income taxes using the asset and liability
method, under which deferred tax assets and liabilities are recognized by
identifying the temporary differences that arise from the recognition of items
in different periods for tax and accounting purposes. Deferred tax assets
generally represent the tax effects of amounts expensed in our income statement
for which tax deductions will be claimed in future periods. Interest and
penalties payable to taxing authorities are included as a component of our
provision for income taxes. We have elected to treat taxes incurred on global
intangible
low-taxed
income as a period expense.
Although we believe we have properly reported taxable income and paid taxes in
accordance with applicable laws, federal, state or foreign taxing authorities
may challenge our tax positions upon audit. Significant judgment is required in
determining and assessing the impact of uncertain tax positions. We report a
liability for unrecognized tax benefits from uncertain tax positions taken or
expected to be taken in our income tax returns. During each reporting period, we
assess the facts and circumstances related to uncertain tax positions. If the
realization of unrecognized tax benefits is deemed probable based upon new facts
and circumstances, the estimated liability and the provision for income taxes
are reduced in the current period. Final audit results may vary from our
estimates.
Results of Operations
Revenue/Volume Trends
Our revenues depend upon inpatient occupancy levels, the ancillary services and
therapy programs ordered by physicians and provided to patients, the volume of
outpatient procedures and the charge and negotiated payment rates for such
services. Gross charges typically do not reflect what our facilities are
actually paid. Our facilities have entered into agreements with third-party
payers, including government programs and managed care health plans, under which
the facilities are paid based upon the cost of providing services, predetermined
rates per diagnosis, fixed per diem rates or discounts from gross charges. We do
not pursue collection of amounts

                                       68

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Revenue/Volume Trends (continued)

related to patients who meet our guidelines to qualify for charity care;
therefore, they are not reported in revenues. We provide discounts to uninsured
patients who do not qualify for Medicaid or charity care.
Revenues increased 0.4% to $51.533 billion for 2020 from $51.336 billion for
2019 and increased 10.0% for 2019 from $46.677 billion for 2018. The increase in
revenues in 2020 can be primarily attributed to the net impact of a 10.5%
increase in revenue per equivalent admission offset by a 9.2% decline in
equivalent admissions compared to the prior year. The increase in revenues in
2019 can be primarily attributed to the combined impact of a 3.2% increase in
revenue per equivalent admission and a 6.6% increase in equivalent admissions
compared to the prior year.
Same facility revenues declined 0.1% for the year ended December 31, 2020
compared to the year ended December 31, 2019 and increased 5.9% for the year
ended December 31, 2019 compared to the year ended December 31, 2018. The 0.1%
decline for 2020 can be primarily attributed to the net impact of a 9.3% decline
in same facility equivalent admissions offset by a 10.1% increase in same
facility revenue per equivalent admission and. The 5.9% increase for 2019 can be
primarily attributed to the combined impact of a 2.3% increase in same facility
revenue per equivalent admission and a 3.5% increase in same facility equivalent
admissions.
Consolidated admissions declined 4.7% during 2020 compared to 2019 and increased
5.2% during 2019 compared to 2018. Consolidated surgeries declined 10.9% during
2020 compared to 2019 and increased 3.7% during 2019 compared to 2018.
Consolidated emergency room visits declined 18.7% during 2020 compared to 2019
and increased 4.5% during 2019 compared to 2018.
Same facility admissions declined 4.8% during 2020 compared to 2019 and
increased 2.8% during 2019 compared to 2018. Same facility surgeries declined
10.7% during 2020 compared to 2019 and increased 1.4% during 2019 compared to
2018. Same facility emergency room visits declined 18.8% during 2020 compared to
2019 and increased 2.8% during 2019 compared to 2018.
Same facility uninsured emergency room visits declined 21.0% and same facility
uninsured admissions declined 7.0% during 2020 compared to 2019. Same facility
uninsured emergency room visits increased 3.9% and same facility uninsured
admissions increased 3.7% during 2019 compared to 2018.
The approximate percentages of our admissions related to Medicare, managed
Medicare, Medicaid, managed Medicaid, managed care and insurers and the
uninsured for the years ended December 31, 2020, 2019 and 2018 are set forth
below.

                                Years Ended December 31,
                             2020           2019        2018
Medicare                         26 %           29 %       30 %
Managed Medicare                 20             18         17
Medicaid                          5              5          5
Managed Medicaid                 12             12         12
Managed care and insurers        29             28         28
Uninsured                         8              8          8

                                100 %          100 %      100 %




                                       69

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          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 inpatient revenues related to Medicare, managed Medicare, Medicaid, managed Medicaid, and managed care and insurers for the years ended December 31, 2020, 2019 and 2018 are set forth below.

                                Years Ended December 31,
                             2020           2019        2018
Medicare                         27 %           28 %       28 %
Managed Medicare                 15             15         14
Medicaid                          5              5          4
Managed Medicaid                  6              5          6
Managed care and insurers        47             47         48

                                100 %          100 %      100 %



At December 31, 2020, we owned and operated 45 hospitals and 31 surgery centers
in the state of Florida. Our Florida facilities' revenues totaled
$11.442 billion, $11.494 billion and $10.892 billion for the years ended
December 31, 2020, 2019 and 2018, respectively. At December 31, 2020, we owned
and operated 46 hospitals and 32 surgery centers in the state of Texas. Our
Texas facilities' revenues totaled $13.528 billion, $13.101 billion and
$12.023 billion for the years ended December 31, 2020, 2019 and 2018,
respectively. During 2020, 2019 and 2018, 56%, 56% and 57% of our admissions and
49%, 48% and 49%, respectively, of our revenues were generated by our Florida
and Texas facilities. Uninsured admissions in Florida and Texas represented 72%,
72% and 70% of our uninsured admissions during 2020, 2019 and 2018,
respectively.
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 waiver payments of
$599 million, $416 million and $450 million during 2020, 2019 and 2018,
respectively.
In addition, we receive supplemental payments in several other states. We are
aware these supplemental payment programs are currently being reviewed by CMS
and certain state agencies, and that some states have made waiver requests to
CMS to replace their existing supplemental payment programs. It is possible
these reviews and waiver requests will result in the restructuring of such
supplemental payment programs and could result in the payment programs being
reduced or eliminated. Because deliberations about these programs are ongoing,
we are unable to estimate the financial impact the program structure
modifications, if any, may have on our results of operations.

                                       70

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Operating Results Summary
The following are comparative summaries of operating results and certain
operating data for the years ended December 31, 2020, 2019 and 2018 (dollars in
millions):

                                               2020                       2019                       2018
                                        Amount        Ratio        Amount        Ratio        Amount        Ratio
Revenues                               $ 51,533        100.0      $ 51,336        100.0      $ 46,677        100.0

Salaries and benefits                    23,874         46.3        23,560         45.9        21,425         45.9
Supplies                                  8,369         16.2         8,481         16.5         7,724         16.5
Other operating expenses                  9,307         18.1         9,481         18.5         8,608         18.5
Equity in earnings of affiliates            (54 )       (0.1 )         (43 )       (0.1 )         (29 )       (0.1 )
Depreciation and amortization             2,721          5.3         2,596          5.0         2,278          4.9
Interest expense                          1,584          3.1         1,824          3.6         1,755          3.8
Losses (gains) on sales of
facilities                                    7            -           (18 )          -          (428 )       (0.9 )
Losses on retirement of debt                295          0.6           211          0.4             9            -

                                         46,103         89.5        46,092         89.8        41,342         88.6

Income before income taxes                5,430         10.5         5,244         10.2         5,335         11.4
Provision for income taxes                1,043          2.0         1,099          2.1           946          2.0

Net income                                4,387          8.5         4,145          8.1         4,389          9.4
Net income attributable to
noncontrolling interests                    633          1.2           640          1.3           602          1.3

Net income attributable to HCA
Healthcare, Inc.                       $  3,754          7.3      $  3,505          6.8      $  3,787          8.1

% changes from prior year:
Revenues                                    0.4 %                     10.0 %                      7.0 %
Income before income taxes                  3.6                       (1.7 )                     21.8
Net income attributable to HCA
Healthcare, Inc.                            7.1                       (7.4 )                     70.9
Admissions(a)                              (4.7 )                      5.2                        3.5
Equivalent admissions(b)                   (9.2 )                      6.6                        4.1
Revenue per equivalent admission           10.5                        3.2                        2.8
Same facility % changes from prior
year(c):
Revenues                                   (0.1 )                      5.9                        6.5
Admissions(a)                              (4.8 )                      2.8                        2.5
Equivalent admissions(b)                   (9.3 )                      3.5                        2.5
Revenue per equivalent admission           10.1                        2.3                        3.9

(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 revenue and gross outpatient revenue and then dividing

the resulting amount by gross inpatient revenue. The equivalent admissions

computation "equates" outpatient revenue 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 that were either acquired, divested or removed from
    service during the current and prior year.



                                       71

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Operating Results Summary (continued)

Operating Data:

                                                     2020             2019             2018
Number of hospitals at end of period                      185              184              179
Number of freestanding outpatient surgical
centers at end of period(a)                               121              123              123
Number of licensed beds at end of period(b)            49,265           49,035           47,199
Weighted average beds in service(c)                    42,246           41,510           39,966
Admissions(d)                                       2,009,909        2,108,927        2,003,753
Equivalent admissions(e)                            3,312,330        3,646,335        3,420,406
Average length of stay (days)(f)                          5.1              4.9              4.9
Average daily census(g)                                27,734           28,134           26,663
Occupancy(h)                                               66 %             68 %             67 %
Emergency room visits(i)                            7,450,307        9,161,129        8,764,431
Outpatient surgeries(j)                               882,483        1,009,947          971,537
Inpatient surgeries(k)                                522,385          566,635          548,220
Days revenues in accounts receivable(l)                    45               50               51
Outpatient revenues as a % of patient
revenues(m)                                                35 %             39 %             38 %

(a) Excludes freestanding endoscopy centers (21 at December 31, 2020; 20 at

December 31, 2019 and 19 at December 31, 2018).

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

to operate from the applicable state licensing agency.

(c) Represents the average number of beds in service, weighted based on periods

owned.

(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 revenue and gross outpatient revenue and then dividing

the resulting amount by gross inpatient revenue. The equivalent admissions

computation "equates" outpatient revenue 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 average number of patients in our hospital beds each day.

(h) Represents the percentage of hospital beds in service that are occupied by

patients. Both average daily census and occupancy rate provide measures of

the utilization of inpatient rooms.

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

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

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

included in outpatient surgeries.

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

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

included in inpatient surgeries.

(l) Revenues per day is calculated by dividing the revenues for the fourth

quarter of each year by the days in the quarter. Days revenues in accounts

receivable is then calculated as accounts receivable at the end of the period

divided by revenues per day.

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

    admitted to our hospitals.



                                       72

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

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 previous
tables summarizing operating results and operating data.
Years Ended December 31, 2020 and 2019
Net income attributable to HCA Healthcare, Inc. totaled $3.754 billion, or
$10.93 per diluted share, for 2020, compared to $3.505 billion, or $10.07 per
diluted share, for 2019. The 2020 results included $60 million, or $0.13 per
diluted share, of employee retention payroll tax credits, as provided for by the
CARES Act. The 2020 results also include losses on sales of facilities of
$7 million, or $0.02 per diluted share, and losses on retirement of debt of
$295 million, or $0.66 per diluted share. The 2019 results include gains on
sales of facilities of $18 million, or $0.04 per diluted share, and losses on
retirement of debt of $211 million, or $0.47 per diluted share. Revenues for
2020 include $55 million, or $0.12 per diluted share, related to the settlement
of Medicare outlier calculations for prior periods and $69 million, or $0.15 per
diluted share, related to the resolution of transaction price differences
regarding certain services performed in prior periods. Revenues for 2019 include
$86 million, or $0.19 per diluted share, related to the resolution of
transaction price differences regarding certain services performed in prior
periods. During 2020 and 2019, we recorded reductions to the provision for
professional liability risks of $112 million, or $0.25 per diluted share, and
$50 million, or $0.11 per diluted share, respectively. Our provisions for income
taxes for 2020 and 2019 included tax benefits of $92 million, or $0.27 per
diluted share, and $65 million, or $0.19 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 343.605 million shares and
348.226 million shares for the years ended December 31, 2020 and 2019,
respectively.
During 2020, consolidated admissions declined 4.7% and same facility admissions
declined 4.8% compared to 2019. Consolidated and same facility inpatient
surgeries both declined 7.8% during 2020 compared to 2019. Emergency room visits
declined 18.7% on a consolidated basis and declined 18.8% on a same facility
basis during 2020 compared to 2019. We believe the declines in emergency room
visits were primarily related to the COVID-19 pandemic and concerns regarding
possible exposure to the virus.
Revenues increased 0.4% to $51.533 billion for 2020 from $51.336 billion for
2019. The increase in revenues was primarily due to the net impact of a 10.5%
increase in revenue per equivalent admission offset by a 9.2% decline in
equivalent admissions compared to 2019. Same facility revenues declined 0.1% due
primarily to the net impact of a 9.3% decline in same facility equivalent
admissions offset by a 10.1% increase in same facility revenue per equivalent
admission compared to 2019. We believe the declines in equivalent admissions
were primarily due to declines in the relative percentage of outpatient service
volume due to restrictions on services for certain periods and the general
concerns regarding exposure to the virus.
Salaries and benefits, as a percentage of revenues, were 46.3% in 2020 and 45.9%
in 2019. Salaries and benefits per equivalent admission increased 11.6% in 2020
compared to 2019, with the increase being partially related to the 9.2% decline
in equivalent admissions. Same facility labor rate increases averaged 2.9% for
2020 compared to 2019. Share-based compensation expense was $362 million in 2020
and $347 million in 2019.

                                       73

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Years Ended December 31, 2020 and 2019 (continued)

Supplies, as a percentage of revenues, were 16.2% in 2020 and 16.5% in 2019.
Supply costs per equivalent admission increased 8.6% in 2020 compared to 2019.
Supply costs per equivalent admission increased 5.5% for medical devices, 9.6%
for pharmacy supplies and 10.6% for general medical and surgical items in 2020
compared to 2019.
Other operating expenses, as a percentage of revenues, were 18.1% in 2020 and
18.5% in 2019. Other operating expenses are 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
$435 million and $497 million for 2020 and 2019, respectively. During 2020 and
2019, we recorded reductions of $112 million, or $0.25 per diluted share, and
$50 million, or $0.11 per diluted share, respectively, to our provision for
professional liability risks related to the receipt of updated actuarial
information.
Equity in earnings of affiliates was $54 million for 2020 and $43 million for
2019.
Depreciation and amortization, as a percentage of revenues, were 5.3% in 2020
and 5.0% in 2019. Depreciation expense was $2.693 billion for 2020 and
$2.579 billion for 2019, and the $114 million increase was due to capital
expenditures and capital projects placed in service in 2020 (same facility
depreciation and amortization increased $147 million).
Interest expense declined to $1.584 billion for 2020 from $1.824 billion for
2019. The $240 million decline in interest expense was due to declines in both
the average debt balance and the effective interest rate. Our average debt
balance was $31.940 billion for 2020 compared to $34.288 billion for 2019. The
average interest rate for our long-term debt was 5.0% for 2020 and 5.3% for
2019.
Losses on sales of facilities were $7 million for 2020, and gains on sales of
facilities were $18 million for 2019.
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. During June 2019,
we issued $5.000 billion aggregate principal amount of senior secured notes
comprised of $2.000 billion aggregate principal amount of 4 1/8% notes due 2029,
$1.000 billion aggregate principal amount of 5 1/8% notes due 2039 and
$2.000 billion aggregate principal amount of 5 1/4% notes due 2049. During July
2019, we redeemed all $600 million outstanding aggregate principal amount of
4.250% senior secured notes due 2019, all $3.000 billion outstanding aggregate
principal amount of 6.500% senior secured notes due 2020 and all $1.350 billion
outstanding aggregate principal amount of 5.875% senior secured notes due 2022.
The pretax loss on retirement of debt for these redemptions was $211 million.
The effective tax rates were 21.7% and 23.9% for 2020 and 2019, 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 2020 and 2019 also included tax benefits of
$92 million and $65 million, respectively, related to employee equity award
settlements. Excluding the effect of these adjustments, the effective tax rates
for 2020 and 2019 would have been 23.7% and 25.3%, respectively.

                                       74

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Results of Operations (continued)

Years Ended December 31, 2020 and 2019 (continued)

Net income attributable to noncontrolling interests declined from $640 million
for 2019 to $633 million for 2020. The decline in net income attributable to
noncontrolling interests related primarily to the operations of our surgery
center partnerships.
For results of operations comparisons relating to years ending December 31, 2019
and 2018, refer to our annual report on Form
10-K,
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations for the year ended December 31, 2019, filed with the Securities
and Exchange Commission on February 20, 2020.
Liquidity and Capital Resources
Our primary cash requirements are paying our operating expenses, servicing our
debt, capital expenditures on our existing properties, acquisitions of hospitals
and health care entities, repurchases of our common stock, dividends to
stockholders and distributions to noncontrolling interests. Our primary cash
sources are cash flows from operating activities, issuances of debt and equity
securities and sales of hospitals and health care entities.
Cash provided by operating activities totaled $9.232 billion in 2020 compared to
$7.602 billion in 2019 and $6.761 billion in 2018. The $1.630 billion increase
in cash provided by operating activities for 2020, compared to 2019, was
primarily related to the increase in net income, excluding losses and gains on
sales of facilities and losses on retirement of debt, of $330 million and
positive changes in working capital items of $1.366 billion, primarily from the
increase in accounts payable and accrued expenses and the collection of accounts
receivable. During 2020, we deferred $688 million of Social Security taxes as
allowed for under the CARES Act. Half of these taxes will be paid by December
31, 2021 and the remainder by December 31, 2022. The $841 million increase in
cash provided by operating activities for 2019, compared to 2018, was primarily
related to the increase in net income, excluding gains on sales of facilities
and losses on retirement of debt, of $222 million and increases related to
income taxes of $322 million and depreciation and amortization of $318 million.
Working capital totaled $3.629 billion at December 31, 2020 and $3.439 billion
at December 31, 2019. Cash payments for interest and income taxes declined
$154 million for 2020 compared to 2019 and increased $147 million for 2019
compared to 2018.
Cash used in investing activities was $3.393 billion, $5.720 billion and
$3.901 billion in 2020, 2019 and 2018, respectively. Excluding acquisitions,
capital expenditures were $2.835 billion in 2020, $4.158 billion in 2019 and
$3.573 billion in 2018. We expended $568 million, $1.682 billion and
$1.253 billion for acquisitions of hospitals and health care entities during
2020, 2019 and 2018, respectively. In response to the risks the
COVID-19
pandemic presents to our business, we reduced certain planned projects and
capital expenditures during 2020. Planned capital expenditures are expected to
approximate $3.7 billion in 2021. At December 31, 2020, there were projects
under construction which had an estimated additional cost to complete and equip
over the next five years of approximately $3.170 billion. We expect to finance
capital expenditures with internally generated and borrowed funds.
Cash used in financing activities totaled $4.677 billion in 2020, $1.771 billion
in 2019 and $3.075 billion in 2018. During 2020, we had net cash paid of
$3.217 billion related to our indebtedness, paid dividends of $153 million and
paid $441 million for repurchases of common stock. During 2019, we had a net
increase of $567 million in our indebtedness, paid dividends of $550 million and
paid $1.031 billion for repurchases of common stock. During 2018, we had net
cash paid of $344 million related to our indebtedness, paid dividends of
$487 million and paid $1.530 billion for repurchases of common stock. During
2020, 2019 and 2018, we made distributions to noncontrolling interests of
$626 million, $542 million and $441 million, respectively.

                                       75

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

We, or our affiliates, may in the future repurchase portions of our debt or
equity securities, subject to certain limitations, from time to time in either
the open market or through privately negotiated transactions, in accordance with
applicable SEC and other legal requirements. The timing, prices, and sizes of
purchases depend upon prevailing trading prices, general economic and market
conditions, and other factors, including applicable securities laws. During
January 2020 and 2019, our Board of Directors authorized share repurchase
programs for up to $4 billion ($2 billion for each authorization) of our
outstanding common stock, and at December 31, 2020, there was $2.800 billion of
share repurchase authorization that remained available under the January 2020
and 2019 authorizations. During March 2020 in response to the risks the
COVID-19
pandemic presents to our business, we announced the suspension of our share
repurchase program. During February 2021, the Board of Directors authorized the
resumption of the share repurchase program, and an additional $6 billion was
authorized for repurchases of the Company's outstanding common stock
($8.8 billion of total repurchase authorization including the February 2021
authorization). Funds for the repurchase of debt or equity securities have, and
are expected to, come primarily from cash generated from operations and borrowed
funds. During 2019, our Board of Directors declared four quarterly dividends of
$0.40 per share, or $1.60 per share in the aggregate, on our common stock.
During January 2020, our Board of Directors declared a quarterly dividend of
$0.43 per share on our common stock. During April 2020 in response to the risks
the
COVID-19
pandemic presents to our business, we also suspended our quarterly dividend
program. During February 2021, the Board of Directors reinstated the quarterly
program and declared a quarterly dividend of $0.48 per share on our common
stock. The timing and amount of future cash dividends will vary based on a
number of factors, including future capital requirements for strategic
transactions, share repurchases and investing in our existing markets, the
availability of financing on acceptable terms, debt service requirements,
changes to applicable tax laws or corporate laws, changes to our business model
and periodic determinations by our Board of Directors that cash dividends are in
the best interest of stockholders and are in compliance with all applicable laws
and agreements of the Company.
In addition to cash flows from operations, available sources of capital include
amounts available under our senior secured credit facilities ($7.712 billion as
of December 31, 2020 and $5.712 billion as of January 31, 2021) and anticipated
access to public and private debt and equity markets. We terminated our $2.000
billion 364-day senior secured term loan facility during January 2021.
Investments of our insurance subsidiaries, held to maintain statutory equity
levels and to provide liquidity to pay claims, totaled $504 million and
$462 million at December 31, 2020 and 2019, respectively. The insurance
subsidiary maintained net reserves for professional liability risks of
$188 million and $175 million at December 31, 2020 and 2019, respectively. Our
facilities are insured by our 100% owned insurance subsidiary for losses up to
$50 million per occurrence; however, this coverage is subject, in most cases, to
a $15 million per occurrence self-insured retention. Net reserves for the
self-insured professional liability risks retained were $1.736 billion and
$1.606 billion at December 31, 2020 and 2019, respectively. Claims payments, net
of reinsurance recoveries, during the next 12 months are expected to approximate
$469 million. We estimate that approximately $413 million of the expected net
claim payments during the next 12 months will relate to claims subject to the
self-insured retention.
Financing Activities
We are a highly leveraged company with significant debt service requirements.
Our debt totaled $31.004 billion and $33.722 billion at December 31, 2020 and
2019, respectively. Our interest expense was $1.584 billion for 2020 and
$1.824 billion for 2019.

                                       76

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

Financing Activities (continued)

During January 2019, we issued $1.500 billion aggregate principal amount of
senior unsecured notes comprised of $1.000 billion aggregate principal amount of
5.875% notes due 2029 and $500 million aggregate principal amount of 5.625%
notes due 2028. We used the net proceeds to fund the purchase of a
seven-hospital health system located in western North Carolina.
During June 2019, we issued $5.000 billion aggregate principal amount of senior
secured notes comprised of $2.000 billion aggregate principal amount of 4 1/8%
notes due 2029, $1.000 billion aggregate principal amount of 5 1/8% notes due
2039 and $2.000 billion aggregate principal amount of 5 1/4% notes due 2049.
During July 2019, we redeemed all $600 million outstanding aggregate principal
amount of 4.25% senior secured notes due 2019, all $3.000 billion outstanding
aggregate principal amount of 6.50% senior secured notes due 2020 and all
$1.350 billion outstanding aggregate principal amount of 5.875% senior secured
notes due 2022.
During February 2020, we issued $2.700 billion aggregate principal amount of
3.50% senior 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.
During March 2020 in response to the risks the
COVID-19
pandemic presents to our business, we entered into a credit agreement that
provides for
a 364-day secured
term loan facility for an aggregate principal amount of up to $2.000 billion. As
of December 31, 2020, there was no amount outstanding or draw notices pending
under the facility. We terminated this credit agreement during January 2021.
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 twelve months.
Summarized Financial Information
HCA Inc., a direct wholly-owned subsidiary of HCA 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 by HCA Inc.
are fully and unconditionally guaranteed on an unsecured basis by HCA
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
dated December 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 annual report on Form
10-K.
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 guarantor and are structurally
subordinated in right of payment to all indebtedness and other liabilities of
any
non-guarantor
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,

                                       77

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

Summarized Financial Information (continued)

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 this annual report on Form
10-K.
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 year ended December 31, 2020 and the
summarized balance sheet information at December 31, 2020, for HCA Healthcare,
Inc., HCA Inc. and the subsidiary guarantors (the Parent, Subsidiary Issuer and
Subsidiary Guarantors) follow (dollars in millions):
Year Ended December 31, 2020:

                                                                     Year Ended
                                                                  December 31, 2020
Revenues                                                         $            31,040
Income before income taxes                                                     4,016
Net income                                                                     3,172
Net income attributable to Parent, Subsidiary Issuer
and Subsidiary Guarantors                                                      3,091

At December 31, 2020:
                                                                    December 31,
                                                                        2020
Current assets                                                   $             7,442
Property and equipment, net                                                   14,939
Goodwill and other intangible assets                                           5,763
Total noncurrent assets                                                       21,771
Total assets                                                                  29,213
Current liabilities                                                            5,316
Long-term debt, net                                                           30,444
Intercompany balances                                                          2,090
Income taxes and other liabilities                                          

1,004

Total noncurrent liabilities                                                

34,035

Stockholders' deficit attributable to Parent,
Subsidiary Issuer and Subsidiary Guarantors                                  (10,247 )
Noncontrolling interests                                                         109



                                       78

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (continued)

Summarized Financial Information (continued)

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 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 annual report on Form
10-K.
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 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 this annual report on Form
10-K.
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.

                                       79

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)


Market Risk
We are exposed to market risk related to changes in market values of securities.
The investments in our 100% owned insurance subsidiaries were $504 million at
December 31, 2020. These investments are carried at fair value, with changes in
unrealized gains and losses being recorded as adjustments to other comprehensive
income. At December 31, 2020, we had a net unrealized gain of $32 million on the
insurance subsidiaries' investment securities.
We are exposed to market risk related to market illiquidity. Investments in debt
and equity securities of 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.
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 $1.171 billion
of long-term debt at December 31, 2020 was subject to variable rates of
interest, while the remaining balance in long-term debt of $29.833 billion at
December 31, 2020 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% and (2) the
prime rate of Bank of America or (b) a LIBOR rate for the currency of such
borrowing for the relevant interest period. The applicable margin for borrowings
under the senior secured credit facilities may fluctuate according to a leverage
ratio. The average effective interest rate for our long-term debt was 5.0% for
2020 and 5.3% for 2019.
The estimated fair value of our total long-term debt was $35.814 billion at
December 31, 2020. 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 interest rates, the potential
annualized reduction to future pretax earnings would be approximately
$12 million. To mitigate the impact of fluctuations in interest rates, we
generally target a majority 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.

                                       80

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

  Table of Contents
  Index to Financial Statements
                              HCA HEALTHCARE, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (Continued)

Market Risk (continued)

Financial Instruments
Derivative financial instruments are employed to manage risks, including
interest rate exposures, and are not used for trading or speculative purposes.
We recognize derivative instruments, such as interest rate swap agreements, in
the consolidated balance sheets at fair value. Changes in the fair value of
derivatives are recognized periodically either in earnings or in stockholders'
equity, as a component of other comprehensive income, depending on whether the
derivative financial instrument qualifies for hedge accounting, and if so,
whether it qualifies as a fair value hedge or a cash flow hedge. Gains and
losses on derivatives designated as cash flow hedges, to the extent they are
effective, are recorded in other comprehensive income, and subsequently
reclassified to earnings to offset the impact of the hedged items when they
occur.
The net interest paid or received on interest rate swaps is recognized as
interest expense. Gains and losses resulting from the early termination of
interest rate swap agreements are deferred and amortized as adjustments to
expense over the remaining period of the debt originally covered by the
terminated swap.
Tax Examinations
The Internal Revenue Service ("IRS") was conducting an examination of the
Company's 2016, 2017 and 2018 federal income tax returns at December 31, 2020.
We are also subject to examination by state and foreign taxing authorities.
Management believes HCA Healthcare, Inc., its predecessors, subsidiaries and
affiliates properly reported taxable income and paid taxes in accordance with
applicable laws and agreements established with the 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.

                                       81

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

Table of Contents

  Index to Financial Statements
Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Information with respect to this Item is provided under the caption "Market Risk" under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

© Edgar Online, source Glimpses