TENET HEALTHCARE CORPORATION INTRODUCTION TO MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of this section, Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A"), is to provide a narrative
explanation of our financial statements that enables investors to better
understand our business, to enhance our overall financial disclosures, to
provide the context within which our financial information may be analyzed, and
to provide information about the quality of, and potential variability of, our
financial condition, results of operations and cash flows. MD&A, which should be
read in conjunction with the accompanying Condensed Consolidated Financial
Statements, includes the following sections:
•Management Overview
•Forward-Looking Statements
•Sources of Revenue for Our Hospital Operations Segment
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Estimates
Our business consists of our Hospital Operations and other ("Hospital
Operations") segment, our Ambulatory Care segment and our Conifer segment. Our
Hospital Operations segment is comprised of acute care and specialty hospitals,
imaging centers, ancillary outpatient facilities, microhospitals and physician
practices. At March 31, 2022 , our subsidiaries operated 60 hospitals serving
primarily urban and suburban communities in nine states. In April 2022 , we
completed the sale of a Hospital Operations segment microhospital, which was
classified as held for sale in the accompanying Condensed Consolidated Balance
Sheet at March 31, 2022 . In April 2021 , we completed the sale of the majority of
the urgent care centers then held by our Hospital Operations segment to an
unaffiliated urgent care provider. In addition, in August 2021 , we completed the
sale of five Miamiarea hospitals and certain related operations (the "Miami
Hospitals") held by our Hospital Operations segment.
Our Ambulatory Care segment is comprised of the operations of USPI Holding
Company, Inc. ("USPI"), in which we held an ownership interest of approximately
95% at March 31, 2022 . USPI had interests in 404 ambulatory surgery centers
(each, an "ASC") (253 consolidated) and 24 surgical hospitals (eight
consolidated) in 34 states at March 31, 2022 . In April 2021 , we completed the
sale of 40 urgent care centers then held by our Ambulatory Care segment to an
unaffiliated urgent care provider and transferred 24 imaging centers from our
Ambulatory Care segment to our Hospital Operations segment.
Our Conifer segment provides revenue cycle management and valuebased care
services to hospitals, health systems, physician practices, employers and other
clients through our Conifer Holdings, Inc. subsidiary ("Conifer"). At
March 31, 2022 , Conifer provided services to over 660 Tenet and nonTenet
hospitals and other clients nationwide. Nearly all of the services comprising
the operations of our Conifer segment are provided by Conifer Health Solutions,
LLC , in which we held an ownership interest of approximately 76% at
March 31, 2022 , or by one of its direct or indirect wholly owned subsidiaries.
Unless otherwise indicated, all financial and statistical information included
in MD&A relates to our continuing operations, with dollar amounts expressed in
millions (except peradjustedpatientadmission and peradjustedpatientday
amounts). Continuing operations information includes the results of our same 60
hospitals operated throughout the three months ended March 31, 2022 and 2021, as
well as the Miami Hospitals sold in August 2021 . Continuing operations
information excludes the results of our hospitals and other businesses that have
been classified as discontinued operations for accounting purposes. We believe
this information is useful to investors because it includes the operations of
all facilities in continuing operations for the period of time that we owned and
operated them, and it reflects the recent trends we are experiencing with
respect to volumes, revenues and expenses. We present certain metrics as a
percentage of net operating revenues because a significant portion of our
operating expenses are variable. In addition, we present certain metrics on a
peradjusted-patientadmission and peradjustedpatientday basis to show trends
other than volume.
In certain cases, information presented in MD&A for our Hospital Operations
segment is described as presented on a samehospital basis, which includes the
results of our same 60 hospitals operated throughout the three months ended
March 31, 2022 and 2021, and excludes the results of the Miami Hospitals we sold
in August 2021 and the results of our discontinued operations. We present
samehospital data because we believe it provides investors with useful
information regarding the performance of our current portfolio of hospitals and
other operations that are comparable for the periods presented, as well as
reflects recent trends we are experiencing with respect to volumes, revenues and
expenses.
25-------------------------------------------------------------------------------- Table of Contents MANAGEMENT OVERVIEW
IMPACT OF THE COVID-19 PANDEMIC
The COVID19 pandemic generally and, most recently, the spread of the Omicron variant continued to impact all three segments of our business, as well as our patients, communities and employees, in the three months endedMarch 31, 2022 . Broad economic factors resulting from the pandemic affected our patient volumes, service mix and revenue mix. In addition, the pandemic continued to have an adverse impact on certain of our operating expenses in the first quarter of 2022. Various federal legislative actions, including additional funding for thePublic Health and Social Services Emergency Fund ("PRF"), have mitigated some of the economic disruption caused by the COVID19 pandemic on our business. In the three months endedMarch 31, 2022 and 2021, we received cash payments of$5 million and$59 million , respectively, from the PRF and state and local grant programs. We recognized$6 million and$31 million , respectively, from these funds as grant income during the three-month periods in 2022 and 2021, respectively. In addition, we recognized$6 million in equity in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statement of Operations during the three months endedMarch 31, 2021 . Throughout MD&A, we have provided additional information on the impact of the COVID19 pandemic on our results of operations and the steps we have taken, and are continuing to take, in response. The ultimate extent and scope of the pandemic and its future impact on our business remain unknown. For information about risks and uncertainties related to COVID19 that could affect our results of operations, financial condition and cash flows, see the Risk Factors section in this report and in Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2021 ("Annual Report").
TRENDS AND STRATEGIES
As described above and throughout MD&A, we continue to experience negative impacts of the pandemic on our business in varying degrees. Most recently, primarily in January andFebruary 2022 , we were affected by a significant acceleration in COVID-19 cases associated with the Omicron variant. Throughout the COVID19 pandemic, we have taken, and we continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and changes in our service mix and revenue mix. We have issued new senior unsecured notes and senior secured first lien notes, redeemed existing senior unsecured notes and senior secured first lien notes, including those with the highest interest rates of all of our longterm debt, and amended our senior secured revolving credit facility (as amended to date, the "Credit Agreement"). We also decreased our employee headcount throughout the organization at the outset of the COVID-19 pandemic, and we deferred certain operating expenses that were not expected to impact our response to the pandemic. In addition, we reduced certain variable costs across the enterprise. Together with government relief packages, we believe these actions supported our ability to provide essential patient services during the initial uncertainty caused by the COVID-19 pandemic and continue to do so. For further information on our liquidity, see "Liquidity and Capital Resources" below. We have experienced, and continue to experience, increased competition with other healthcare providers in recruiting and retaining qualified personnel responsible for the operation of our facilities. There is a limited availability of experienced medical support personnel nationwide, which drives up the wages and benefits required to recruit and retain employees. In particular, like others in the healthcare industry, we continue to experience a shortage of criticalcare nurses in certain disciplines and geographic areas. This shortage has been exacerbated by the COVID19 pandemic as more nurses choose to retire early, leave the workforce or take travel assignments. In some areas, the increased demand for care of COVID19 patients in our hospitals, as well as the direct impact of COVID19 on physicians, employees and their families, have put a strain on our resources and staff. Over the past two years, we have had to rely on higher-cost temporary contract labor, which we compete with other healthcare providers to secure, and pay premiums above standard compensation for essential workers. In addition, we have experienced significant price increases in medical supplies, particularly for personal protective equipment ("PPE"), and we have encountered supplychain disruptions, including shortages and delays. We believe that several key trends are also continuing to shape the demand for healthcare services: (1) consumers, employers and insurers are actively seeking lowercost solutions and better value as they focus more on healthcare spending; (2) patient volumes are shifting from inpatient to outpatient settings due to technological advancements and demand for care that is more convenient, affordable and accessible; (3) the growing aging population requires greater chronic disease management and higheracuity treatment; and (4) consolidation continues across the entire healthcare sector. In addition, the healthcare industry, in general, and the acute care hospital business, in particular, have experienced significant regulatory uncertainty based, in large part, on administrative, legislative and judicial efforts to limit, alter or repeal the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 ("Affordable Care Act"). It is difficult to predict the full impact of regulatory uncertainty on our future revenues and operations. 26 -------------------------------------------------------------------------------- Table of Contents Expansion of Our Ambulatory Care Segment-In response to these trends, we continue to focus on opportunities to expand our Ambulatory Care segment through acquisitions, organic growth, construction of new outpatient centers and strategic partnerships. During the years endedDecember 31, 2021 and 2020, we invested$1.315 billion and$1.200 billion , respectively, to acquire ownership interests in new ASCs, increase our ownership interests in existing facilities and invest in de novo facilities. This activity included the acquisition of ownership interests in 86 ASCs and related ambulatory support services (collectively, the "SCD Centers") fromSurgical Center Development #3, LLC andSurgical Center Development #4, LLC ("SCD") inDecember 2021 . USPI and SCD's principals have also entered into a joint venture and development agreement under which USPI will have the exclusive option to partner with affiliates of SCD on the future development of a minimum target of 50 de novo ASCs over a period of five years. During the three months endedMarch 31, 2022 , we acquired controlling interests in two ASCs inFlorida and one inNew Hampshire , and we acquired a noncontrolling interest in an ASC located inNew Jersey . During the same period, we also acquired controlling ownership interests in three previously unconsolidated SCD Centers located inFlorida ,Pennsylvania andTexas . In addition, we opened two new ASCs in the first quarter of 2022 - one inFlorida and one inNorth Carolina . We believe USPI's ASCs and surgical hospitals offer many advantages to patients and physicians, including greater affordability, predictability, flexibility and convenience. Moreover, due in part to advancements in medical technology and due to the lower cost structure and greater efficiencies that are attainable at a specialized outpatient site, we believe the volume and complexity of surgical cases performed in an outpatient setting will continue to increase. Historically, our outpatient services have generated significantly higher margins for us than inpatient services. Driving Growth in Our Hospital Systems-We remain committed to better positioning our hospital systems and competing more effectively in the everevolving healthcare environment by focusing on driving performance through operational effectiveness, increasing capital efficiency and margins, investing in our physician enterprise, particularly our specialist network, enhancing patient and physician satisfaction, growing our higherdemand and higheracuity clinical service lines (including outpatient lines), expanding patient and physician access, and optimizing our portfolio of assets. Over the past several years, we have undertaken enterprisewide costefficiency measures, and we continue to transition certain support operations offshore to ourGlobal Business Center ("GBC") inthe Philippines . We incurred restructuring charges in conjunction with these initiatives in the three months endedMarch 31, 2022 , and we could incur additional such charges in the future. We also continue to exit service lines, businesses and markets that we believe are no longer a core part of our longterm growth strategy. InApril 2021 , we divested the majority of our urgent care centers operated under the MedPost and CareSpot brands by our Hospital Operations and Ambulatory Care segments. In addition, we completed the sale of the Miami Hospitals inAugust 2021 . We intend to further refine our portfolio of hospitals and other healthcare facilities when we believe such refinements will help us improve profitability, allocate capital more effectively in areas where we have a stronger presence, deploy proceeds on higherreturn investments across our business, enhance cash flow generation, reduce our debt and lower our ratio of debttoAdjusted EBITDA. Improving the Customer Care Experience-As consumers continue to become more engaged in managing their health, we recognize that understanding what matters most to them and earning their loyalty is imperative to our success. As such, we have enhanced our focus on treating our patients as traditional customers by: (1) establishing networks of physicians and facilities that provide convenient access to services across the care continuum; (2) expanding service lines aligned with growing community demand, including a focus on aging and chronic disease patients; (3) offering greater affordability and predictability, including simplified registration and discharge procedures, particularly in our outpatient centers; (4) improving our culture of service; and (5) creating health and benefit programs, patient education and health literacy materials that are customized to the needs of the communities we serve. Through these efforts, we intend to improve the customer care experience in every part of our operations. Driving Conifer's Growth-Conifer serves over 660 Tenet and nonTenet hospitals and other clients nationwide. In addition to providing revenue cycle management services to health systems and physicians, Conifer provides support to both providers and selfinsured employers seeking assistance with clinical integration, financial risk management and population health management. Conifer remains focused on driving growth by continuing to market and expand its revenue cycle management and valuebased care solutions businesses. We believe that our success in growing Conifer and increasing its profitability depends in part on our success in executing the following strategies: (1) attracting hospitals and other healthcare providers that currently handle their revenue cycle management processes internally as new clients; (2) generating new client relationships through opportunities from USPI and Tenet's acute care hospital acquisition and divestiture activities; (3) expanding revenue cycle management and valuebased care service offerings through organic development and small acquisitions; and (4) leveraging data from tens of millions of patient interactions for continued enhancement of the valuebased care environment to drive competitive differentiation. 27 -------------------------------------------------------------------------------- Table of Contents Improving Profitability-As we return to more normal operations, we continue to focus on growing patient volumes and effective cost management as a means to improve profitability. We believe our inpatient admissions have been constrained in recent years (prior to the COVID19 pandemic) by increased competition, utilization pressure by managed care organizations, new delivery models that are designed to lower the utilization of acute care hospital services, the effects of higher patient copays, coinsurance amounts and deductibles, changing consumer behavior, and adverse economic conditions and demographic trends in certain of our markets. However, we also believe that emphasis on higherdemand clinical service lines (including outpatient services), focus on expanding our ambulatory care business, cultivation of our culture of service, participation in Medicare Advantage health plans that have been experiencing higher growth rates than traditional Medicare, and contracting strategies that create shared value with payers should help us grow our patient volumes over time. We are also continuing to explore new opportunities to enhance efficiency, including further integration of enterprisewide centralized support functions, outsourcing additional functions unrelated to direct patient care, and reducing clinical and vendor contract variation. Reducing Our Leverage Over Time-All of our outstanding longterm debt has a fixed rate of interest, except for outstanding borrowings, if any, under our Credit Agreement, and the maturity dates of our notes are staggered from 2023 through 2031. We believe that our capital structure minimizes the nearterm impact of increased interest rates, and the staggered maturities of our debt allow us to refinance our debt over time. During the three months endedMarch 31, 2022 , we redeemed all$700 million aggregate principal amount outstanding of our 7.500% senior secured first lien notes due 2025 (the "2025 Senior Secured First Lien Notes") in advance of their maturity date using cash on hand. In addition, we repurchased$103 million aggregate principal amount outstanding of our 6.750% senior unsecured notes due 2023 (the "2023 Senior Unsecured Notes") through a series of openmarket transactions inMarch 2022 using cash on hand. We anticipate these redemption and repurchase transactions will reduce future annual cash interest expense payments by approximately$60 million . It remains our longterm objective to reduce our debt and lower our ratio of debttoAdjusted EBITDA, primarily through more efficient capital allocation and Adjusted EBITDA growth, which should lower our refinancing risk. Our ability to execute on our strategies and respond to the aforementioned trends is subject to the extent and scope of the impact on our operations of the COVID19 pandemic, as well as a number of other risks and uncertainties, all of which may cause actual results to be materially different from expectations. For information about risks and uncertainties that could affect our results of operations, see the ForwardLooking Statements and Risk Factors sections in this report, as well as the ForwardLooking Statements and Risk Factors sections in Part I of our Annual Report. 28
-------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS-OVERVIEW The following tables present selected operating statistics for our Hospital Operations and Ambulatory Care segments, as well as consolidated net operating revenues and expenses, in each case for the three months endedMarch 31, 2022 and 2021 on a continuing operations basis. Continuing Operations Three Months Ended March 31, Increase Selected Operating Statistics 2022 2021 (Decrease) Hospital Operations - hospitals and related outpatient facilities: Number of hospitals (at end of period) 60 65 (5) (1) Total admissions 127,781 147,674 (13.5) % Adjusted patient admissions(2) 227,933 251,017 (9.2) % Paying admissions (excludes charity and uninsured) 121,802 138,756 (12.2) % Charity and uninsured admissions 5,979 8,918 (33.0) % Admissions through emergency department 97,688 112,730 (13.3) % Emergency department visits, outpatient 500,659 450,830 11.1 % Total emergency department visits 598,347 563,560 6.2 % Total surgeries 84,166 89,964 (6.4) % Patient days - total 705,627 797,489 (11.5) % Adjusted patient days(2) 1,224,824 1,321,890 (7.3) % Average length of stay (days) 5.52 5.40 2.2 % Average licensed beds 15,395 17,178 (10.4) % Utilization of licensed beds(3) 50.9 % 51.6 % (0.7) % (1) Total visits 1,373,188 1,401,217 (2.0) % Paying visits (excludes charity and uninsured) 1,295,352 1,312,096 (1.3) % Charity and uninsured visits 77,836 89,121 (12.7) % Ambulatory Care: Total consolidated facilities (at end of period) 261 291 (30) (1) Total consolidated cases 300,320 553,814 (45.8) %
(1) The change is the difference between the 2022 and 2021 amounts shown. (2) Adjusted patient admissions/days represents actual patient admissions/days adjusted to
include outpatient services provided by facilities in our Hospital Operations segment
by multiplying actual patient admissions/days by the sum of gross inpatient revenues
and outpatient revenues and dividing the results by gross inpatient revenues. (3) Utilization of licensed beds represents patient days divided by number of days in the
period divided by average licensed beds.
Total admissions decreased by 19,893, or 13.5%, and total surgeries decreased by 5,798, or 6.4%, in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . Total emergency department visits increased 6.2% in the three months endedMarch 31, 2022 compared to the same period in 2021. The decrease in our patient volumes from continuing operations in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 is primarily attributable to the sale of the Miami Hospitals inAugust 2021 and the impact of the Omicron variant in January andFebruary 2022 . The decrease in Ambulatory Care total consolidated cases of 45.8% in the three months endedMarch 31, 2022 compared to the same period in 2021 is primarily due to the divestiture of USPI's urgent care centers and the realignment of its imaging centers under our Hospital Operations segment. Continuing Operations Three Months Ended March 31, Increase Revenues 2022 2021 (Decrease) Net operating revenues: Hospital Operations prior to inter-segment eliminations$ 3,798 $ 3,947 (3.8) % Ambulatory Care 738 646 14.2 % Conifer 324 310 4.5 % Inter-segment eliminations (115) (122) (5.7) % Total$ 4,745 $ 4,781 (0.8) % Net operating revenues decreased by$36 million , or 0.8%, in the three months endedMarch 31, 2022 compared to the same period in 2021, primarily due to the loss of revenues in our Hospital Operations segment from the Miami Hospitals we sold inAugust 2021 and lower patient volumes, partially offset by high patient acuity and negotiated commercial rate increases. On a consolidated basis, this decrease was further offset by higher revenues from our Ambulatory Care segment, which increased$92 million , or 14.2%, in the 2022 period compared to the 2021 period. This increase was largely driven by our 29 -------------------------------------------------------------------------------- Table of Contents recently acquired ASCs, higher surgical patient volumes and negotiated commercial rate increases. Conifer's revenues, net of intercompany eliminations, increased$21 million , or 11.2%, during the three months endedMarch 31, 2022 compared to the same period in 2021, primarily due to contractual rate increases and new business expansion. During the three months endedMarch 31, 2022 and 2021, we recognized net grant income of$6 million and$31 million , respectively, which amounts are not included in net operating revenues. Our accounts receivable days outstanding ("AR Days") from continuing operations were 58.9 days atMarch 31, 2022 and 57.0 days atDecember 31, 2021 , primarily due to the approval ofTexas' Medicaid supplemental funding programs by theCenters for Medicare and Medicaid Services ("CMS") at the end ofMarch 2022 , which resulted in our recognition of$57 million of revenue in the three months endedMarch 31, 2022 . This revenue has not yet been collected given that the programs were just recently approved. Our AR Days target is less than 55 days. AR Days are calculated as our accounts receivable from continuing operations on the last date in the quarter divided by our net operating revenues from continuing operations for the quarter ended on that date divided by the number of days in the quarter. This calculation includes our Hospital Operations segment's contract assets. The AR Days calculation excludes (i) urgent care centers operated under the MedPost and CareSpot brands, which we divested inApril 2021 , (ii) the Miami Hospitals, which we sold inAugust 2021 , and (iii) ourCalifornia provider fee revenues. Continuing Operations Three Months Ended March 31,
Increase
Selected Operating Expenses 2022 2021
(Decrease)
Hospital Operations: Salaries, wages and benefits$ 1,820 $ 1,857 (2.0) % Supplies 583 646 (9.8) % Other operating expenses 774 916 (15.5) % Total$ 3,177 $ 3,419 (7.1) % Ambulatory Care: Salaries, wages and benefits $ 194$ 174 11.5 % Supplies 201 157 28.0 % Other operating expenses 105 103 1.9 % Total $ 500$ 434 15.2 % Conifer: Salaries, wages and benefits $ 168$ 170 (1.2) % Supplies 1 1 - % Other operating expenses 63 53 18.9 % Total $ 232$ 224 3.6 % Total: Salaries, wages and benefits$ 2,182 $ 2,201 (0.9) % Supplies 785 804 (2.4) % Other operating expenses 942 1,072 (12.1) % Total$ 3,909 $ 4,077 (4.1) % Rent/lease expense(1): Hospital Operations $ 70$ 77 (9.1) % Ambulatory Care 27 27 - % Conifer 3 3 - % Total $ 100$ 107 (6.5) % (1) Included in other operating expenses. Continuing Operations Three Months Ended March 31, Increase Selected Operating Expenses per Adjusted Patient Admission 2022 2021 (Decrease) Hospital Operations: Salaries, wages and benefits per adjusted patient admission(1) $ 7,985$ 7,396 8.0 % Supplies per adjusted patient admission(1) 2,557 2,571 (0.5) % Other operating expenses per adjusted patient admission(1) 3,393 3,647 (7.0) % Total per adjusted patient admission$ 13,935 $ 13,614 2.4 %
(1) Adjusted patient admissions represents actual patient admissions adjusted to include
outpatient services provided by facilities in our Hospital Operations segment by
multiplying actual patient admissions by the sum of gross inpatient revenues and
outpatient revenues and dividing the results by gross inpatient revenues.
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Salaries, wages and benefits expense for our Hospital Operations segment decreased$37 million , or 2.0%, in the three months endedMarch 31, 2022 compared to the same period in 2021. This change was primarily attributable to the sale of the Miami Hospitals inAugust 2021 and our continued focus on cost-efficiency measures, partially offset by increased contract labor costs, increased overtime expense and annual merit increases for certain of our employees. On a peradjustedpatientadmission basis, salaries, wages and benefits increased 8.0% in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , primarily due to the expenses mentioned above. Supplies expense for our Hospital Operations segment decreased$63 million , or 9.8%, during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . This decrease was primarily attributable to the sale of the Miami Hospitals, the decrease in patient volumes during the 2022 period and our cost-efficiency measures, partially offset by increased costs for certain supplies as a result of the COVID-19 pandemic and high patient acuity. On a peradjustedpatientadmission basis, supplies expense decreased 0.5% in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , primarily due to the cost-efficiency measures described above. Other operating expenses for our Hospital Operations segment decreased$142 million , or 15.5%, in the three months endedMarch 31, 2022 compared to the same period in 2021. The decrease was primarily attributable to sale of theMiami Hospitals, a gain of$69 million realized from the sale of several medical office buildings in the three months endedMarch 31, 2022 , and our continued focus on cost-efficiency measures. On a peradjustedpatientadmission basis, other operating expenses in the three months endedMarch 31, 2022 decreased 7.0% compared to the same period in 2021, primarily due to the items mentioned above.
LIQUIDITY AND CAPITAL RESOURCES OVERVIEW
Cash and cash equivalents were
Significant cash flow items in the three months ended
•Net cash provided by operating activities before interest, taxes, discontinued operations, and restructuring charges, acquisitionrelated costs, and litigation costs and settlements of$458 million (including$5 million from federal grants);
•Proceeds from the sale of facilities and other assets of
•Debt payments of$879 million , including the redemption of all$700 million aggregate principal amount outstanding of our 2025 Senior Secured First Lien Notes and the repurchase of$103 million aggregate principal amount outstanding of our 2023 Senior Unsecured Notes;
•Interest payments of
•Capital expenditures of
•$135 million of distributions paid to noncontrolling interests;
•Payments totaling
•$40 million of payments for purchases of businesses or joint venture interests.
Net cash provided by operating activities was$228 million in the three months endedMarch 31, 2022 compared to$534 million in the three months endedMarch 31, 2021 . Key factors contributing to the change between the 2022 and 2021 periods include the following:
•$194 million of Medicare advances recouped in the three months ended
•$5 million of cash received from grants in the three months ended
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•Decreased cash receipts of
•The timing of other working capital items.
FORWARD-LOOKING STATEMENTS
This report includes "forwardlooking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, target, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forwardlooking statements, including (but not limited to) disclosure regarding (i) the impact of the COVID-19 pandemic, (ii) our future earnings, financial position, and operational and strategic initiatives, and (iii) developments in the healthcare industry. Forwardlooking statements represent management's expectations, based on currently available information, as to the outcome and timing of future events, but, by their nature, address matters that are indeterminate. They involve known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control, that may cause our actual results, performance or achievements to be materially different from those expressed or implied by forwardlooking statements. Such factors include, but are not limited to, the risks described in the ForwardLooking Statements and Risk Factors sections in Part I of our Annual Report and the Risk Factors section in Part II of this report. When considering forwardlooking statements, you should keep in mind the risk factors and other cautionary statements in our Annual Report and in this report. Should one or more of the risks and uncertainties described in these reports occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forwardlooking statement. We specifically disclaim any obligation to update any information contained in a forwardlooking statement or any forwardlooking statement in its entirety except as required by law.
All forwardlooking statements attributable to us are expressly qualified in their entirety by this cautionary information.
SOURCES OF REVENUE FOR OUR HOSPITAL OPERATIONS SEGMENT
We earn revenues for patient services from a variety of sources, primarily
managed care payers and the federal Medicare program, as well as state Medicaid
programs, indemnitybased health insurance companies and uninsured patients
(that is, patients who do not have health insurance and are not covered by some
other form of thirdparty arrangement).
The following table presents the sources of net patient service revenues less
implicit price concessions for our hospitals and related outpatient facilities,
expressed as percentages of net patient service revenues less implicit price
concessions from all sources:
Three Months Ended
Net Patient Service Revenues Less Implicit Price March 31, Increase
Concessions from: 2022 2021 (Decrease)(1)
Medicare 17.6 % 18.8 % (1.2) %
Medicaid 5.5 % 7.1 % (1.6) %
Managed care(2) 71.1 % 68.0 % 3.1 %
Uninsured 1.1 % 1.3 % (0.2) %
Indemnity and other 4.7 % 4.8 % (0.1) %
(1) The change is the difference between the 2022 and 2021 percentages presented. (2) Includes Medicare and Medicaid managed care programs.
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Our payer mix on an admissions basis for our hospitals and related outpatient
facilities, expressed as a percentage of total admissions from all sources, is
presented below:
Three Months Ended
March 31, Increase
Admissions from: 2022 2021 (Decrease)(1)
Medicare 21.5 % 21.4 % 0.1 %
Medicaid 5.6 % 5.7 % (0.1) %
Managed care(2) 64.8 % 63.7 % 1.1 %
Charity and uninsured 4.7 % 6.0 % (1.3) %
Indemnity and other 3.4 % 3.2 % 0.2 %
(1) The change is the difference between the 2022 and 2021 percentages presented. (2) Includes Medicare and Medicaid managed care programs.
GOVERNMENT PROGRAMS
CMS is an agency of theU.S. Department of Health and Human Services ("HHS") that administers a number of government programs authorized by federal law; it is the single largest payer of healthcare services inthe United States . Medicare is a federally funded health insurance program primarily for individuals 65 years of age and older, as well as some younger people with certain disabilities and conditions, and is provided without regard to income or assets. Medicaid is coadministered by the states and is jointly funded by the federal government and state governments. Medicaid is the nation's main public health insurance program for people with low incomes and is the largest source of health coverage inthe United States . TheChildren's Health Insurance Program ("CHIP"), which is also coadministered by the states and jointly funded, provides health coverage to children in families with incomes too high to qualify for Medicaid, but too low to afford private coverage. Unlike Medicaid, the CHIP is limited in duration and requires the enactment of reauthorizing legislation. Funding for the CHIP has been reauthorized through federal fiscal year 2027. Medicare Medicare offers its beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan (which includes "Part A" and "Part B"), is a feeforservice ("FFS") payment system. The other option, called Medicare Advantage (sometimes called "Part C" or "MA Plans"), includes health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), private FFS Medicare special needs plans and Medicare medical savings account plans. Our total net patient service revenues from continuing operations of the hospitals and related outpatient facilities in our Hospital Operations segment for services provided to patients enrolled in the Original Medicare Plan were$619 million and$688 million for the three months endedMarch 31, 2022 and 2021, respectively. A general description of the types of payments we receive for services provided to patients enrolled in the Original Medicare Plan is provided in our Annual Report. Recent regulatory and legislative updates to the terms of these payment systems and their estimated effect on our revenues can be found under "Regulatory and Legislative Changes" below.
Medicaid
Medicaid programs and the corresponding reimbursement methodologies vary from
statetostate and from yeartoyear. Even prior to the COVID19 pandemic,
several states in which we operate faced budgetary challenges that resulted in
reduced Medicaid funding levels to hospitals and other providers. Because most
states must operate with balanced budgets, and the Medicaid program is generally
a significant portion of a state's budget, states can be expected to adopt or
consider adopting future legislation designed to reduce or not increase their
Medicaid expenditures. In addition, some states delay issuing Medicaid payments
to providers to manage state expenditures. As an alternative means of funding
provider payments, many of the states in which we operate have adopted
supplemental payment programs authorized under the Social Security Act.
Continuing pressure on state budgets and other factors, including legislative
and regulatory changes, could result in future reductions to Medicaid payments,
payment delays or changes to Medicaid supplemental payment programs. Federal
government denials or delayed approvals of waiver applications or extension
requests by the states in which we operate could materially impact our Medicaid
funding levels.
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Estimated revenues under various state Medicaid programs, including statefunded
Medicaid managed care programs, constituted approximately 18.8% and 16.9% of
total net patient service revenues less implicit price concessions of our acute
care hospitals and related outpatient facilities for the three months ended
March 31, 2022 and 2021, respectively. We also receive disproportionate share
hospital ("DSH") and other supplemental revenues under various state Medicaid
programs. For the three months ended March 31, 2022 and 2021, our total Medicaid
revenues attributable to DSH and other supplemental revenues were approximately
$119 million and $180 million , respectively. The decrease between the two
threemonth periods was primarily attributable to $57 million of assessments we
recognized related to the Texas Comprehensive Hospital Increase Reimbursement
Program ("CHIRP") following its approval in 2022. During the three months ended
March 31, 2022 , we also recognized $114 million of revenue related to CHIRP
that, due to the structure of the program, is included in Managed Medicaid
revenue.
Total Medicaid and Managed Medicaid net patient service revenues from continuing
operations recognized by the hospitals and related outpatient facilities in our
Hospital Operations segment for the three months ended March 31, 2022 and 2021
were $659 million and $617 million , respectively. During the three months ended
March 31, 2022 , Medicaid and Managed Medicaid revenues comprised 29% and 71%,
respectively, of our Medicaidrelated net patient service revenues from
continuing operations recognized by the hospitals and related outpatient
facilities in our Hospital Operations segment. All Medicaid and Managed Medicaid
patient service revenues are presented net of provider taxes or assessments paid
by our hospitals, which are reported as an offset reduction to FFS Medicaid
revenue.
Because we cannot predict what actions the federal government or the states may
take under existing or future legislation and/or regulatory changes to address
budget gaps, deficits, Medicaid expansion, provider fee programs or Medicaid
Section 1115 waivers, we are unable to assess the effect that any such
legislation or regulatory action might have on our business; however, the impact
on our future financial position, results of operations or cash flows could be
material.
Regulatory and Legislative Changes
Material updates to the information set forth in our Annual Report about the Medicare and Medicaid payment systems, as well as other government programs impacting our business, are provided below.
Proposed Payment and Policy Changes to the Medicare Inpatient Prospective
Payment Systems-Section 1886(d) of the Social Security Act requires CMS to
update Medicare inpatient FFS payment rates for hospitals reimbursed under the
inpatient prospective payment systems ("IPPS") annually. The updates generally
become effective October 1 , the beginning of the federal fiscal year ("FFY"). In
April 2022 , CMS issued proposed changes to the Hospital Inpatient Prospective
Payment Systems for Acute Care Hospitals and Fiscal Year 2023 Rates ("Proposed
IPPS Rule"). The Proposed IPPS Rule includes the following proposed payment and
policy changes:
•A market basket increase of 3.1% for Medicare severityadjusted
diagnosisrelated group ("MSDRG") operating payments for hospitals reporting
specified quality measure data and that are meaningful users of electronic
health record technology; CMS also proposed a 0.4% multifactor productivity
reduction required by the Affordable Care Act and a 0.5% increase required by
the Medicare Access and CHIP Reauthorization Act that together result in a net
operating payment update of 3.2% before budget neutrality adjustments;
•Changes to the hospital ValueBased Purchasing ("VBP") and Hospital-Acquired
Condition ("HAC") programs for FFY 2023 due to the impact of the COVID-19 Public
Health Emergency, including the implementation of a special scoring methodology
for the VBP program that results in each hospital receiving a valuebased
incentive payment amount equal to its 2% reduction to the operating standardized
amount; and suppression of all measures in the HAC reduction program resulting
in no hospitals being penalized for FFY 2023;
•An increase in the cost outlier threshold from
•A 1.63% net increase in the capital federal MSDRG rate; and
•Updates to the three factors used to determine the amount and distribution of Medicare uncompensated care disproportionate share hospital ("UCDSH") payments.
According to CMS, the combined impact of the proposed payment and policy changes
in the Proposed IPPS Rule for operating costs will yield an average 1.4%
increase in Medicare operating MSDRG FFS payments for hospitals in urban areas,
and an average 2.3% increase in such payments for proprietary hospitals in
FFY 2023. We estimate that all the proposed payment and policy changes affecting
operating MSDRG and UCDSH payments will result in an estimated 2.3% increase
in
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our annual Medicare FFS IPPS payments, which yields an estimated increase of
approximately $45 million . Because of the uncertainty associated with various
factors that may influence our future IPPS payments by individual hospital,
including legislative, regulatory or legal actions, admission volumes, length of
stay and case mix, as well as potential changes to the Proposed IPPS Rule, we
cannot provide any assurances regarding our estimate of the impact of the
proposed payment and policy changes.
Public Health and Social Services Emergency Fund-During the three months ended
March 31, 2022 and 2021, our Hospital Operations and Ambulatory Care segments
together recognized a total of $6 million and $24 million , respectively, of PRF
grant income associated with lost revenues and COVIDrelated costs. We also
recognized $6 million of PRF grant income from our unconsolidated affiliates
during the three months ended March 31, 2021 . In addition to PRF grant income,
our Hospital Operations and Ambulatory Care segments also recognized $7 million
of grant income from state and local grant programs during the three months
ended March 31, 2021 . Grant income recognized by our Hospital Operations and
Ambulatory Care segments is presented in grant income, and grant income
recognized through our unconsolidated affiliates is presented in equity in
earnings of unconsolidated affiliates, in each case in the condensed
consolidated statements of operations. We cannot predict whether additional
distributions of grant funds will be authorized, and we cannot provide
assurances regarding the amount of grant income, if any, to be recognized in the
future.
Medicare and Medicaid Payment Policy Changes-The federally mandated 2%
sequestration reduction on Medicare FFS and Medicare Advantage payments to
hospitals, physicians and other providers was suspended effective May 1, 2020
through December 31, 2021 . The Protecting Medicare and American Farmers from
Sequester Cuts Act (the "Sequester Cuts Act"), which was signed into law in
December 2021 , extended the 2% Medicare sequestration moratorium through
March 31, 2022 , and adjusted the sequestration to 1% for the period
April 1, 2022 through June 30, 2022 , after which the full 2% reduction will be
restored unless further legislation is passed. The impact of the Sequester Cuts
Act on our operations was an increase of approximately $20 million of revenues
in the three months ended March 31, 2022 , and we estimate its impact for the
full year ending December 31, 2022 will be an increase of approximately $30
million of revenues. Because of the uncertainty associated with various factors
that may influence our future Medicare and Medicaid payments, including future
legislative, legal or regulatory actions, or changes in volumes and case mix,
there is a risk that actual payments received under, or the ultimate impact of,
these programs will differ materially from our expectations.
Significant Litigation
340B Litigation
The CMS 340B program allows certain hospitals (i.e., only nonprofit
organizations with specific federal designations and/or funding) ("340B
Hospitals") to purchase drugs at discounted rates from drug manufacturers ("340B
Drugs"). In the final rule regarding Hospital Outpatient Prospective Payment
System ("OPPS") payment and policy changes for calendar year ("CY") 2018, CMS
reduced the payment for 340B Drugs from the average sales price ("ASP") plus 6%
to the ASP minus 22.5% and made a corresponding budgetneutral increase to
payments to all hospitals for other drugs and services reimbursed under the OPPS
(the "340B Payment Adjustment"). In the final rules regarding OPPS payment and
policy changes for CYs 2019 through 2022, CMS continued the 340B Payment
Adjustment. Certain hospital associations and hospitals commenced litigation
challenging CMS' authority to impose the 340B Payment Adjustment for CYs 2018,
2019 and 2020. Previously, the U.S. District Court for the District of Columbia
(the "District Court") held that the adoption of the 340B Payment Adjustment in
the CYs 2018 and 2019 OPPS Final Rules exceeded CMS' statutory authority by
reducing drug reimbursement rates for 340B Hospitals. In July 2020 , the U.S.
Court of Appeals for the District of Columbia Circuit (the "Appeals Court")
reversed the District Court's holding, finding that HHS' decision to reduce the
payment rate for 340B Drugs was based on a reasonable interpretation of the
Medicare statute. The Appeals Court subsequently denied the 340B Hospitals'
petition for a rehearing. The 340B Hospitals filed a timely petition asking the
U.S. Supreme Court ("Supreme Court ") to reverse the Appeals Court's decision
and, in December 2021 , the Supreme Court heard oral arguments in the case. We
cannot predict the timing or outcome of the Supreme Court's decision or what
further actions CMS or Congress might take with respect to the 340B program;
however, a reversal of the current payment policy and return to the prior 340B
payment methodology could have an adverse effect on our net operating revenues
and cash flows.
35
--------------------------------------------------------------------------------Table of Contents PRIVATE INSURANCE Managed Care We currently have thousands of managed care contracts with various HMOs and PPOs. HMOs generally maintain a fullservice healthcare delivery network comprised of physician, hospital, pharmacy and ancillary service providers that HMO members must access through an assigned "primary care" physician. The member's care is then managed by his or her primary care physician and other network providers in accordance with the HMO's quality assurance and utilization review guidelines so that appropriate healthcare can be efficiently delivered in the most costeffective manner. HMOs typically provide reduced benefits or reimbursement (or none at all) to their members who use noncontracted healthcare providers for nonemergency care. PPOs generally offer limited benefits to members who use noncontracted healthcare providers. PPO members who use contracted healthcare providers receive a preferred benefit, typically in the form of lower copays, coinsurance or deductibles. As employers and employees have demanded more choice, managed care plans have developed hybrid products that combine elements of both HMO and PPO plans, including highdeductible healthcare plans that may have limited benefits, but cost the employee less in premiums. The amount of our managed care net patient service revenues, including Medicare and Medicaid managed care programs, from our hospitals and related outpatient facilities during the three months endedMarch 31, 2022 and 2021 was$2.495 billion and$2.480 billion , respectively. Our top 10 managed care payers generated 61% of our managed care net patient service revenues for the three months endedMarch 31, 2022 . During the same period, national payers generated 41% of our managed care net patient service revenues; the remainder came from regional or local payers. AtMarch 31, 2022 andDecember 31, 2021 , 68% and 67%, respectively, of our net accounts receivable for our Hospital Operations segment were due from managed care payers. Revenues under managed care plans are based primarily on payment terms involving predetermined rates per diagnosis, perdiem rates, discounted FFS rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers, which can take several years before they are completely resolved. The payers are billed for patient services on an individual patient basis. An individual patient's bill is subject to adjustment on a patientbypatient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. We estimate the discounts for contractual allowances at the individual hospital level utilizing billing data on an individual patient basis. At the end of each month, on an individual hospital basis, we estimate our expected reimbursement for patients of managed care plans based on the applicable contract terms. We believe it is reasonably likely for there to be an approximately 3% increase or decrease in the estimated contractual allowances related to managed care plans. Based on reserves atMarch 31, 2022 , a 3% increase or decrease in the estimated contractual allowance would impact the estimated reserves by approximately$16 million . Some of the factors that can contribute to changes in the contractual allowance estimates include: (1) changes in reimbursement levels for procedures, supplies and drugs when threshold levels are triggered; (2) changes in reimbursement levels when stoploss or outlier limits are reached; (3) changes in the admission status of a patient due to physician orders subsequent to initial diagnosis or testing; (4) final coding of inhouse and dischargednotfinalbilled patients that change reimbursement levels; (5) secondary benefits determined after primary insurance payments; and (6) reclassification of patients among insurance plans with different coverage and payment levels. Contractual allowance estimates are periodically reviewed for accuracy by taking into consideration known contract terms, as well as payment history. We believe our estimation and review process enables us to identify instances on a timely basis where such estimates need to be revised. We do not believe there were any adjustments to estimates of patient bills that were material to our revenues. In addition, on a corporatewide basis, we do not record any general provision for adjustments to estimated contractual allowances for managed care plans. Managed care accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for these payers and other factors that affect the estimation process. We expect managed care governmental admissions to continue to increase as a percentage of total managed care admissions over the near term. However, the managed Medicare and Medicaid insurance plans typically generate lower yields than commercial managed care plans, which have been experiencing an improved pricing trend. Although we have benefited from solid yearoveryear aggregate managed care pricing improvements for some time, we have seen these improvements moderate in recent years, and we believe this moderation could continue into the future. In the three months endedMarch 31, 2022 , our commercial managed care net inpatient revenue per admission from the hospitals in our Hospital Operations segment was approximately 86% higher than our aggregate yield on a peradmission basis from government payers, including managed Medicare and Medicaid insurance plans. 36 -------------------------------------------------------------------------------- Table of Contents Indemnity An indemnitybased agreement generally requires the insurer to reimburse an insured patient for healthcare expenses after those expenses have been incurred by the patient, subject to policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her utilization of healthcare and selection of healthcare providers.
Legislative Changes
As more fully described in Item 1, Business - Healthcare Regulation and
Licensing, of Part I of our Annual Report, the No Surprises Act ("NSA") and the
rules promulgated thereunder went into effect on January 1, 2022 . The NSA is
intended to address unexpected gaps in insurance coverage that result in
"surprise medical bills" when patients unknowingly obtain medical services from
physicians and other providers outside their health insurance network, including
certain emergency services, anesthesiology services and air ambulance
transportation. At this time, we are unable to assess the effect that the NSA or
regulations relating to the NSA might have on our business, financial position,
results of operations or cash flows.
UNINSURED PATIENTS
Uninsured patients are patients who do not qualify for government programs payments, such as Medicare and Medicaid, do not have some form of private insurance and, therefore, are responsible for their own medical bills. A significant number of our uninsured patients are admitted through our hospitals' emergency departments and often require highacuity treatment that is more costly to provide and, therefore, results in higher billings, which are the least collectible of all accounts.
Selfpay accounts receivable, which include amounts due from uninsured patients, as well as copays, coinsurance amounts and deductibles owed to us by patients with insurance, pose significant collectability problems. AtMarch 31, 2022 andDecember 31, 2021 , 3% and 4%, respectively, of our net accounts receivable for our Hospital Operations segment was selfpay. Further, a significant portion of our implicit price concessions relates to selfpay amounts. We provide revenue cycle management services through Conifer, which is subject to various statutes and regulations regarding consumer protection in areas including finance, debt collection and credit reporting activities. For additional information, see Item 1, Business - Regulations Affecting Conifer's Operations, of Part I of our Annual Report. Conifer has performed systematic analyses to focus our attention on the drivers of bad debt expense for each hospital. While emergency department use is the primary contributor to our implicit price concessions in the aggregate, this is not the case at all hospitals. As a result, we have increased our focus on targeted initiatives that concentrate on nonemergency department patients as well. These initiatives are intended to promote process efficiencies in collecting selfpay accounts, as well as copay, coinsurance and deductible amounts owed to us by patients with insurance, that we deem highly collectible. We leverage a statisticalbased collections model that aligns our operational capacity to maximize our collections performance. We are dedicated to modifying and refining our processes as needed, enhancing our technology and improving staff training throughout the revenue cycle process in an effort to increase collections and reduce accounts receivable. Over the longer term, several other initiatives we have previously announced should also help address the challenges associated with serving uninsured patients. For example, our Compact with Uninsured Patients ("Compact") is designed to offer managed carestyle discounts to certain uninsured patients, which enables us to offer lower rates to those patients who historically had been charged standard gross charges. Under the Compact, the discount offered to uninsured patients is recognized as a contractual allowance, which reduces net operating revenues at the time the selfpay accounts are recorded. The uninsured patient accounts, net of contractual allowances recorded, are further reduced to their net realizable value through implicit price concessions based on historical collection trends for selfpay accounts and other factors that affect the estimation process. We also provide financial assistance through our charity and uninsured discount programs to uninsured patients who are unable to pay for the healthcare services they receive. Our policy is not to pursue collection of amounts determined to qualify for financial assistance; therefore, we do not report these amounts in net operating revenues. Most states include an estimate of the cost of charity care in the determination of a hospital's eligibility for Medicaid DSH payments. These payments are intended to mitigate our cost of uncompensated care. Some states have also developed provider fee or other supplemental payment programs to mitigate the shortfall of Medicaid reimbursement compared to the cost of caring for Medicaid patients. The initial expansion of health insurance coverage under the Affordable Care Act resulted in an increase in the number of patients using our facilities with either health insurance exchange or government healthcare insurance program coverage. However, we continue to have to provide uninsured discounts and charity care due to the failure of certain states to expand Medicaid coverage and for persons living in the country who are not permitted to enroll in a health insurance exchange or government healthcare insurance program. 37
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The following table presents our estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses) of caring for our uninsured and charity patients.
Three Months Ended
March 31,
2022 2021
Estimated costs for:
Uninsured patients $ 122 $ 168
Charity care patients 21 20
Total $ 143 $ 188
RESULTS OF OPERATIONS
The following tables present our consolidated net operating revenues, operating
expenses and operating income on a continuing operations basis, both in dollar
amounts and as percentages of net operating revenues.
Three Months Ended
March 31, Increase
2022 2021 (Decrease)
Net operating revenues:
Hospital Operations $ 3,798 $ 3,947 $ (149)
Ambulatory Care 738 646 92
Conifer 324 310 14
Inter-segment eliminations (115) (122) 7
Net operating revenues 4,745 4,781 (36)
Grant income 6 31 (25)
Equity in earnings of unconsolidated affiliates 46 42 4
Operating expenses:
Salaries, wages and benefits 2,182 2,201 (19)
Supplies 785 804 (19)
Other operating expenses, net 942 1,072 (130)
Depreciation and amortization 203 224 (21)Impairment and restructuring charges, and acquisition-related costs
16 20 (4)
Litigation and investigation costs 20 13 7
Net losses on sales, consolidation and deconsolidation of
facilities 1 - 1
Operating income $ 648 $ 520 $ 128
Three Months Ended
March 31, Increase
2022 2021 (Decrease)(1)
Net operating revenues 100.0 % 100.0 % - %
Grant income 0.1 % 0.6 % (0.5) %
Equity in earnings of unconsolidated affiliates 1.0 % 0.9 % 0.1 %
Operating expenses:
Salaries, wages and benefits 46.0 % 46.0 % - %
Supplies 16.5 % 16.8 % (0.3) %
Other operating expenses, net 19.9 % 22.4 % (2.5) %
Depreciation and amortization 4.3 % 4.7 % (0.4) %Impairment and restructuring charges, and acquisition-related costs
0.3 % 0.4 % (0.1) %
Litigation and investigation costs 0.4 % 0.3 % 0.1 %
Net losses on sales, consolidation and deconsolidation of
facilities - % - % - %
Operating income 13.7 % 10.9 % 2.8 %
(1) The change is the difference between the 2022 and 2021 percentages presented.
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The following tables present our net operating revenues, operating expenses and
operating income, both in dollar amounts and as percentages of net operating
revenues, by operating segment on a continuing operations basis.
Three Months Ended
Hospital
Operations Ambulatory Care Conifer
Net operating revenues $ 3,683 $ 738 $ 324
Grant income 4 2 -
Equity in earnings of unconsolidated affiliates 4 42 -
Operating expenses:
Salaries, wages and benefits 1,820 194 168
Supplies 583 201 1
Other operating expenses, net 774 105 63
Depreciation and amortization 167 27 9
Impairment and restructuring charges, and acquisition-related costs
12 3 1
Litigation and investigation costs 8 - 12
Net losses on sales, consolidation and deconsolidation of
facilities 1 - -
Operating income $ 326 $ 252 $ 70
Three Months Ended March 31, 2022
Hospital Operations Ambulatory Care Conifer
Net operating revenues 100.0 % 100.0 % 100.0 %
Grant income 0.1 % 0.3 % - %
Equity in earnings of unconsolidated affiliates 0.1 % 5.7 % - %
Operating expenses:
Salaries, wages and benefits 49.4 % 26.3 % 51.9 %
Supplies 15.8 % 27.2 % 0.3 %
Other operating expenses, net 21.1 % 14.3 % 19.4 %
Depreciation and amortization 4.5 % 3.7 % 2.8 %Impairment and restructuring charges, and acquisition-related costs
0.3 % 0.4 % 0.3 %
Litigation and investigation costs 0.2 % - % 3.7 %
Net losses on sales, consolidation and deconsolidation of
facilities - % - % - %
Operating income 8.9 % 34.1 % 21.6 %
Three Months Ended
Hospital
Operations Ambulatory Care Conifer
Net operating revenues $ 3,825 $ 646 $ 310
Grant income 24 7 -
Equity in earnings of unconsolidated affiliates 4 38 -
Operating expenses:
Salaries, wages and benefits 1,857 174 170
Supplies 646 157 1
Other operating expenses, net 916 103 53
Depreciation and amortization 190 25 9
Impairment and restructuring charges, and
acquisition-related costs 10 4 6
Litigation and investigation costs 9 3 1
Operating income $ 225 $ 225 $ 70
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Three Months Ended March 31, 2021
Hospital Operations Ambulatory Care Conifer
Net operating revenues 100.0 % 100.0 % 100.0 %
Grant income 0.6 % 1.1 % - %
Equity in earnings of unconsolidated affiliates 0.1 % 5.9 % - %
Operating expenses:
Salaries, wages and benefits 48.5 % 26.9 % 54.8 %
Supplies 16.9 % 24.3 % 0.3 %
Other operating expenses, net 23.9 % 16.0 % 17.2 %
Depreciation and amortization 5.0 % 3.9 % 2.9 %
Impairment and restructuring charges, and
acquisition-related costs 0.3 % 0.6 % 1.9 %
Litigation and investigation costs 0.2 % 0.5 % 0.3 %
Operating income 5.9 % 34.8 % 22.6 %
Total net operating revenues decreased by $36 million , or 0.8%, for the three
months ended March 31, 2022 compared to the three months ended March 31, 2021 .
Hospital Operations net operating revenues, net of intersegment eliminations,
decreased by $142 million , or 3.7%, for the three months ended March 31, 2022
compared to the same period in 2021. These decreases were primarily due to the
sale of the Miami Hospitals and lower patient volumes, partially offset by high
patient acuity and negotiated commercial rate increases. Our Hospital Operations
segment also recognized income from federal grants totaling $4 million during
the three months ended March 31, 2022 , which is not included in net operating
revenues.
Ambulatory Care net operating revenues increased by $92 million , or 14.2%, for
the three months ended March 31, 2022 compared to the three months ended
March 31, 2021 . The change was driven by an increase from acquisitions of
$91 million , as well as an increase in samefacility net operating revenues of
$52 million due primarily to higher surgical patient volumes and negotiated
commercial rate increases in the 2022 period. These increases were also
partially offset by a decrease of $51 million due primarily to the sale of the
Ambulatory Care segment's urgent care centers and the transfer of its imaging
centers to the Hospital Operations segment. Our Ambulatory Care segment also
recognized income from federal grants totaling $2 million during the three
months ended March 31, 2022 , which is not included in net operating revenues.
Conifer's net operating revenues increased by $14 million , or 4.5%, for the
three months ended March 31, 2022 compared to the three months ended
March 31, 2021 . Conifer's revenues from thirdparty clients, which revenues are
not eliminated in consolidation, increased $21 million , or 11.2%, for the three
months ended March 31, 2022 compared to the same period in 2021. This increase
was primarily due to contractual rate increases, new business expansion and the
transition of the Miami Hospitals to thirdparty clients.
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The following table presents selected operating expenses of our three operating
segments. Information for our Hospital Operations segment is presented on a
samehospital basis, whereas information presented for our Ambulatory Care and
Conifer segments is presented on a continuing operations basis.
Three Months Ended
March 31, Increase
Selected Operating Expenses 2022 2021 (Decrease)
Hospital Operations - Same-Hospital:
Salaries, wages and benefits $ 1,812 $ 1,742 4.0 %
Supplies 581 603 (3.6) %
Other operating expenses 761 843 (9.7) %
Total $ 3,154 $ 3,188 (1.1) %
Ambulatory Care:
Salaries, wages and benefits $ 194 $ 174 11.5 %
Supplies 201 157 28.0 %
Other operating expenses 105 103 1.9 %
Total $ 500 $ 434 15.2 %
Conifer:
Salaries, wages and benefits $ 168 $ 170 (1.2) %
Supplies 1 1 - %
Other operating expenses 63 53 18.9 %
Total $ 232 $ 224 3.6 %
Rent/lease expense(1):
Hospital Operations $ 68 $ 72 (5.6) %
Ambulatory Care 27 27 - %
Conifer 3 3 - %
Total $ 98 $ 102 (3.9) %
(1) Included in other operating expenses.
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RESULTS OF OPERATIONS BY SEGMENT
Our operations are reported in three segments:
•Hospital Operations, which is comprised of acute care and specialty hospitals, imaging centers, ancillary outpatient facilities, microhospitals and physician practices;
•Ambulatory Care, which is comprised of USPI's ASCs and surgical hospitals; and
•Conifer, which provides revenue cycle management and valuebased care services to hospitals, health systems, physician practices, employers and other clients.
Hospital Operations Segment
The following tables present operating statistics, revenues and expenses of our
hospitals and related outpatient facilities on a samehospital basis, unless
otherwise indicated.
Same-Hospital
Three Months Ended
March 31, Increase
Admissions, Patient Days and Surgeries 2022 2021 (Decrease)
Number of hospitals (at end of period) 60 60 - (1) Total admissions 127,782 134,120 (4.7) % Adjusted patient admissions(2) 227,933 231,273 (1.4) % Paying admissions (excludes charity and uninsured) 121,797 127,005 (4.1) % Charity and uninsured admissions 5,985 7,115 (15.9) % Admissions through emergency department 97,684 100,847 (3.1) % Paying admissions as a percentage of total admissions 95.3 % 94.7 % 0.6 % (1) Charity and uninsured admissions as a percentage of total admissions 4.7 % 5.3 % (0.6) % (1) Emergency department admissions as a percentage of total admissions 76.4 % 75.2 % 1.2 % (1) Surgeries - inpatient 32,908 34,096 (3.5) % Surgeries - outpatient 51,258 50,275 2.0 % Total surgeries 84,166 84,371 (0.2) % Patient days - total 705,623 731,525 (3.5) % Adjusted patient days(2) 1,224,824 1,225,520 (0.1) % Average length of stay (days) 5.52 5.45 1.3 % Licensed beds (at end of period) 15,395 15,403 (0.1) % Average licensed beds 15,395 15,403 (0.1) % Utilization of licensed beds(3) 50.9 % 52.8 % (1.9) % (1)
(1) The change is the difference between the 2022 and 2021 amounts presented. (2) Adjusted patient admissions/days represents actual patient admissions/days adjusted to
include outpatient services provided by facilities in our Hospital Operations segment
by multiplying actual patient admissions/days by the sum of gross inpatient revenues
and outpatient revenues and dividing the results by gross inpatient revenues. (3) Utilization of licensed beds represents patient days divided by number of days in the
period divided by average licensed beds.
Same-Hospital
Three Months Ended
March 31, Increase
Outpatient Visits 2022 2021 (Decrease)
Total visits 1,240,386 1,222,696 1.4 %
Paying visits (excludes charity and uninsured) 1,165,718 1,147,511 1.6 %
Charity and uninsured visits 74,668 75,185 (0.7) %
Emergency department visits 500,665 424,361 18.0 %
Surgery visits 51,258 50,275 2.0 %
Paying visits as a percentage of total visits 94.0 % 93.9 % 0.1 % (1)
Charity and uninsured visits as a percentage of total visits
6.0 % 6.1 % (0.1) % (1)
(1) The change is the difference between the 2022 and 2021 amounts presented.
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Same-Hospital
Three Months Ended
March 31, Increase
Revenues 2022 2021 (Decrease)
Total segment net operating revenues(1) $ 3,652 $ 3,561 2.6 %
Selected revenue data - hospitals and related outpatient facilities: Net patient service revenues(1)(2)
$ 3,478 $ 3,392 2.5 % Net patient service revenue per adjusted patient admission(1)(2)$ 15,259 $ 14,667 4.0 % Net patient service revenue per adjusted patient day(1)(2)$ 2,840 $ 2,768 2.6 %
(1) Revenues are net of implicit price concessions. (2) Adjusted patient admissions/days represents actual patient admissions/days adjusted to
include outpatient services provided by facilities in our Hospital Operations segment
by multiplying actual patient admissions/days by the sum of gross inpatient revenues
and outpatient revenues and dividing the results by gross inpatient revenues.
Same-Hospital
Three Months Ended
March 31, Increase
Total Segment Selected Operating Expenses 2022 2021 (Decrease)(1)
Salaries, wages and benefits as a percentage of net operating revenues
49.6 % 48.9 % 0.7 %
Supplies as a percentage of net operating revenues 15.9 % 16.9 % (1.0) %
Other operating expenses as a percentage of net operating revenues 20.8 % 23.7 % (2.9) %
(1) The change is the difference between the 2022 and 2021 amounts presented.
Revenues Samehospital net operating revenues increased$91 million , or 2.6%, during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , primarily due to high patient acuity and negotiated commercial rate increases. Our Hospital Operations segment also recognized grant income totaling$4 million and$24 million from federal, state and local grants in the three months endedMarch 31, 2022 and 2021, respectively, which is not included in net operating revenues. Samehospital admissions decreased 4.7% in the three months endedMarch 31, 2022 compared to the same period in 2021, primarily due to the impact of the Omicron variant in January andFebruary 2022 .
The following table presents the consolidated net accounts receivable by payer
at
December 31,
March 31, 2022 2021
Medicare $ 150 $ 155
Medicaid 50 47
Net cost report settlements receivable and valuation allowances 16 33
Managed care 1,751 1,602
Self-pay uninsured 18 21
Self-pay balance after insurance 69 70
Estimated future recoveries 139 137
Other payers 373 331
Total Hospital Operations 2,566 2,396
Ambulatory Care 350 374
Accounts receivable, net $
2,916
Collection of accounts receivable has been a key area of focus, particularly over the past several years. AtMarch 31, 2022 , our Hospital Operations segment collection rate on selfpay accounts was approximately 27.2%. Our selfpay collection rate includes payments made by patients, including copays, coinsurance amounts and deductibles paid by patients with insurance. Based on our accounts receivable from uninsured patients and copays, coinsurance amounts and deductibles owed to us by patients with insurance atMarch 31, 2022 , a 10% decrease or increase in our selfpay collection rate, or approximately 3%, which we believe could be a reasonably likely change, would result in an unfavorable or favorable adjustment to patient accounts receivable of approximately$9 million . There are various factors that can impact collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, the volume of patients through our emergency departments, the increased burden of copays and 43 -------------------------------------------------------------------------------- Table of Contents deductibles to be made by patients with insurance, and business practices related to collection efforts. These factors, many of which have been affected by the COVID19 pandemic, continuously change and can have an impact on collection trends and our estimation process. We also typically experience ongoing managed care payment delays and disputes; however, we continue to work with these payers to obtain adequate and timely reimbursement for our services. Our estimated Hospital Operations segment collection rate from managed care payers was approximately 96.3% atMarch 31, 2022 . We manage our implicit price concessions using hospitalspecific goals and benchmarks such as (1) total cash collections, (2) pointofservice cash collections, (3) AR Days and (4) accounts receivable by aging category. The following tables present the approximate aging by payer of our net accounts receivable from the continuing operations of our Hospital Operations segment of$2.550 billion and$2.363 billion atMarch 31, 2022 andDecember 31, 2021 , respectively, excluding cost report settlements receivable and valuation allowances of$16 million and$33 million , respectively, atMarch 31, 2022 andDecember 31, 2021 : Indemnity, Managed Self-Pay Medicare Medicaid Care and Other Total At March 31, 2022: 0-60 days 91 % 32 % 56 % 23 % 50 % 61-120 days 4 % 29 % 16 % 14 % 15 % 121-180 days 2 % 16 % 10 % 9 % 10 % Over 180 days 3 % 23 % 18 % 54 % 25 % Total 100 % 100 % 100 % 100 % 100 % AtDecember 31, 2021 : 0-60 days 93 % 35 % 57 % 22 % 52 % 61-120 days 4 % 31 % 18 % 14 % 16 % 121-180 days 1 % 14 % 10 % 9 % 9 % Over 180 days 2 % 20 % 15 % 55 % 23 % Total 100 % 100 % 100 % 100 % 100 % Conifer continues to implement revenue cycle initiatives to improve our cash flow. These initiatives are focused on standardizing and improving patient access processes, including preregistration, registration, verification of eligibility and benefits, liability identification and collections at pointofservice, and financial counseling. These initiatives are intended to reduce denials, improve service levels to patients and increase the quality of accounts that end up in accounts receivable. Although we continue to focus on improving our methodology for evaluating the collectability of our accounts receivable, we may incur future charges if there are unfavorable changes in the trends affecting the net realizable value of our accounts receivable. AtMarch 31, 2022 , we had a cumulative total of patient account assignments to Conifer of$1.911 billion related to our continuing operations. These accounts have already been written off and are not included in our receivables; however, an estimate of future recoveries from all the accounts assigned to Conifer is determined based on our historical experience and recorded in accounts receivable. Patient advocates from Conifer's Eligibility and Enrollment Services program ("EES") screen patients in the hospital to determine whether those patients meet eligibility requirements for financial assistance programs. They also expedite the process of applying for these government programs. Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending, under the EES, net of appropriate implicit price concessions. Based on recent trends, approximately 97% of all accounts in the EES are ultimately approved for benefits under a government program, such as Medicaid. 44 -------------------------------------------------------------------------------- Table of Contents The following table presents the approximate amount of accounts receivable in the EES still awaiting determination of eligibility under a government program atMarch 31, 2022 andDecember 31, 2021 by aging category: March 31, 2022 December 31, 2021 0-60 days $ 75 $ 87 61-120 days 18 17 121-180 days 4 4 Over 180 days 9 7 Total $ 106 $ 115
Salaries, Wages and Benefits
Samehospital salaries, wages and benefits increased$70 million , or 4%, in the three months endedMarch 31, 2022 compared to the same period in 2021. This increase was primarily attributable to increased contract labor and overtime costs, partially offset by our cost-efficiency measures, including the use of labor management tools as patient volumes fluctuate. Samehospital salaries, wages and benefits as a percentage of net operating revenues increased by 70 basis points to 49.6% in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , primarily due to the factors described above. Salaries, wages and benefits expense for the three months endedMarch 31, 2022 and 2021 included stockbased compensation expense of$12 million and$10 million , respectively.
Supplies
Samehospital supplies expense decreased$22 million , or 3.6%, in the three months endedMarch 31, 2022 compared to the same period in 2021. The decrease was primarily due to our cost-efficiency measures, including those described below, and lower patient volumes, partially offset by the increased cost of certain supplies as a result of the COVID19 pandemic and growth in our higheracuity, supplyintensive surgical services. Samehospital supplies expense as a percentage of net operating revenues decreased by 100 basis points to 15.9% in the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , primarily due to our continued focus on strategic cost-efficiency measures. We strive to control supplies expense through product standardization, consistent contract terms and endtoend contract management, improved utilization, bulk purchases, focused spending with a smaller number of vendors and operational improvements.
Other Operating Expenses, Net
Samehospital other operating expenses decreased by
•a gain on the sale of several medical office buildings of
•decreased medical expenses of
Samehospital other operating expenses as a percentage of net operating revenues decreased by 290 basis points to 20.8% for the three months endedMarch 31, 2022 compared to 23.7% for the three months endedMarch 31, 2021 , primarily due to the gain recognized on the sale of several medical office buildings during the 2022 period and our continued focus on cost-efficiency measures.
Ambulatory Care Segment
Our Ambulatory Care segment is comprised of USPI's ASCs and surgical hospitals. USPI operates its surgical facilities in partnership with local physicians and, in many of these facilities, a health system partner. We hold an ownership interest in each facility, with each being operated through a separate legal entity in most cases. USPI operates facilities on a daytoday basis through management services contracts. Our sources of earnings from each facility consist of:
•management and administrative services revenues, computed as a percentage of each facility's net revenues (often net of implicit price concessions); and
•our share of each facility's net income (loss), which is computed by multiplying the facility's net income (loss) times the percentage of each facility's equity interests owned by USPI.
Our role as an owner and daytoday manager provides us with significant influence over the operations of each facility. For many of the facilities our Ambulatory Care segment operates (167 of 428 facilities atMarch 31, 2022 ), this influence does not represent control of the facility, so we account for our investment in the facility under the equity method for 45 -------------------------------------------------------------------------------- Table of Contents an unconsolidated affiliate. USPI controls 261 of the facilities our Ambulatory Care segment operates, and we account for these investments as consolidated subsidiaries. Our net earnings from a facility are the same under either method, but the classification of those earnings differs. For consolidated subsidiaries, our financial statements reflect 100% of the revenues and expenses of the subsidiaries, after the elimination of intercompany amounts. The net profit attributable to owners other than USPI is classified within net income available to noncontrolling interests.
For unconsolidated affiliates, our statements of operations reflect our earnings in two line items:
•equity in earnings of unconsolidated affiliates-our share of the net income (loss) of each facility, which is based on the facility's net income (loss) and the percentage of the facility's outstanding equity interests owned by USPI; and
•management and administrative services revenues, which is included in our net operating revenues-income we earn in exchange for managing the daytoday operations of each facility, usually quantified as a percentage of each facility's net revenues less implicit price concessions.
Our Ambulatory Care segment operating income is driven by the performance of all facilities USPI operates and by USPI's ownership interests in those facilities, but our individual revenue and expense line items contain only consolidated businesses, which represent 61% of those facilities. This translates to trends in consolidated operating income that often do not correspond with changes in consolidated revenues and expenses, which is why we disclose certain statistical and financial data on a pro forma systemwide basis that includes both consolidated and unconsolidated (equity method) facilities.
Results of Operations
The following table summarizes certain statement of operations items for the
periods indicated:
Three Months Ended
March 31,
Ambulatory Care Results of Operations 2022 2021 Increase (Decrease)
Net operating revenues $ 738 $ 646 14.2 %
Grant income $ 2 $ 7 (71.4) %
Equity in earnings of unconsolidated affiliates $ 42 $ 38 10.5 %
Salaries, wages and benefits $ 194 $ 174 11.5 %
Supplies $ 201 $ 157 28.0 %
Other operating expenses, net $ 105 $ 103 1.9 %
Revenues
Ambulatory Care net operating revenues increased by $92 million , or 14.2%,
during the three months ended March 31, 2022 compared to the same period in
2021. The change was driven by an increase from acquisitions of $91 million , as
well as an increase in samefacility net operating revenues of $52 million due
primarily to higher surgical patient volumes and negotiated commercial rate
increases. These increases were also partially offset by a decrease of
$51 million due primarily to the sale of the Ambulatory Care segment's urgent
care centers and the transfer of its imaging centers to the Hospital Operations
segment. Our Ambulatory Care segment also recognized income from federal grants
totaling $2 million and $7 million during the three months ended March 31, 2022
and 2021, respectively, which is not included in net operating revenues.
Salaries, Wages and Benefits
Salaries, wages and benefits expense increased by$20 million , or 11.5%, during the three months endedMarch 31, 2022 compared to the same period in 2021. Salaries, wages and benefits expense was impacted by an increase from acquisitions of$26 million , as well as an increase in samefacility salaries, wages and benefits expense of$17 million due primarily to higher surgical patient volumes. These increases were partially offset by a decrease of$23 million due primarily to the sale of the Ambulatory Care segment's urgent care centers and the transfer of its imaging centers to the Hospital Operations segment. Salaries, wages and benefits expense for three months endedMarch 31, 2022 and 2021 included stockbased compensation expense of$3 million in both periods. 46 -------------------------------------------------------------------------------- Table of Contents Supplies Supplies expense increased by$44 million , or 28.0%, during the three months endedMarch 31, 2022 compared to the same period in 2021. The change was driven by an increase from acquisitions of$32 million , as well as an increase in samefacility supplies expense of$15 million due primarily to an increase in surgical patient volumes and higher pricing of certain supplies as a result of the COVID19 pandemic, partially offset by a decrease of$3 million due to the sale of the Ambulatory Care segment's urgent care centers and the transfer of its imaging centers to the Hospital Operations segment.
Other Operating Expenses, Net
Other operating expenses increased by$2 million , or 1.9%, during the three months endedMarch 31, 2022 compared to the same period in 2021. The change was driven by an increase from acquisitions of$12 million , as well as an increase in samefacility other operating expenses of$5 million , partially offset by a decrease of$15 million due to the sale of the Ambulatory Care segment's urgent care centers and the transfer of its imaging centers to the Hospital Operations segment. Facility Growth The following table summarizes the yearoveryear changes in our samefacility revenue for the threemonth periods endedMarch 31, 2022 and 2021 on a pro forma systemwide basis, which includes both consolidated and unconsolidated (equity method) facilities. While we do not record the revenues of unconsolidated facilities, we believe this information is important in understanding the financial performance of our Ambulatory Care segment because these revenues are the basis for calculating our management services revenues and, together with the expenses of our unconsolidated facilities, are the basis for our equity in earnings of unconsolidated affiliates. Three Months Ended Ambulatory Care Facility GrowthMarch 31, 2022 Net revenues 9.3% Cases 8.0% Net revenue per case 1.1%
Joint Ventures with
USPI's business model is to jointly own its facilities with local physicians and, in many of these facilities, a notforprofit health system partner. Accordingly, as ofMarch 31, 2022 , the majority of facilities in our Ambulatory Care segment are operated in this model.
The table below summarizes the amounts we paid to acquire various ownership interests in ambulatory care facilities in the periods indicated:
Three Months Ended
March 31, Increase
Type of Ownership Interests Acquired 2022 2021 (Decrease)
Controlling interests $ 40 Equity investment in unconsolidated affiliates and consolidated facilities 9 1 8 Total $ 49$ 25 $ 24
The table below provides information about the ownership structure of the
facilities our Ambulatory Care segment operated at
Ambulatory Care FacilitiesMarch 31, 2022 Ownership Structure: With a health system partner 198 Without a health system partner 230 Total facilities operated 428 47
-------------------------------------------------------------------------------- Table of Contents The table below reflects changes in the number of ambulatory care facilities during the three months endedMarch 31, 2022 : Three Months
Ended
Ambulatory Care FacilitiesMarch 31, 2022 Change fromDecember 31, 2021 : Acquisitions 4 De novo 2 Dispositions/Mergers (1) Total increase in number of facilities operated 5 During the three months endedMarch 31, 2022 , we acquired controlling interests in two ASCs located inFlorida and one inNew Hampshire . We paid cash totaling$31 million for these acquisitions, which are jointly owned with physicians. During the same period in 2022, we acquired a noncontrolling interest in an ASC located inNew Jersey . Also during the three months endedMarch 31, 2022 , we acquired controlling interests in three previously unconsolidated SCD Centers, located inFlorida ,Pennsylvania andTexas , for$9 million . Following our acquisition of a controlling interest in the Texas ASC, we contributed our ownership interest in it to our subsidiaryTexas Health Ventures Group, L.L.C. We also regularly engage in the purchase of equity interests with respect to our investments in unconsolidated affiliates and consolidated facilities that do not result in a change in control. These transactions are primarily the acquisitions of equity interests in ASCs and the investment of additional cash in facilities that need capital for new acquisitions, new construction or other business growth opportunities. During the three months endedMarch 31, 2022 , we invested approximately$9 million in such transactions.
Conifer Segment
Revenues
Our Conifer segment generated net operating revenues of$324 million and$310 million during the three months endedMarch 31, 2022 and 2021, respectively, a portion of which was eliminated in consolidation as described in Note 18 to the accompanying Condensed Consolidated Financial Statements. The increase in Conifer's net operating revenues was$14 million , or 4.5%. Conifer's revenues from thirdparty clients, which revenues are not eliminated in consolidation, increased$21 million , or 11.2%, for the three months endedMarch 31, 2022 compared to the same period in 2021. The increase was primarily attributable to contractual rate increases, new business expansion and the transition of the Miami Hospitals to thirdparty clients in the 2022 period.
Salaries, Wages and Benefits
Salaries, wages and benefits expense for Conifer decreased$2 million , or 1.2%, in the three months endedMarch 31, 2022 compared to the same period in 2021. The decrease was primarily due cost-efficiency measures and lower incentive compensation in 2022. Salaries, wages and benefits expense included stockbased compensation expense of$1 million in each of the threemonth periods endedMarch 31, 2022 and 2021. Other Operating Expenses, Net
Other operating expenses for Conifer increased
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Consolidated
Impairment and Restructuring Charges, and Acquisition-Related Costs
The following table presents information about our impairment and restructuring charges, and acquisitionrelated costs:
Three Months Ended
March 31,
2022 2021
Consolidated:
Impairment charges $ 1 $ -
Restructuring charges 12 16
Acquisition-related costs 3 4
Total impairment and restructuring charges, and
acquisition-related costs $ 16 $ 20
By segment:
Hospital Operations $ 12 $ 10
Ambulatory Care 3 4
Conifer 1 6
Total impairment and restructuring charges, and
acquisition-related costs $ 16 $ 20
During the three months ended March 31, 2022 , restructuring charges consisted of
$5 million of employee severance costs, $2 million related to the transition of
various administrative functions to our GBC and $5 million of other
restructuring costs. Acquisitionrelated costs consisted of $3 million of
transaction costs.
During the three months ended March 31, 2021 , restructuring charges consisted of
$4 million of employee severance costs, $6 million related to the transition of
various administrative functions to our GBC and $6 million of other
restructuring costs. Acquisitionrelated costs consisted of $4 million of
transaction costs.
Litigation and Investigation Costs
Litigation and investigation costs for the three months ended
Interest Expense
Interest expense for the three months ended
Loss from Early Extinguishment of Debt
During the three months endedMarch 31, 2022 , we incurred aggregate losses from the early extinguishment of debt of$43 million . These losses related to the redemption of our 2025 Senior Secured First Lien Notes in advance of their maturity date and the repurchase of$103 million aggregate principal amount outstanding of our 2023 Senior Unsecured Notes. The losses incurred from these transactions primarily related to the difference between the purchase prices and the par value of the notes, as well as the writeoff of associated unamortized issuance costs.
Loss from early extinguishment of debt was
Income Tax Expense
During the three months endedMarch 31, 2022 , we recorded income tax expense of$99 million in continuing operations on pre-tax income of$378 million compared to$45 million on pre-tax income of$267 million during the prioryear period. During the three months endedMarch 31, 2022 , we recorded income tax expense of$32 million to increase the valuation allowance for interest expense carryforwards due to a change in the business interest expense disallowance rules in 2022. 49 -------------------------------------------------------------------------------- Table of Contents A reconciliation between the amount of reported income tax expense and the amount computed by multiplying income from continuing operations before income taxes by the statutory federal tax rate is presented below: Three Months Ended March 31, 2022 2021 Tax expense at statutory federal rate of 21%$ 79 $ 56 State income taxes, net of federal income tax benefit 14 13 Tax benefit attributable to noncontrolling interests (29) (25) Stock-based compensation tax benefit (2) (1) Changes in valuation allowance 32 - Other items 5 2 Income tax expense$ 99 $ 45
Net Income Available to Noncontrolling Interests
Net income available to noncontrolling interests was$140 million for the three months endedMarch 31, 2022 compared to$125 million for the three months endedMarch 31, 2021 . Net income available to noncontrolling interests for the 2022 period was comprised of$99 million related to our Ambulatory Care segment,$25 million related to our Hospital Operations segment, which was substantially due to ourAlabama joint venture partner's share of the$69 million gain from the sale of several medical office buildings, and$16 million related to our Conifer segment. Of the portion related to our Ambulatory Care segment,$4 million related to the minority interests in USPI.
ADDITIONAL SUPPLEMENTAL NON-GAAP DISCLOSURES
The financial information provided throughout this report, including our Condensed Consolidated Financial Statements and the notes thereto, has been prepared in conformity with accounting principles generally accepted inthe United States of America ("GAAP"). However, we use certain nonGAAP financial measures defined below in communications with investors, analysts, rating agencies, banks and others to assist such parties in understanding the impact of various items on our financial statements, some of which are recurring or involve cash payments. We use this information in our analysis of the performance of our business, excluding items we do not consider relevant to the performance of our continuing operations. In addition, we use these measures to define certain performance targets under our compensation programs. "Adjusted EBITDA" is a nonGAAP measure we define as net income available (loss attributable) toTenet Healthcare Corporation common shareholders before (1) the cumulative effect of changes in accounting principle, (2) net loss attributable (income available) to noncontrolling interests, (3) income (loss) from discontinued operations, net of tax, (4) income tax benefit (expense), (5) gain (loss) from early extinguishment of debt, (6) other nonoperating income (expense), net, (7) interest expense, (8) litigation and investigation (costs) benefit, net of insurance recoveries, (9) net gains (losses) on sales, consolidation and deconsolidation of facilities, (10) impairment and restructuring charges and acquisitionrelated costs, (11) depreciation and amortization, and (12) income (loss) from divested and closed businesses (i.e., health plan businesses). Litigation and investigation costs do not include ordinary course of business malpractice and other litigation and related expense. We believe the foregoing nonGAAP measure is useful to investors and analysts because it presents additional information about our financial performance. Investors, analysts, company management and our board of directors utilize this nonGAAP measure, in addition to GAAP measures, to track our financial and operating performance and compare that performance to peer companies, which utilize similar nonGAAP measures in their presentations. The human resources committee of our board of directors also uses certain nonGAAP measures to evaluate management's performance for the purpose of determining incentive compensation. We believe that Adjusted EBITDA is a useful measure, in part, because certain investors and analysts use both historical and projected Adjusted EBITDA, in addition to GAAP and other nonGAAP measures, as factors in determining the estimated fair value of shares of our common stock. Company management also regularly reviews the Adjusted EBITDA performance for each operating segment. We do not use Adjusted EBITDA to measure liquidity, but instead to measure operating performance. The nonGAAP Adjusted EBITDA measure we utilize may not be comparable to similarly titled measures reported by other companies. Because this measure excludes many items that are included in our financial statements, it does not provide a complete measure of our operating performance. Accordingly, investors are encouraged to use GAAP measures when evaluating our financial performance. 50 -------------------------------------------------------------------------------- Table of Contents The following table presents the reconciliation of Adjusted EBITDA to net income available toTenet Healthcare Corporation common shareholders (the most comparable GAAP term) for the three months endedMarch 31, 2022 and 2021: Three Months EndedMarch 31, 2022 2021
Net income available to
$ 140 $ 97 Less: Net income available to noncontrolling interests (140) (125) Income from discontinued operations, net of tax 1 - Income from continuing operations 279 222 Income tax expense (99) (45) Loss from early extinguishment of debt (43) (23) Other non-operating income, net - 10 Interest expense (227) (240) Operating income 648 520 Litigation and investigation costs (20) (13)
Net losses on sales, consolidation and deconsolidation of facilities
(1) -
Impairment and restructuring charges, and acquisition-related costs
(16) (20)
Depreciation and amortization (203) (224)
Adjusted EBITDA $ 888 $ 777
Net operating revenues $ 4,745 $ 4,781 Net income available to
3.0 % 2.0 %
Adjusted EBITDA as % of net operating revenues (Adjusted EBITDA margin)
18.7 % 16.3 %
LIQUIDITY AND CAPITAL RESOURCES
CASH REQUIREMENTS
Scheduled Contractual Obligations
There have been no material changes to our obligations to make future cash payments under scheduled contractual obligations, such as debt and lease agreements, and under contingent commitments, such as standby letters of credit and minimum revenue guarantees, as disclosed in our Annual Report, except for the matters described below and the additional lease obligations and the longterm debt transactions disclosed in Notes 1 and 6, respectively, to our accompanying Condensed Consolidated Financial Statements. AtMarch 31, 2022 , using the last 12 months of Adjusted EBITDA, our ratio of total longterm debt, net of cash and cash equivalent balances, to Adjusted EBITDA was 3.74x, or 3.93x if adjusted to include outstanding obligations arising from cash advances received from Medicare pursuant to COVID19 relief legislation. We anticipate this ratio will fluctuate from quarter to quarter based on earnings performance and other factors, including the use of our Credit Agreement as a source of liquidity and acquisitions that involve the assumption of longterm debt. We seek to manage this ratio and increase the efficiency of our balance sheet by following our business plan and managing our cost structure, including through possible asset divestitures, and through other changes in our capital structure. As part of our longterm objective to manage our capital structure, we continue to evaluate opportunities to retire, purchase, redeem and refinance outstanding debt subject to prevailing market conditions, our liquidity requirements, operating results, contractual restrictions and other factors. In the year endingDecember 31, 2023 and beyond, we may also consider share repurchases depending on market conditions and other investment opportunities. Our ability to achieve our leverage and capital structure objectives is subject to numerous risks and uncertainties, many of which are described in the ForwardLooking Statements and Risk Factors sections in Part I of our Annual Report and the Risk Factors section in Part II of this report.
Interest payments, net of capitalized interest, were
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Other Contractual Obligations
Baylor Put /Call Agreement-As previously discussed in our Annual Report, we have
a put/call agreement with Baylor University Medical Center ("Baylor") with
respect to Baylor's 5% ownership in USPI. Each year starting in 2021, Baylor may
put up to onethird of its total shares in USPI (the "Baylor Shares") by
delivering notice by the end of January of such year. In each year that Baylor
does not put the full 33.3% of USPI's shares allowable, we may call the
difference between the number of shares Baylor put and the maximum number of
shares it could have put that year. We have the ability to choose whether to
settle the purchase price for the Baylor put/call, which is mutually agreedupon
fair market value, in cash or shares of our common stock.
Baylor did not deliver a put notice to us in January 2021 or 2022. In each of
February 2021 and 2022, we notified Baylor of our intention to exercise our call
option to purchase 33.3% of the Baylor Shares for that year (now 66.6% in
total). We are continuing to negotiate the terms of those purchases. We expect
that the estimated payment to repurchase the shares called in February 2021 and
2022 will be at least $250 million in the aggregate based on an increase in the
estimated fair value of USPI.
Investment in the SCD Centers-USPI continues to make offers in an ongoing
process to acquire a portion of the equity interests in certain of the
SCD Centers from the physician owners for consideration of up to approximately
$250 million . During the three months ended March 31, 2022 , we made aggregate
payments of $9 million to acquire controlling interests in three SCD Centers. We
cannot reasonably predict how many additional physician owners will accept our
offers to acquire a portion of their equity, nor the timing or amount of any
remaining payments. We expect to fund these payments using cash on hand.
We have no off-balance sheet arrangements that may have a current or future
material effect on our financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources, except for
$247 million of standby letters of credit outstanding and guarantees at
March 31, 2022 .
Other Cash Requirements
Our capital expenditures primarily relate to the expansion and renovation of existing facilities (including amounts to comply with applicable laws and regulations), equipment and information systems additions and replacements, introduction of new medical technologies, design and construction of new buildings or hospitals, and various other capital improvements, as well as commitments to make capital expenditures in connection with acquisitions of businesses. Capital expenditures were$155 million and$121 million in the three months endedMarch 31, 2022 and 2021, respectively. We anticipate that our capital expenditures for continuing operations for the year endingDecember 31, 2022 will total approximately$725 million to$775 million , including$95 million that was accrued as a liability atDecember 31, 2021 . Income tax payments, net of tax refunds, were$8 million in the three months endedMarch 31, 2022 compared to$2 million in the three months endedMarch 31, 2021 . SOURCES AND USES OF CASH Our liquidity for the three months endedMarch 31, 2022 was primarily derived from net cash provided by operating activities and cash on hand. During the three months endedMarch 31, 2022 , we also received supplemental funds from federal grants provided under COVID19 relief legislation. We had$1.405 billion of cash and cash equivalents on hand atMarch 31, 2022 to fund our operations and capital expenditures, and our borrowing availability under our credit facility was$1.500 billion based on our borrowing base calculation atMarch 31, 2022 . When operating under normal conditions, our primary source of operating cash is the collection of accounts receivable. As such, our operating cash flow is impacted by levels of cash collections, as well as levels of implicit price concessions, due to shifts in payer mix and other factors. Our Credit Agreement provides additional liquidity to manage fluctuations in operating cash caused by these factors. Net cash provided by operating activities was$228 million in the three months endedMarch 31, 2022 compared to$534 million in the three months endedMarch 31, 2021 . Key factors contributing to the change between the 2022 and 2021 periods include the following:
•$194 million of Medicare advances recouped in the three months ended
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•$5 million of cash received from grants in the three months ended March 31,
2022 compared to $31 million received in the three months ended March 31, 2021 ;
•Decreased cash receipts of
•The timing of other working capital items.
We used net cash of$60 million and$145 million in investing activities during the three months endedMarch 31, 2022 and 2021, respectively. The decrease in cash used of$85 million between the 2022 and 2021 periods was attributable to an increase of$135 million in proceeds from the sale of facilities and other assets, primarily related to the sale of several medical office buildings in 2022. This was partially offset by higher capital expenditures of$34 million and an increase of$15 million in cash used for purchases of businesses or joint venture interests in the three months endedMarch 31, 2022 compared to the same period in 2021. Net cash used in financing activities was$1.127 billion for the three months endedMarch 31, 2022 compared to$694 million for the three months endedMarch 31, 2021 . Financing activity in the 2022 period included payments of$879 million to reduce our long-term debt, including$730 million paid to redeem all$700 million aggregate principal amount outstanding of our 2025 Senior Secured First Lien Notes and$107 million paid to repurchase$103 million aggregate principal amount outstanding of our 2023 Senior Unsecured Notes. In addition, we paid total distributions to noncontrolling interest holders of$135 million , funds held for USPI's unconsolidated affiliates for which we provide cash management services decreased by$80 million and we made payments of$27 million related to our stockbased compensation plans. Net cash used in financing activities during the three months endedMarch 31, 2021 included payments of$541 million to reduce our long-term debt, including a payment of$495 million to retire our 7.000% senior unsecured notes due 2025, and distributions to noncontrolling interest holders of$119 million . We record our equity securities and our debt securities classified as availableforsale at fair market value. The majority of our investments are valued based on quoted market prices or other observable inputs. We have no investments that we expect will be negatively affected by the current economic conditions such that they will materially impact our financial condition, results of operations or cash flows.
DEBT INSTRUMENTS, GUARANTEES AND RELATED COVENANTS
Credit Agreement-AtMarch 31, 2022 , our Credit Agreement provided for revolving loans in an aggregate principal amount of up to$1.500 billion with a$200 million subfacility for standby letters of credit. InMarch 2022 , we amended the revolving credit facility to, among other things, (i) decrease the previous maximum aggregate revolving credit commitments from$1.900 billion to$1.500 billion , subject to borrowing availability, (ii) extend the scheduled maturity date fromSeptember 2024 toMarch 2027 , and (iii) replace theLondon Interbank Offered Rate (LIBOR) with the Term Secured Overnight Financing Rate ("SOFR") and Daily Simple SOFR (each, as defined in the Credit Agreement) as the reference interest rate. AtMarch 31, 2022 , we had no cash borrowings outstanding under the Credit Agreement, and we had less than$1 million of standby letters of credit outstanding. Based on our eligible receivables,$1.500 billion was available for borrowing under the Credit Agreement atMarch 31, 2022 . AtMarch 31, 2022 , we were in compliance with all covenants and conditions in our Credit Agreement. Letter of Credit Facility-We have a letter of credit facility (as amended to date, the "LC Facility") that provides for the issuance, from time to time, of standby and documentary letters of credit in an aggregate principal amount of up to$200 million . The scheduled maturity date of the LC Facility isSeptember 12, 2024 . The LC Facility is subject to an effective maximum secured debt covenant of 4.25 to 1.00. AtMarch 31, 2022 , we were in compliance with all covenants and conditions in the LC Facility, and we had$138 million of standby letters of credit outstanding thereunder. Senior Unsecured Notes and Senior Secured Notes-OnFebruary 23, 2022 , we redeemed all$700 million aggregate principal amount outstanding of our 2025 Senior Secured First Lien Notes in advance of their maturity date. We paid$730 million from cash on hand to redeem the notes. In connection with the redemption, we recorded a loss from early extinguishment of debt of$38 million in the three months endedMarch 31, 2022 , primarily related to the difference between the purchase price and the par value of the notes, as well as the writeoff of associated unamortized issuance costs. 53 -------------------------------------------------------------------------------- Table of Contents In addition, inMarch 2022 , we repurchased$103 million aggregate principal amount outstanding of our 2023 Senior Unsecured Notes through a series of openmarket transactions. We paid$107 million from cash on hand to complete these transactions. In connection with the repurchases, we recorded a loss from early extinguishment of debt of$5 million in the three months endedMarch 31, 2022 , primarily related to the difference between the purchase prices and the par value of the notes, as well as the writeoff of associated unamortized issuance costs.
For additional information regarding our long-term debt, see Note 6 to the accompanying Condensed Consolidated Financial Statements and Note 8 to the Consolidated Financial Statements included in our Annual Report.
LIQUIDITY
We continue to experience negative impacts of the COVID19 pandemic on our business in varying degrees. During January andFebruary 2022 , we were affected by a significant acceleration in COVID19 cases associated with the Omicron variant. Future variants could similarly emerge and cause surges in COVID19 cases, which may adversely impact the local economies of areas we serve. Any increase in the amount of or deterioration in the collectability of patient accounts receivable could adversely affect our cash flows and results of operations. If general economic conditions deteriorate or remain uncertain for an extended period of time, our liquidity and ability to repay our outstanding debt may be impacted. We have taken, and continue to take, various actions to increase our liquidity and mitigate the impact of reductions in our patient volumes and changes in our service mix and revenue mix. These actions included the sale and redemption of various senior unsecured notes and senior secured notes, which eliminated any significant debt maturities untilJune 2023 and will reduce our future annual cash interest expense payments. In addition, we have continued cost-efficiency measures, as well as necessary cost reductions, to substantially offset incremental costs, including temporary staffing and premium pay, as well as higher supply costs for PPE. We have also sought to compensate for the COVID19 pandemic's disruption of our patient volumes and service mix by growing our services for which demand has been more resilient, including our higheracuity service lines. While the length of time that will be required for our patient volumes and mix to return to pre-pandemic levels is unknown, especially demand for loweracuity services, we believe demand for our higheracuity service lines will continue to grow. We believe these actions, together with government relief packages, supported our ability to provide essential patient services during the initial uncertainty caused by the COVID19 pandemic and continue to do so.
From time to time, we expect to engage in additional capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at that time. We believe our existing debt agreements provide flexibility for future secured or unsecured borrowings.
Our cash on hand fluctuates daytoday throughout the year based on the timing
and levels of routine cash receipts and disbursements, including our book
overdrafts, and required cash disbursements, such as interest payments and
income tax payments, as well as cash disbursements required to respond to the
COVID19 pandemic. Cash flows from operating activities in the first quarter of
the calendar year are usually lower than in subsequent quarters of the year,
primarily due to the timing of certain working capital requirements during the
first quarter, including our annual 401(k) matching contributions and annual
incentive compensation payouts. These fluctuations result in material
intra-quarter net operating and investing uses of cash that have caused, and in
the future may cause, us to use our Credit Agreement as a source of liquidity.
We believe that existing cash and cash equivalents on hand, borrowing
availability under our Credit Agreement and anticipated future cash provided by
our operating activities should be adequate to meet our current cash needs.
These sources of liquidity, in combination with any potential future debt
incurrence, should also be adequate to finance planned capital expenditures,
payments on the current portion of our long-term debt, payments to joint venture
partners, including those related to put and call arrangements, and other
presently known operating needs.
Long-term liquidity for debt service and other purposes will be dependent on the
amount of cash provided by operating activities and, subject to favorable market
and other conditions, the successful completion of future borrowings and
potential refinancings. However, our cash requirements could be materially
affected by the use of cash in acquisitions of businesses, repurchases of
securities, the exercise of put rights or other exit options by our joint
venture partners, and contractual commitments to fund capital expenditures in,
or intercompany borrowings to, businesses we own. In addition, liquidity could
be adversely affected by a deterioration in our results of operations, including
our ability to generate sufficient cash from operations, as well as by the
various risks and uncertainties discussed in this section, other sections of
this report and in our Annual Report, including any costs associated with legal
proceedings and government investigations.
We do not rely on commercial paper or other short-term financing arrangements
nor do we enter into repurchase agreements or other short-term financing
arrangements not otherwise reported in our balance sheet. In addition, we do not
have significant exposure to floating interest rates given that all of our
current long-term indebtedness has fixed rates of interest except for borrowings
under our Credit Agreement.
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CRITICAL ACCOUNTING ESTIMATES
In preparing our Condensed Consolidated Financial Statements in conformity with GAAP, we must use estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable, given the particular circumstances in which we operate. Actual results may vary from those estimates. We consider our critical accounting estimates to be those that (1) involve significant judgments and uncertainties, (2) require estimates that are more difficult for management to determine, and (3) may produce materially different outcomes under different conditions or when using different assumptions.
Our critical accounting estimates have not changed from the description provided in our Annual Report.
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