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MarketScreener Homepage  >  Equities  >  Nyse  >  Tenet Healthcare Corporation    THC

TENET HEALTHCARE CORPORATION

(THC)
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TENET HEALTHCARE : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/30/2020 | 05:11am EST

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. As described in Note
1 to the accompanying Condensed Consolidated Financial Statements, our results
for prior periods have been recast to reflect retrospective application of a
change in accounting principle. Our Hospital Operations and other ("Hospital
Operations") segment is comprised of our acute care and specialty hospitals,
ancillary outpatient facilities, urgent care centers, micro-hospitals and
physician practices. As described in Note 4 to the accompanying Condensed
Consolidated Financial Statements, certain of these facilities are classified as
held for sale at September 30, 2020. Our Ambulatory Care segment is comprised of
the operations of USPI Holding Company, Inc. ("USPI"), in which we own a 95%
interest. At September 30, 2020, USPI had interests in 263 ambulatory surgery
centers, 40 urgent care centers, 24 imaging centers and 25 surgical hospitals in
28 states. Our Conifer segment provides revenue cycle management and value-based
care services to hospitals, health systems, physician practices, employers and
other clients, through our Conifer Holdings, Inc. ("Conifer") subsidiary. Nearly
all of the services comprising the operations of our Conifer segment are
provided directly by Conifer Health Solutions, LLC, in which we own a 76.2%
interest, or by one of its direct or indirect wholly owned subsidiaries. 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
•Off-Balance Sheet Arrangements
•Critical Accounting Estimates

Unless otherwise indicated, all financial and statistical information included
in MD&A relates to our continuing operations, with dollar amounts expressed in
millions (except per adjusted patient admission and per adjusted patient day
amounts). Continuing operations information includes the results of our same 65
hospitals operated throughout the nine months ended September 30, 2020 and 2019,
and three Chicago-area hospitals, which we divested effective January 28, 2019.
Continuing operations information excludes the results of our hospitals and
other businesses that have been classified as discontinued operations for
accounting purposes.

MANAGEMENT OVERVIEW

RECENT DEVELOPMENTS

Amendment of Repayment Terms of Medicare Advances-On October 1, 2020, the
Continuing Appropriations Act, 2021 and Other Extensions Act (the "CA Act") was
signed into law. Among other things, the CA Act significantly changed the
repayment terms for Medicare advance payments made under the Medicare
Fee-for-Service accelerated and advanced payment program. As originally
structured, advance payments made under the program would have been recouped by
offsetting 100% of the recipient's Medicare claim payments beginning 120 days
after the advance payment was made, with interest beginning to accrue as soon as
210 days after the date of the advance at a rate of 10.25%. The CA Act amended
these repayment terms as follows:

•allows recipients to extend repayment for a full year before recoupment of the advance payments begins;

•limits the claim payment offset to 25% of the recipient's full Medicare payments for 11 months, followed by six months with claim offset limited to 50%; and

•lowers the interest rate on balances still outstanding after the 29-month recoupment period to 4.00%.

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At September 30, 2020, we had received Medicare advance payments of
approximately $1.5 billion, which were included in current liabilities in our
Condensed Consolidated Balance Sheet. In October 2020, we will reclassify more
than $1 billion of these advance payments to long-term liabilities as a result
of the extended recoupment period under the CA Act.

Revised Guidance for Provider Relief Fund Grants-On October 22, 2020, the U.S.
Department of Health and Human Services ("HHS") further revised its guidance
("October 2020 PRF Guidance") for reporting requirements for providers that
accepted funding from the Public Health and Social Services Emergency Fund
("Provider Relief Fund" or "PRF"). In addition to other changes, the October
2020 PRF Guidance revised the policy for transferring certain categories of
grant funds among providers within a hospital system and significantly modified
the methodology for determining lost revenues in connection with the grants.

We estimate that the October 2020 PRF Guidance will result in an additional
$100 million of grant income during the three months ending December 31, 2020
based on our revised estimate of lost revenues through September 30, 2020. Based
on the uncertainty regarding future estimates of lost revenues and COVID-related
costs or the impact of further updates to HHS guidance, if any, we cannot
provide any assurances regarding the amount of grant income to be recognized in
the future.

IMPACT OF THE COVID-19 PANDEMIC


The COVID-19 pandemic is significantly affecting our patients, communities,
employees and business operations. The spread of COVID-19 and the ensuing
response of federal, state and local authorities beginning in March 2020
resulted in a material reduction in our patient volumes and also adversely
affected our net operating revenues in the nine months ended September 30, 2020.
We have taken measures within the communities we serve, both voluntarily and in
accordance with governmental mandates, to try to limit the spread of the virus
and to mitigate the burden on the healthcare system. From mid­March through
early May 2020, we suspended many elective procedures at our hospitals and
closed or reduced operating hours at our ambulatory surgery centers and other
outpatient centers that specialize in elective procedures. Restrictive measures,
including travel bans, social distancing, quarantines and shelter-in-place
orders, also reduced - and continue to impact - the volume of procedures
performed at our facilities more generally, as well as the volume of emergency
room and physician office visits. Broad economic factors resulting from the
COVID-19 pandemic, including increased unemployment rates and reduced consumer
spending, are impacting our service mix, revenue mix and patient volumes.
Moreover, we have experienced supply chain disruptions, including shortages and
delays, as well as significant price increases in medical supplies, particularly
for personal protective equipment. COVID-19 surges in our markets and elsewhere
could further impact the cost of medical supplies, and supply shortages and
delays may impact our ability to see, admit and treat patients.

As described below under "Sources of Revenue for Our Hospital Operations
Segment," the Coronavirus Aid, Relief, and Economic Security Act (the "CARES
Act"), which was signed into law on March 27, 2020, the Paycheck Protection
Program and Health Care Enhancement Act (the "PPP Act"), which was signed into
law on April 24, 2020, and other legislative actions have mitigated some of the
economic disruption caused by the COVID-19 pandemic on our business. Additional
funding for the Provider Relief Fund was among the provisions of the CARES Act
and the PPP Act. In the nine months ended September 30, 2020, we received cash
payments of $890 million, and we recognized approximately $445 million and
$8 million as grant income and in equity in earnings of unconsolidated
affiliates, respectively, in our accompanying Condensed Consolidated Statements
of Operations due to grants from the Provider Relief Fund and state grant
programs. In October 2020, HHS published the October 2020 PRF Guidance, which
revised the policy for transferring certain categories of grant funds among
providers within a hospital system and significantly modified the methodology
for determining lost revenues in connection with the grants. In the nine months
ended September 30, 2020, we also received advance payments of approximately
$1.5 billion from the Medicare accelerated payment program due to the revisions
to that program under the CARES Act. We expect to repay these advances within
the allocated recoupment period.

Throughout MD&A, we have provided additional information on the impact of the
COVID-19 pandemic on our results of operations and the steps we have taken, and
are continuing to take, in response. For information about risks and
uncertainties around COVID-19 that could affect our results of operations,
financial condition and cash flows, see the Risk Factors section in Part II of
this report and in each of our Quarterly Reports on Form 10-Q for the quarters
ended March 31 and June 30, 2020 ("2020 10-Qs").

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TRENDS AND STRATEGIES

As described above and throughout MD&A, we are currently experiencing a
disruption in our business due to the COVID-19 pandemic. The length and extent
of this disruption is currently unknown. While demand for our services is
expected to rebound in the future, we have taken, and continue to take, various
actions to increase our liquidity and mitigate the impact of reductions in our
patient volumes and operating revenues from the COVID-19 pandemic, including the
sale of senior notes and senior secured first lien notes, the redemption of
senior notes with the highest interest rate and nearest maturity date of all of
our long-term debt, and the amendment of our revolving credit facility, all as
described below. We also have reduced our planned capital expenditures for 2020
by approximately 30%. Furthermore, we have decreased our employee headcount
throughout the organization, and we have deferred certain operating expenses
that are not expected to impact our response to the COVID-19 pandemic. In
addition, we are reducing variable costs across the enterprise as a result of
softening patient volumes due to the COVID-19 pandemic. We believe these
actions, together with government relief packages, to the extent available to
us, will help us to continue operating during the uncertainty caused by the
COVID-19 pandemic. For further information on our liquidity, see "Liquidity and
Capital Resources" below.

The healthcare industry, in general, and the acute care hospital business, in
particular, have also been experiencing significant regulatory uncertainty
based, in large part, on administrative, legislative and judicial efforts to
significantly modify or repeal and potentially replace the Patient Protection
and Affordable Care Act, as amended by the Health Care and Education
Reconciliation Act of 2010 ("Affordable Care Act" or "ACA"). It is difficult to
predict the full impact of regulatory uncertainty on our future revenues and
operations. In addition, we believe that several key trends have shaped the
demand for healthcare services in recent years: (1) consumers, employers and
insurers are actively seeking lower-cost 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 higher-acuity
treatment; and (4) consolidation continues across the entire healthcare sector.

Driving Growth in Our Hospital Systems-We are committed to better positioning
our hospital systems and competing more effectively in the ever-evolving
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 higher-demand and higher-acuity 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 enterprise-wide cost-reduction initiatives, comprised primarily
of workforce reductions (including streamlining corporate overhead and
centralized support functions), the renegotiation of contracts with suppliers
and vendors, and the consolidation of office locations. Moreover, we established
offshore support operations in the Philippines. In conjunction with these
initiatives and our cost-saving efforts in response to the COVID-19 pandemic, we
incurred restructuring charges related to employee severance payments of $53
million in the nine months ended September 30, 2020, and we expect to incur
additional such restructuring charges through the remainder of 2020.

We also continue to exit service lines, businesses and markets that we believe
are no longer a core part of our long­term growth strategy. In December 2019, we
entered into a definitive agreement to divest our two hospitals and other
operations in the Memphis, Tennessee area. We intend to continue 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
higher-return investments across our business, enhance cash flow generation,
reduce our debt and lower our ratio of debt-to-Adjusted 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.

Expansion of Our Ambulatory Care Segment-We expect to continue to focus on
opportunities to expand our Ambulatory Care segment through organic growth,
building new outpatient centers, corporate development activities and strategic
partnerships. We believe USPI's surgery centers and surgical hospitals offer
many advantages to patients and physicians, including greater affordability,
predictability, flexibility and convenience. Moreover, due in part to
advancements in
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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 following the containment of the COVID-19 pandemic. Historically, our
outpatient services have generated significantly higher margins for us than
inpatient services.

Driving Conifer's Growth While Pursuing a Tax-Free Spin-Off-We previously
announced a number of actions to support our goals of improving financial
performance and enhancing shareholder value, including the exploration of
strategic alternatives for Conifer. In July 2019, we announced our intention to
pursue a tax-free spin-off of Conifer as a separate, independent, publicly
traded company. Completion of the proposed spin-off is subject to a number of
conditions, including, among others, assurance that the separation will be
tax-free for U.S. federal income tax purposes, execution of a restructured
services agreement between Conifer and Tenet, finalization of Conifer's capital
structure, the effectiveness of appropriate filings with the Securities and
Exchange Commission, and final approval from our board of directors. We are
targeting to complete the separation by the end of the second quarter of 2021;
however, there can be no assurance regarding the timeframe for completing the
spin-off, the allocation of assets and liabilities between Tenet and Conifer,
the other conditions of the spin-off will be met, or the spin-off will be
completed at all.

Conifer serves approximately 640 Tenet and non-Tenet hospital and other clients
nationwide. In addition to providing revenue cycle management services to
healthcare 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 value-based 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 value-based
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 value-based care environment to drive competitive
differentiation.

Improving Profitability-As we begin to return to more normal operations, we will
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 COVID-19 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 co-pays, co-insurance 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 higher-demand 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 plans, 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
enterprise-wide centralized support functions, outsourcing certain functions
unrelated to direct patient care, and reducing clinical and vendor contract
variation.

Reducing Our Leverage Over Time-All of our outstanding long-term debt has a
fixed rate of interest, except for outstanding borrowings under our revolving
credit facility, and the maturity dates of our notes are staggered from 2023
through 2031. We believe that our capital structure minimizes the near-term
impact of increased interest rates, and the staggered maturities of our debt
allow us to refinance our debt over time. Although we recently issued $1.3
billion aggregate principal amount of senior secured first lien notes to manage
our liquidity during the COVID-19 pandemic, it is nonetheless our long­term
objective to reduce our debt and lower our ratio of debt-to-Adjusted EBITDA,
primarily through more efficient capital allocation and Adjusted EBITDA growth,
which should lower our refinancing risk. Moreover, in September 2020, we sold
$2.500 billion aggregate principal amount of senior notes to finance the
redemption of senior notes with the highest interest rate and nearest maturity
date of all of our long-term debt. These transactions eliminated any significant
debt maturities until June 2023, as well as reduced future annual cash interest
expense payments by approximately $50 million.

Our ability to execute on our strategies and respond to the aforementioned
trends is subject to the length of time of the impact from the COVID-19
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 Risk Factors section in Part II of this report and in each
of our 2020 10-Qs, as well as the Forward-Looking Statements and Risk Factors
sections in Part I of our Annual Report on Form 10-K for the year ended
December 31, 2019 ("Annual Report").

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RESULTS OF OPERATIONS-OVERVIEW

We have provided below certain selected operating statistics for the three
months ended September 30, 2020 and 2019 on a continuing operations basis. The
following tables also show information about facilities in our Ambulatory Care
segment that we control and, therefore, consolidate. We present certain metrics
on a per adjusted patient admission basis to show trends other than volume.
                                                                                      Continuing Operations
                                                                                Three Months Ended September 30,
                                                                                                                       Increase
Selected Operating Statistics                                       2020                       2019                   (Decrease)
Hospital Operations - hospitals and related
outpatient facilities:
Number of hospitals (at end of period)                                     65                         65                         -    (1)
Total admissions                                                      150,690                    170,004                     (11.4) %
Adjusted patient admissions(2)                                        257,704                    306,535                     (15.9) %
Paying admissions (excludes charity and uninsured)                    141,300                    159,299                     (11.3) %
Charity and uninsured admissions                                        9,390                     10,705                     (12.3) %
Admissions through emergency department                               112,131                    120,915                      (7.3) %
Emergency department visits, outpatient                               463,836                    627,055                     (26.0) %
Total emergency department visits                                     575,967                    747,970                     (23.0) %
Total surgeries                                                        94,128                    105,736                     (11.0) %
Patient days - total                                                  784,013                    782,643                       0.2  %
Adjusted patient days(2)                                            1,302,605                  1,381,862                      (5.7) %
Average length of stay (days)                                            5.20                       4.60                      13.0  %
Average licensed beds                                                  17,242                     17,208                       0.2  %
Utilization of licensed beds(3)                                          49.4  %                    49.4  %                      -  % (1)
Total visits                                                        1,402,346                  1,673,801                     (16.2) %
Paying visits (excludes charity and uninsured)                      1,302,529                  1,562,007                     (16.6) %
Charity and uninsured visits                                           99,817                    111,794                     (10.7) %
Ambulatory Care:
Total consolidated facilities (at end of period)                          244                        237                         7    (1)
Total cases                                                           544,279                    522,530                       4.2  %

(1) The change is the difference between the 2020 and 2019 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 19,314, or 11.4%, in the three months ended
September 30, 2020 compared to the three months ended September 30, 2019, and
total surgeries decreased by 11,608, or 11.0%, in the 2020 period compared to
the 2019 period. Total emergency department visits decreased 23.0% in the three
months ended September 30, 2020 compared to the same period in the prior year.
The decrease in our patient volumes from continuing operations in the three
months ended September 30, 2020 compared to the three months ended September 30,
2019 continues to reflect the overall adverse impact of the COVID-19 pandemic.
Our Ambulatory Care total cases increased 4.2% in the three months ended
September 30, 2020 compared to the 2019 period.
                                                                            

Continuing Operations

Three Months Ended September 30,

                                                                                                        Increase
Revenues                                                         2020               2019               (Decrease)
Net operating revenues:
Hospital Operations prior to inter-segment
eliminations                                                 $    3,803$  3,850                      (1.2) %
Ambulatory Care                                                     565               522                       8.2  %
Conifer                                                             325               336                      (3.3) %
Inter-segment eliminations                                         (136)             (140)                     (2.9) %
Total                                                        $    4,557$  4,568                      (0.2) %



Net operating revenues decreased by $11 million, or 0.2%, in the three months
ended September 30, 2020 compared to the same period in 2019, primarily due to
lower patient volumes as a result of the COVID-19 pandemic, partially offset by
higher patient acuity, a more favorable payer mix, incremental revenue from new
service lines, and improved terms of our
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managed care contracts. Our Hospital Operations and Ambulatory Care segments
were also impacted by the reduction of federal grant income reported in prior
periods during the three months ended September 30, 2020 due to the revised
grant guidelines issued in September 2020 described in Note 1 to our
accompanying Condensed Consolidated Financial Statements. As a result, our
Hospital Operations and Ambulatory Care segments recognized reductions of grant
income from federal grants totaling $57 million and $13 million ($4 million of
which is included in equity in earnings of unconsolidated affiliates) in the
three months ended September 30, 2020, respectively, which reductions are not
included in net operating revenues.

Our accounts receivable days outstanding ("AR Days") from continuing operations
were 55.8 days at September 30, 2020 and 58.4 days at December 31, 2019,
compared to our target of less than 55 days. This calculation includes our
Hospital Operations contract assets, as well as the accounts receivable of our
Memphis-area facilities that have been classified in assets held for sale on our
Consolidated Balance Sheet at September 30, 2020, and excludes (i) three
Chicago-area hospitals, which we divested effective January 28, 2019, and (ii)
our California provider fee revenues.
                                                       Continuing Operations
                                                  Three Months Ended September 30,
                                                                                        Increase
Selected Operating Expenses                      2020                      2019        (Decrease)
Hospital Operations:
Salaries, wages and benefits      $          1,818                       $ 1,835           (0.9) %
Supplies                                       656                           650            0.9  %
Other operating expenses                       899                           885            1.6  %
Total                             $          3,373                       $ 3,370            0.1  %
Ambulatory Care:
Salaries, wages and benefits      $            157                       $   157              -  %
Supplies                                       128                           109           17.4  %
Other operating expenses                        97                            86           12.8  %
Total                             $            382                       $   352            8.5  %
Conifer:
Salaries, wages and benefits      $            167                       $   180           (7.2) %
Supplies                                         -                             1         (100.0) %
Other operating expenses                        62                            65           (4.6) %
Total                             $            229                       $   246           (6.9) %
Total:
Salaries, wages and benefits      $          2,142                       $ 2,172           (1.4) %
Supplies                                       784                           760            3.2  %
Other operating expenses                     1,058                         1,036            2.1  %
Total                             $          3,984                       $ 3,968            0.4  %
Rent/lease expense(1):
Hospital Operations               $             72                       $    60           20.0  %
Ambulatory Care                                 24                            22            9.1  %
Conifer                                          3                             3              -  %
Total                             $             99                       $    85           16.5  %


(1)    Included in other operating expenses.


                                                                                                  Continuing Operations
                                                                                             Three Months Ended September 30,
                                                                                                                           Increase
Selected Operating Expenses per Adjusted Patient Admission                           2020              2019               (Decrease)
Hospital Operations:
Salaries, wages and benefits per adjusted patient admission(1)                   $   7,054$  5,984                      17.9  %
Supplies per adjusted patient admission(1)                                           2,546             2,119                      20.2  %
Other operating expenses per adjusted patient admission(1)                           3,487             2,890                      20.7  %
Total per adjusted patient admission                                             $  13,087$ 10,993                      19.0  %


(1) Calculation excludes the expenses from our health plan businesses. 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.




Salaries, wages and benefits for our Hospital Operations segment decreased $17
million, or 0.9%, in the three months ended September 30, 2020 compared to the
same period in 2019. This decrease is primarily attributable to reduced patient
volumes, as well as necessary employee furloughs and headcount reductions
throughout the organization due to the COVID-19
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pandemic. The effect of these changes was partially offset by annual merit
increases for certain of our employees, a greater number of employed physicians,
increased incentive compensation expense and an increased average patient
length-of-stay, as well as the impact of higher temporary labor and premium pay.
Our continued focus on strategic cost-reduction and efficiency measures
partially mitigated the impact of the COVID-19 surges in certain markets in the
three months ended September 30, 2020. On a per adjusted patient admission
basis, salaries, wages and benefits increased 17.9% in the three months ended
September 30, 2020 compared to the three months ended September 30, 2019 due to
reduced patient volumes as a result of the COVID-19 pandemic.

Supplies expense for our Hospital Operations segment increased $6 million, or
0.9%, in the three months ended September 30, 2020 compared to the same period
in 2019. The increase was primarily due to the increased cost of certain
supplies as a result of the COVID-19 pandemic, partially offset by reduced
patient volumes. On a per adjusted patient admission basis, supplies expense
increased 20.2% in the three months ended September 30, 2020 compared to the
three months ended September 30, 2019 due to reduced patient volumes and the
increased cost of certain supplies as a result of the pandemic.

Other operating expenses for our Hospital Operations segment increased $14
million, or 1.6%, in the three months ended September 30, 2020 compared to the
same period in 2019. The increase was primarily due to higher medical fees,
partially offset by lower patient volumes as a result of the COVID-19 pandemic.
There is proportionally a higher level of fixed costs (e.g., rent expense) in
other operating expenses than salaries, wages and benefits or supplies. On a per
adjusted patient admission basis, other operating expenses increased 20.7% in
the three months ended September 30, 2020 compared to the three months ended
September 30, 2019 due to reduced patient volumes as a result of the pandemic.

LIQUIDITY AND CAPITAL RESOURCES OVERVIEW

Cash and cash equivalents were $3.300 billion at September 30, 2020 compared to $3.514 billion at June 30, 2020.

Significant cash flow items in the three months ended September 30, 2020 included:


•Net cash provided by operating activities before interest, taxes, discontinued
operations and restructuring charges, acquisition-related costs, and litigation
costs and settlements of $1.029 billion, including $174 million of cash received
from federal grants;

•Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements of $138 million;

•Capital expenditures of $86 million;

•Interest payments of $292 million, which included $105 million of accelerated interest payments due in October 2020 and paid in the three months ended September 30, 2020 in connection with our redemption of debt;

•Proceeds from sales of marketable securities, long-term investments and other assets of $9 million;

•Purchases of marketable securities and equity investments of $31 million;

•$84 million of distributions paid to noncontrolling interests;

•Debt issuance costs of $26 million;

•$34 million of purchases of noncontrolling interests;

•$2.5 billion of proceeds from the issuance of $2.5 billion aggregate principal amount of 6.125% senior unsecured notes due 2028 (the "2028 Senior Notes"); and

•$2.957 billion of payments to finance the redemption and other purchases of $2.665 billion aggregate principal amount of our outstanding 8.125% senior unsecured notes due 2022 (the "2022 Senior Notes").

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Net cash provided by operating activities was $2.961 billion in the nine months
ended September 30, 2020 compared to $713 million in the nine months ended
September 30, 2019. Key factors contributing to the change between the 2020 and
2019 periods include the following:

•$1.380 billion of cash advances received from Medicare pursuant to COVID-19 stimulus legislation;

•$848 million of cash received from federal and state grants, including the Provider Relief Fund;

•A $178 million deferral of our payroll tax match in 2020 pursuant to COVID-19 stimulus legislation;

•Decreased cash receipts of $36 million related to supplemental Medicaid programs in California and Texas;

•An increase of $116 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements; and

•The timing of other working capital items.

FORWARD-LOOKING STATEMENTS


This report includes "forward-looking 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 forward-looking
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. Forward-looking 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 forward-looking statements. Such factors include, but are not limited
to, the risks described in the Risk Factors section in Part II of this report
and in each of our 2020 10-Qs, as well as the Forward-Looking Statements and
Risk Factors sections in Part I of our Annual Report.

When considering forward-looking statements, one should keep in mind the risk
factors and other cautionary statements in our Annual Report, in each of our
2020 10-Qs 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 forward-looking statement. We specifically disclaim any
obligation to update any information contained in a forward-looking statement or
any forward-looking statement in its entirety except as required by law.

All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

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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, indemnity-based health insurance companies and uninsured patients
(that is, patients who do not have health insurance and are not covered by some
other form of third-party arrangement).

The following table shows 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                                                              Nine Months Ended
                                                                        September 30,                                                                  September 30,
Net Patient Service Revenues Less                                                                   Increase                                                                       Increase
Implicit Price Concessions from:                    2020                      2019                (Decrease)(1)                    2020                      2019                (Decrease)(1)
Medicare                                                   18.9  %              19.6  %                     (0.7) %                       19.9  %              20.4  %                     (0.5) %
Medicaid                                                    7.1  %               8.0  %                     (0.9) %                        8.0  %               8.6  %                     (0.6) %
Managed care(2)                                            67.7  %              66.1  %                      1.6  %                       66.0  %              65.8  %                      0.2  %
Uninsured                                                   1.4  %               1.2  %                      0.2  %                        1.1  %               0.5  %                      0.6  %
Indemnity and other                                         4.9  %               5.1  %                     (0.2) %                        5.0  %               4.7  %                      0.3  %

(1) The change is the difference between the 2020 and 2019 percentages shown. (2) Includes Medicare and Medicaid managed care programs.




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
shown below:
                                                                               Three Months Ended                                                              Nine Months Ended
                                                                                  September 30,                                                                  September 30,
                                                                                                              Increase                                                                       Increase
Admissions from:                                              2020                      2019                (Decrease)(1)                    2020                      2019                (Decrease)(1)
Medicare                                                             21.9  %              23.9  %                     (2.0) %                       23.0  %              25.0  %                     (2.0) %
Medicaid                                                              6.4  %               6.4  %                        -  %                        6.3  %               6.2  %                      0.1  %
Managed care(2)                                                      62.7  %              60.7  %                      2.0  %                       61.6  %              60.2  %                      1.4  %
Charity and uninsured                                                 6.2  %               6.3  %                     (0.1) %                        6.3  %               6.0  %                      0.3  %
Indemnity and other                                                   2.8  %               2.7  %                      0.1  %                        2.8  %               2.6  %                      0.2  %

(1) The change is the difference between the 2020 and 2019 percentages shown. (2) Includes Medicare and Medicaid managed care programs.

GOVERNMENT PROGRAMS


The Centers for Medicare and Medicaid Services ("CMS"), an agency of HHS, is the
single largest payer of healthcare services in the United States. Approximately
61 million individuals rely on healthcare benefits through Medicare, and
approximately 75 million individuals are enrolled in Medicaid and the Children's
Health Insurance Program ("CHIP"). These three programs are authorized by
federal law and administered by CMS. 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 co-administered 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 in the United States. The CHIP,
which is also co-administered 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 ("FFY") 2027.

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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 fee-for-service 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 fee-for-service Medicare special needs plans and Medicare medical
savings account plans. The major components of our 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 for the three and nine months ended September 30,
2020 and 2019 are set forth in the following table:
                                                                  Three Months Ended                   Nine Months Ended
                                                                    September 30,                        September 30,
Revenue Descriptions                                            2020               2019              2020               2019

Medicare severity-adjusted diagnosis-related group - $ 350

     $   362$    1,052$ 1,134
operating
Medicare severity-adjusted diagnosis-related group -
capital                                                             29               33                  90              101
Outliers                                                            14               17                  46               62
Outpatient                                                         160              182                 462              557
Disproportionate share                                              54               61                 160              178
Other(1)                                                            55               42                 154              144
Total Medicare net patient service revenues                 $      662

$ 697$ 1,964$ 2,176

(1) The other revenue category includes Medicare Direct Graduate Medical Education and

Indirect Medical Education ("IME") revenues, IME revenues earned by our children's

hospital under the Children's Hospitals Graduate Medical Education Payment Program

administered by the Health Resources and Services Administration of HHS, inpatient

psychiatric units, inpatient rehabilitation units, other revenue adjustments, and

adjustments to the estimates for current and prior-year cost reports and related

       valuation allowances.



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
state to state and from year to year. Estimated revenues under various state
Medicaid programs, including state-funded Medicaid managed care programs,
constituted approximately 17.9% and 18.6% of total net patient service revenues
less implicit price concessions of our acute care hospitals and related
outpatient facilities for the nine months ended September 30, 2020 and 2019,
respectively. We also receive disproportionate share hospital ("DSH") and other
supplemental revenues under various state Medicaid programs. For the nine months
ended September 30, 2020 and 2019, our total Medicaid revenues attributable to
DSH and other supplemental revenues were approximately $533 million and $604
million, respectively. The 2020 period included $171 million related to the
California provider fee program, $157 million related to the Michigan provider
fee program, $129 million related to Medicaid DSH programs in multiple states,
$44 million related to the Texas 1115 waiver program, and $32 million from a
number of other state and local programs.

Even prior to the COVID-19 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 could adversely affect the Medicaid supplemental payments our
hospitals receive.

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.

Medicaid and Managed Medicaid net patient service revenues from continuing
operations recognized by the hospitals and related outpatient facilities in our
Hospital Operations segment from Medicaid-related programs in the states in
which our facilities are (or were, as the case may be) located, as well as from
Medicaid programs in neighboring states, for the nine
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months ended September 30, 2020 and 2019 are set forth in the following table.
These revenues are presented net of provider taxes or assessments paid by our
hospitals, which are reported as an offset reduction to fee-for-service Medicaid
revenue.
                              Nine Months Ended
                                September 30,
Hospital Location             2020          2019
Alabama                   $       74$    69
Arizona                          120          112
California                       603          650
Florida                          149          169

Illinois                           -            5
Massachusetts                     66           68
Michigan                         404          542

South Carolina                    44           42
Tennessee                         26           27
Texas                            287          304
                          $    1,773$ 1,988



Medicaid and Managed Medicaid revenues comprised 45% and 55%, respectively, of
our Medicaid-related net patient service revenues from continuing operations
recognized by the hospitals and related outpatient facilities in our Hospital
Operations segment for the nine months ended September 30, 2020.

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.

Payment and Policy Changes to the Medicare Inpatient Prospective Payment Systems


Section 1886(d) of the Social Security Act requires CMS to update inpatient
fee-for-service payment rates for hospitals reimbursed under the Inpatient
Prospective Payment System ("IPPS") annually. The updates generally become
effective October 1, the beginning of the federal fiscal year. In September
2020, CMS issued the final Changes to the Hospital Inpatient Prospective Payment
Systems for Acute Care Hospitals and Fiscal Year 2021 Rates ("Final IPPS Rule").
The Final IPPS Rule includes the following payment and policy changes:

•A market basket increase of 2.4% for Medicare severity-adjusted
diagnosis-related group ("MS-DRG") operating payments for hospitals reporting
specified quality measure data and that are meaningful users of electronic
health record technology; CMS also finalized certain proposed adjustments to the
2.4% market basket increase that resulted in a net operating payment update of
2.9% (before budget neutrality adjustments), as follows:

•No multifactor productivity adjustment under the ACA (i.e, an adjustment of 0.0%) for FFY 2021; and

•A 0.5% increase, as required under the Medicare Access and CHIP Reauthorization Act of 2015;

•Updates to the three factors used to determine the amount and distribution of Medicare uncompensated care disproportionate share ("UC-DSH") payments;

•A 0.84% net increase in the capital federal MS-DRG rate; and

•An increase in the cost outlier threshold from $26,552 to $29,051.


According to CMS, the combined impact of the payment and policy changes in the
Final IPPS Rule for operating costs will yield an average 2.5% increase in
Medicare operating MS-DRG fee-for-service ("FFS") payments for hospitals in
urban areas, and an average 2.4% increase in operating MS-DRG FFS payments for
proprietary hospitals in FFY 2021. We estimate that all of the payment and
policy changes affecting operating MS-DRG and UC-DSH payments will result in an
estimated 1.8% increase in our annual Medicare FFS IPPS payments, which yields
an estimated increase of approximately $37 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, we cannot provide any assurances
regarding our estimate of the impact of the payment and policy changes.

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Historically, CMS has used charges reduced to cost to set the relative weights
assigned to each MS-DRG. In the Final IPPS Rule, CMS expressed a concern that
chargemaster rates rarely reflect the true market costs. In order to reduce its
reliance on the hospital chargemaster, CMS determined that, beginning in 2021,
hospitals will be required to report in the annual cost report the median
payer-specific negotiated charge that the hospital has negotiated with all of
its Medicare Advantage payers by MS-DRG. This information may potentially be
used to set the IPPS MS-DRG relative weights in FFY 2024. This standard is in
addition to the pricing transparency requirements effective January 1, 2021 in
the hospital price transparency final rule issued on November 27, 2019 that was
recently upheld by a Federal District Court and is now before the U.S. Court of
Appeals for the District of Columbia.

Proposed Payment and Policy Changes to the Medicare Outpatient Prospective Payment and Ambulatory Surgery Center Payment Systems


In August 2020, CMS released proposed policy changes and payment rates for the
Hospital Outpatient Prospective Payment System ("OPPS") and Ambulatory Surgical
Center ("ASC") Payment System for calendar year ("CY") 2021 ("Proposed OPPS/ASC
Rule"). The Proposed OPPS/ASC Rule includes the following payment and policy
changes:

•An estimated net increase of 2.6% for the OPPS rates based on an estimated
market basket increase of 3.0% reduced by a multifactor productivity adjustment
required by the ACA of 0.4%;

•An update to the reduced payment amount for drugs acquired with a discount
under CMS' 340B program ("340B Drugs") to a rate of average sales price ("ASP")
minus 22.5% in CY 2020 to ASP minus 28.7% for CY 2021 (the 340B program is the
subject of litigation discussed in greater detail below);

•Elimination of the Inpatient Only List (which is the list of procedures that
must be performed on an inpatient basis) over a transitional period beginning in
CY 2021 and ending in CY 2024, starting with the removal of 266 musculoskeletal
services from the list for CY 2021;

•The addition of two new OPPS service categories for which prior authorization is required; and

•A 2.6% increase to the ASC payment rates.


CMS projects that the combined impact of the payment and policy changes in the
Proposed OPPS/ASC Rule will yield an average 2.5% increase in Medicare FFS OPPS
payments for hospitals in urban areas and an average 4.1% increase in Medicare
FFS OPPS payments for proprietary hospitals. Based on CMS' estimates, the
projected annual impact of the payment and policy changes in the Proposed
OPPS/ASC Rule on our hospitals is an increase to Medicare FFS hospital
outpatient revenues of approximately $30 million, which represents an increase
of approximately 4.7%. Because of the uncertainty associated with various
factors that may influence our future OPPS payments, including legislative or
legal actions, volumes and case mix, as well as potential changes to the
proposed rule, we cannot provide any assurances regarding our estimate of the
impact of the proposed payment and policy changes.

Proposed Payment and Policy Changes to the Medicare Physician Fee Schedule


In August 2020, CMS released the CY 2021 Medicare Physician Fee Schedule
("MPFS") Proposed Rule ("MPFS Proposed Rule"). The proposed rule updates payment
policies, payment rates and other provisions for services reimbursed under the
MPFS on and after January 1, 2021. The statutory update factor to the MPFS
conversion factor (the base rate that is used to convert relative value units
("RVUs") into payment rates) for CY 2021, as required by the Medicare Access and
CHIP Reauthorization Act of 2015, was set at 0.0%. The proposed conversion
factor also reflects a negative budget neutrality adjustment of 10.61% to
account for the estimated positive or negative effects of the proposed changes
on each specialty due to, among other things, CMS' projection of volumes in each
specialty and the recalibration of the RVUs. CMS estimates that the combined
impact of the proposed payment and policy changes will not result in any change
in payments.

The Coronavirus Aid, Relief, and Economic Security Act of 2020 and Related Legislation


The CARES Act and the PPP Act authorized over $2 trillion in government spending
to mitigate the economic effects of the COVID-19 pandemic. Below is a brief
overview of certain provisions of these laws that have impacted, and that we
expect will continue to impact, our business. This summary is not exhaustive,
and additional legislative action and regulatory developments may evolve
rapidly. There is no assurance that we will continue to receive or remain
eligible for funding or assistance under the CARES Act, the PPP Act or similar
measures. Statements regarding the projected impact of COVID-19 relief programs
on our operations and financial condition are forward-looking and are made as of
the date of this filing.
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Public Health and Social Services Emergency Fund-Through the CARES Act and the
PPP Act, the federal government has authorized $175 billion in payments to be
distributed through the Provider Relief Fund. Distribution from the PRF to
providers commenced during the three months ended June 30, 2020. It is our
understanding that, as of September 30, 2020, the government has apportioned
approximately $124 billion of the PRF in several tranches, including:

•A $50 billion general distribution to Medicare fee-for-service providers;

•An allocation of approximately $18 billion to Medicaid and CHIP providers that did not receive an allocation from the $50 billion general distribution; and


•Targeted distributions comprised of approximately (i) $22 billion for hospitals
determined to be in areas particularly impacted by COVID-19 based on reported
COVID-19 admissions, (ii) $11 billion to rural healthcare providers, (iii)
$7 billion to skilled nursing facilities, (iv) $15 billion to safety net
hospitals and (v) $500 million to tribal hospitals, clinics and urban health
centers.

In October 2020, HHS announced an additional $20 billion general distribution
that considers financial losses and changes in operating revenues and expenses,
including expenses attributable to COVID-19, and payments already received
through PRF distributions.

Payments from the PRF are not loans and, therefore, they are not subject to
repayment. However, as a condition to receiving distributions, providers must
agree to certain terms and conditions, including, among other things, that the
funds are being used for lost revenues and COVID-related costs as defined by
HHS, and that the providers will not seek collection of out­of­pocket payments
from a COVID-19 patient that are greater than what the patient would have
otherwise been required to pay if the care had been provided by an in-network
provider. All recipients of PRF payments are required to comply with the
reporting requirements described in the terms and conditions and as determined
by HHS. During the three months ended September 30, 2020, HHS released reporting
requirements that include lost revenues, expenses attributable to COVID-19, and
non-financial information, including employer data, as well as numbers of
inpatient visits, outpatient admissions and staffed beds ("September 2020 PRF
Guidance"). These reporting requirements reflected a revised definition of lost
revenues and COVID-related costs from guidance HHS released during the three
months ended June 30, 2020. Furthermore, HHS has indicated that it will be
closely monitoring and, along with the Office of Inspector General, auditing
providers to ensure that recipients comply with the terms and conditions of
relief programs and to prevent fraud and abuse. All providers will be subject to
civil and criminal penalties for any deliberate omissions, misrepresentations or
falsifications of any information given to HHS. Except for certain immaterial
PRF payments we returned to HHS, we have formally accepted PRF payments issued
to our providers and the terms and conditions associated with those payments.

During the three months ended September 30, 2020, based on the September 2020
PRF Guidance, our Hospital Operations and ASC segments recognized reductions of
PRF income totaling $66 million and $4 million included in the grant income and
equity in earnings of unconsolidated affiliates line items, respectively, in our
accompanying Condensed Consolidated Statements of Operations. During the nine
months ended September 30, 2020, we recognized approximately $442 million and
$8 million of Provider Relief Fund income included in grant income and equity in
earnings of unconsolidated affiliates, respectively, in our accompanying
Condensed Consolidated Statements of Operations associated with lost revenues
and COVID-related costs. Additionally, we recognized $3 million of grant income
from state grant programs included in grant income in our accompanying Condensed
Consolidated Statements of Operations for the nine months ended
September 30, 2020. On October 22, 2020 HHS published the October 2020 PRF
Guidance, which amended the September 2020 PRF Guidance described above. The
amendments include: (1) re-defining lost revenues again; and (2) revising the
policy for transferring general distribution funds among providers within a
hospital system. We estimate that the October 2020 PRF Guidance will result in
an additional $100 million of grant income during the three months ending
December 31, 2020 based on our revised estimate of lost revenues through
September 30, 2020. Based on the uncertainty regarding future estimates of lost
revenues and COVID-related costs or the impact of further updates to HHS
guidance, if any, we cannot provide any assurances regarding the amount of grant
income to be recognized in the future.

Medicare and Medicaid Payment Policy Changes-The CARES Act also alleviates some
of the financial strain on hospitals, physicians, other healthcare providers and
states through a series of Medicare and Medicaid payment policies that
temporarily increase Medicare and Medicaid reimbursement and allow for added
flexibility, as described below.

•Effective May 1, 2020 through December 31, 2020, the 2% sequestration reduction
on Medicare FFS and Medicare Advantage payments to hospitals, physicians and
other providers is suspended and will resume effective January 2021 as
authorized by the Sequestration Transparency Act of 2020. The estimated impact
of this change
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on our operations is an increase of approximately $67 million of revenues in
2020. The suspension is financed by a one-year extension of the sequestration
adjustment through 2030.

•The CARES Act instituted a 20% increase in the Medicare MS-DRG payment for
COVID-19 hospital admissions for the duration of the public health emergency as
declared by the Secretary of HHS.

•The CARES Act eliminated the scheduled nationwide reduction of $4 billion in
federal Medicaid DSH allotments in FFY 2020 mandated by the Affordable Care Act
and decreased the FFY 2021 DSH reduction from $8 billion to $4 billion effective
December 1, 2020. The CA Act delays the 2021 reduction until December 11, 2020.
The projected impact of the suspension of the decreased DSH reduction on our
operations is an increase of approximately $60 million of revenues in 2020,
which is not subject to repayment. Notwithstanding these adjustments, the
ACA-mandated reduction is not expected to be extended past its original
termination in FFY 2025.

•The CARES Act expanded the Medicare accelerated payment program, which provides
prepayment of claims to providers in certain circumstances, such as national
emergencies or natural disasters. Under this measure, providers could request
accelerated payments during which time providers continue to receive payments
for services. Under the CARES Act, accelerated payments could be retained for
120 days; at the end of the 120-day period, the accelerated payment would be
repaid via an offset of payments on claims that would otherwise be paid.
Generally, repayments of the accelerated payments we received were to commence
during the three months ended September 2020; however, under Section 2501 of the
CA Act, providers may retain the accelerated payments for one year from the date
of receipt before CMS commences recoupment, which will be effectuated by a 25%
offset of claims payments for 11 months, followed by 50% offset for the
succeeding six months. At the end of the 29­month period, interest on the unpaid
balance will be assessed at 4% per annum. Through September 30, 2020, our
hospitals and other providers applied for and received approximately
$1.5 billion of accelerated payments.

•A 6.2% increase in the Federal Medical Assistance Percentage ("FMAP") matching
funds was instituted to help states respond to the COVID-19 pandemic. The
additional funds are available to states from January 1, 2020 through the
quarter in which the public health emergency period ends, provided that states
meet certain conditions. An increase in states' FMAP leverages Medicaid's
existing financing structure, which allows federal funds to be provided to
states more quickly and efficiently than establishing a new program or
allocating money from a new funding stream. Increased federal matching funds
support states in responding to the increased need for services, such as testing
and treatment during the COVID-19 public health emergency, as well as increased
enrollment as more people lose income and qualify for Medicaid during the
economic downturn.

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
our estimates of the impact of the aforementioned payment and policy changes
will be incorrect and that actual payments received under, or the ultimate
impact of, these programs will differ materially from our expectations.

Tax Changes-Beginning March 27, 2020, all employers may elect to defer payment
of the 6.2% employer Social Security tax through December 31, 2020. Deferred tax
amounts are required to be paid in equal amounts over two years, with payments
due in December 2021 and December 2022. We expect that we will defer
approximately $270 million of taxes in 2020 pursuant to this CARES Act
provision. In addition, the CARES Act increases the interest expense deduction
limitation from 30% of adjusted taxable income to 50% of adjusted taxable income
for the 2019 and 2020 tax years, allowing businesses to take a larger deduction.
This change is expected to increase our federal tax net operating loss ("NOL")
carryforwards into future years, as further described in Note 14 to the
accompanying Condensed Consolidated Financial Statements.

Significant Litigation

340B Litigation


The 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. In the final rule
regarding Hospital OPPS payment and policy changes for CY 2018, CMS reduced the
payment for 340B Drugs from ASP plus 6% to ASP minus 22.5% and made a
corresponding budget-neutral 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 and 2020,
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. In May 2019, the
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U.S. District Court for the District of Columbia (the "District Court") held
that the adoption of the 340B Payment Adjustment in the CY 2019 OPPS Final Rule
exceeded CMS' statutory authority by reducing drug reimbursement rates for 340B
Hospitals. This holding followed the District Court's December 2018 conclusion
that HHS exceeded its statutory authority in reducing the CY 2018 OPPS for the
340B Payment Adjustment. The District Court did not grant a permanent injunction
to the 340B Payment Adjustment, nor did it vacate the 2018 and 2019 rules. In
July 2019, the District Court issued a Memorandum Opinion granting HHS' motion
for entry of final judgment, thus allowing HHS to proceed with a pending appeal
of the District Court's rulings at the U.S. Court of Appeals for the District of
Columbia Circuit (the "Circuit Court"). In July 2020, a three-judge panel of the
Circuit 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. On October 16, 2020, the Circuit Court
denied the plaintiff hospital associations' and hospitals' request for an en
banc hearing. We cannot predict what further actions the plaintiff hospital
associations and hospitals will take or the ultimate outcome of the litigation
relating to CMS' 340B program; however, an unfavorable outcome of the litigation
could have an adverse effect on the Company's net revenues and cash flows.

PRIVATE INSURANCE

Managed Care


We currently have thousands of managed care contracts with various HMOs and
PPOs. HMOs generally maintain a full-service 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 cost-effective manner. HMOs typically provide reduced benefits or
reimbursement (or none at all) to their members who use non-contracted
healthcare providers for non-emergency care.

PPOs generally offer limited benefits to members who use non-contracted
healthcare providers. PPO members who use contracted healthcare providers
receive a preferred benefit, typically in the form of lower co-pays,
co-insurance 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 high-deductible 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 nine months ended September 30, 2020 and 2019 was
$6.519 billion and $7.041 billion, respectively. Our top ten managed care payers
generated 61% of our managed care net patient service revenues for the nine
months ended September 30, 2020. National payers generated 44% of our managed
care net patient service revenues for the nine months ended September 30, 2020.
The remainder comes from regional or local payers. At September 30, 2020 and
December 31, 2019, 64% and 65%, 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, per-diem rates, discounted fee-for-service
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 patient-by-patient 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 at September 30, 2020, a 3% increase or decrease in the
estimated contractual allowance would impact the estimated reserves by
approximately $14 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 stop-loss 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 in-house
and discharged-not-final-billed 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 corporate-wide basis, we do not
record any general provision for adjustments to estimated contractual allowances
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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 year-over-year aggregate
managed care pricing improvements for several years, we have seen these
improvements moderate in recent years, and we believe the moderation could
continue in future years. In the nine months ended September 30, 2020, our
commercial managed care net inpatient revenue per admission from the hospitals
in our Hospital Operations segment was approximately 96% higher than our
aggregate yield on a per admission basis from government payers, including
managed Medicare and Medicaid insurance plans.

Indemnity

An indemnity-based 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.

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 high-acuity treatment that is more costly to provide and, therefore, results in higher billings, which are the least collectible of all accounts.


Self-pay accounts receivable, which include amounts due from uninsured patients,
as well as co-pays, co-insurance amounts and deductibles owed to us by patients
with insurance, pose significant collectability problems. At both
September 30, 2020 and December 31, 2019, approximately 4% of our net accounts
receivable for our Hospital Operations segment was self-pay. Further, a
significant portion of our implicit price concessions relates to self-pay
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 non-emergency department patients as
well. These initiatives are intended to promote process efficiencies in
collecting self-pay accounts, as well as co-pay, co-insurance and deductible
amounts owed to us by patients with insurance, that we deem highly collectible.
We leverage a statistical-based 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 this challenge. For example, our Compact with Uninsured
Patients ("Compact") is designed to offer managed care-style 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
self-pay 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 self-pay 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.

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Table of Contents The following table shows 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 in the three and nine months ended September 30, 2020 and 2019:

                                 Three Months Ended                 Nine Months Ended
                                    September 30,                     September 30,
                                   2020             2019             2020            2019
Estimated costs for:
Uninsured patients         $      165$ 171$     466$ 493
Charity care patients              30                 41            113               116
Total                      $      195$ 212$     579$ 609



RESULTS OF OPERATIONS

The following two tables summarize our consolidated net operating revenues,
operating expenses and operating income from continuing operations, both in
dollar amounts and as percentages of net operating revenues, for the three and
nine months ended September 30, 2020 and 2019. We present metrics as a
percentage of net operating revenues because a significant portion of our costs
are variable.
                                                                            Three Months Ended                     Nine Months Ended
                                                                               September 30,                         September 30,
                                                                           2020                2019              2020              2019
Net operating revenues:
Hospital Operations                                                  $    3,803$ 3,850$  10,725$ 11,539
Ambulatory Care                                                             565                 522              1,423             1,526
Conifer                                                                     325                 336                962             1,040
Inter-segment eliminations                                                 (136)               (140)              (385)             (432)
Net operating revenues                                                    4,557               4,568             12,725            13,673
Grant income                                                                (66)                  -                445                 -
Equity in earnings of unconsolidated affiliates                              44                  38                103               114
Operating expenses:
Salaries, wages and benefits                                              2,142               2,172              6,193             6,468
Supplies                                                                    784                 760              2,158             2,254
Other operating expenses, net                                             1,058               1,036              3,054             3,136
Depreciation and amortization                                               215                 205                624               627

Impairment and restructuring charges, and acquisition-related costs

                                                                        57                  46                166               101
Litigation and investigation costs                                            9                  84                 13               115
Net losses (gains) on sales, consolidation and deconsolidation
of facilities                                                                (1)                  1                 (4)                3
Operating income                                                     $      271$   302$   1,069$  1,083


                                                                                  Three Months Ended                                  Nine Months Ended
                                                                                     September 30,                                      September 30,
                                                                               2020                      2019                     2020                      2019
Net operating revenues                                                               100.0  %             100.0  %                      100.0  %             100.0  %
Grant income                                                                          (1.4) %                 -  %                        3.5  %                 -  %
Equity in earnings of unconsolidated affiliates                                        1.0  %               0.8  %                        0.8  %               0.8  %
Operating expenses:
Salaries, wages and benefits                                                          47.1  %              47.6  %                       48.6  %              47.3  %
Supplies                                                                              17.2  %              16.6  %                       17.0  %              16.5  %
Other operating expenses, net                                                         23.2  %              22.7  %                       24.0  %              22.9  %
Depreciation and amortization                                                          4.7  %               4.5  %                        4.9  %       

4.6 % Impairment and restructuring charges, and acquisition-related costs

                                                                                  1.3  %               1.0  %                        1.3  %               0.7  %
Litigation and investigation costs                                                     0.2  %               1.8  %                        0.1  %               0.9  %
Net gains on sales, consolidation and deconsolidation of
facilities                                                                               -  %                 -  %                          -  %                 -  %
Operating income                                                                       5.9  %               6.6  %                        8.4  %               7.9  %



Total net operating revenues decreased by $11 million and $948 million, or 0.2%
and 6.9%, for the three and nine months ended September 30, 2020, respectively,
compared to the three and nine months ended September 30, 2019, respectively.
Hospital Operations net operating revenues net of inter-segment eliminations
decreased by $43 million and $767 million, or 1.2% and 6.9%, for the three and
nine months ended September 30, 2020, respectively, compared to the same
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three and nine-month periods in 2019. These decreases were primarily due to
lower patient volumes as a result of the COVID-19 pandemic, partially offset by
higher patient acuity, a more favorable payer mix and improved terms of our
managed care contracts.

Ambulatory Care net operating revenues increased by $43 million, or 8.2%, during
the three-month period and decreased by $103 million, or 6.7%, during the
nine-month period ended September 30, 2020 compared to the same three and
nine-month periods in 2019. The year-over-year increase in the three months
ended September 30, 2020 is attributable higher patient acuity, incremental
revenue from new service lines and improved terms of our managed care contracts,
as well as an increase from acquisitions of $26 million. These increases were
partially offset by a decrease of $12 million due to the deconsolidation of a
facility. The decrease in the Ambulatory Care segment's net operating revenues
during the nine months ended September 30, 2020 compared to the same period in
2019 was primarily due to the negative impact of shelter-in-place orders on
patient volumes and the mandated suspension of many elective procedures due to
the COVID-19 pandemic, as well as a decrease of $27 million due to the
deconsolidation of a facility. These impacts were partially offset by an
increase from acquisitions of $52 million.

Conifer net operating revenues decreased by $11 million and $78 million, or 3.3%
and 7.5%, for the three and nine months ended September 30, 2020, respectively,
compared to the three and nine months ended September 30, 2019, respectively.
Conifer revenues from third-party customers, which are not eliminated in
consolidation, decreased $7 million and $31 million, or 3.6% and 5.1%, for the
three and nine months ended September 30, 2020, respectively, compared to the
three and nine months ended September 30, 2019, respectively. Conifer's net
operating revenues were negatively impacted by the unfavorable downstream impact
of the COVID-19 pandemic on its clients' patient volumes, as well as attrition
due to planned hospital divestitures by its clients.

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The following table shows selected operating expenses of our three reportable
business segments. Information for our Hospital Operations segment is presented
on a same-hospital basis, which includes the results of our same 65 hospitals
operated throughout the three and nine months ended September 30, 2020 and 2019.
Our same-hospital information excludes the results of three Chicago-area
hospitals, which we divested effective January 28, 2019. We present
same-hospital data because we believe it provides investors with useful
information regarding the performance of our hospitals and other operations that
are comparable for the periods presented.
                                                                                 Three Months Ended                                           Nine Months Ended
                                                                                   September 30,                                                September 30,
                                                                                                        Increase                                                    Increase
Selected Operating Expenses                                        2020               2019             (Decrease)              2020              2019              (Decrease)
Hospital Operations - Same-Hospital:
Salaries, wages and benefits                                   $    1,818$ 1,835                    (0.9) %       $  5,244$  5,433                    (3.5) %
Supplies                                                              656              651                     0.8  %          1,837             1,932                    (4.9) %
Other operating expenses                                              898              884                     1.6  %          2,609             2,675                    (2.5) %
Total                                                          $    3,372$ 3,370                     0.1  %       $  9,690$ 10,040                    (3.5) %
Ambulatory Care:
Salaries, wages and benefits                                   $      157$   157                       -  %       $    438$    467                    (6.2) %
Supplies                                                              128              109                    17.4  %            319               316                     0.9  %
Other operating expenses                                               97               86                    12.8  %            258               254                     1.6  %
Total                                                          $      382$   352                     8.5  %       $  1,015$  1,037                    (2.1) %
Conifer:
Salaries, wages and benefits                                   $      167$   180                    (7.2) %       $    511$    552                    (7.4) %
Supplies                                                                -                1                  (100.0) %              2                 3                   (33.3) %
Other operating expenses                                               62               65                    (4.6) %            193               193                       -  %
Total                                                          $      229$   246                    (6.9) %       $    706$    748                    (5.6) %
Total:
Salaries, wages and benefits                                   $    2,142$ 2,172                    (1.4) %       $  6,193$  6,452                    (4.0) %
Supplies                                                              784              761                     3.0  %          2,158             2,251                    (4.1) %
Other operating expenses                                            1,057            1,035                     2.1  %          3,060             3,122                    (2.0) %
Total                                                          $    3,983$ 3,968                     0.4  %       $ 11,411$ 11,825                    (3.5) %
Rent/lease expense(1):
Hospital Operations                                            $       72$    60                    20.0  %       $    203$    178                    14.0  %
Ambulatory Care                                                        24               22                     9.1  %             67                63                     6.3  %
Conifer                                                                 3                3                       -  %              9                 9                       -  %
Total                                                          $       99$    85                    16.5  %       $    279$    250                    11.6  %


(1)    Included in other operating expenses.



RESULTS OF OPERATIONS BY SEGMENT

Our operations are reported in three segments:


•Hospital Operations, which is comprised of our acute care and specialty
hospitals, ancillary outpatient facilities, urgent care centers, micro-hospitals
and physician practices. As described in Note 4 to the accompanying Condensed
Consolidated Financial Statements, certain of these facilities are classified as
held for sale at September 30, 2020.

•Ambulatory Care, which is comprised of USPI's ambulatory surgery centers, urgent care centers, imaging centers and surgical hospitals.

•Conifer, which provides revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other clients.

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Hospital Operations Segment

The following tables show operating statistics of our continuing operations
hospitals and related outpatient facilities on a same-hospital basis, unless
otherwise indicated, which includes the results of our same 65 hospitals
operated throughout the three and nine months ended September 30, 2020 and 2019
and excludes the results of three Chicago-area hospitals, which we divested
effective January 28, 2019. We present same-hospital data because we believe it
provides investors with useful information regarding the performance of our
hospitals and other operations that are comparable for the periods presented. We
present certain metrics on a per adjusted patient admission and per adjusted
patient day basis to show trends other than volume. We present certain metrics
as a percentage of net operating revenues because a significant portion of our
operating expenses are variable.
                                                                                                                            Same-Hospital                                                                                       Same-Hospital
                                                                                                                        Continuing Operations                                                                               Continuing Operations
                                                                                                                         Three Months Ended                                                                                   Nine Months Ended
                                                                                                                            September 30,                                                                                       September 30,
                                                                                                                                                               Increase                                                                                             Increase
Admissions, Patient Days and Surgeries                                                           2020                             2019                        (Decrease)                             2020                             2019                         (Decrease)
Number of hospitals (at end of period)                                                                       65                           65                          -    (1)                                   65                           65                           -    (1)
Total admissions                                                                                        150,690                      170,004                      (11.4) %                                  451,323                      512,826                       (12.0) %
Adjusted patient admissions(2)                                                                          257,704                      306,535                      (15.9) %                                  769,775                      916,472                       (16.0) %
Paying admissions (excludes charity and uninsured)                                                      141,300                      159,300                      (11.3) %                                  422,912                      482,061                       (12.3) %
Charity and uninsured admissions                                                                          9,390                       10,704                      (12.3) %                                   28,411                       30,765                        (7.7) %
Admissions through emergency department                                                                 112,131                      120,915                       (7.3) %                                  332,615                      367,231                        (9.4) %
Paying admissions as a percentage of total admissions                                                      93.8  %                      93.7  %                     0.1  % (1)                                 93.7  %                      94.0  %                     (0.3) % (1)

Charity and uninsured admissions as a percentage of total admissions

                                 6.2  %                       6.3  %                    (0.1) % (1)                                  6.3  %                       6.0  %                      0.3  % (1)

Emergency department admissions as a percentage of total admissions

                               74.4  %                      71.1  %                     3.3  % (1)                                 73.7  %                      71.6  %                      2.1  % (1)
Surgeries - inpatient                                                                                    39,650                       45,637                      (13.1) %                                  116,585                      134,831                       (13.5) %
Surgeries - outpatient                                                                                   54,478                       60,099                       (9.4) %                                  146,617                      178,931                       (18.1) %
Total surgeries                                                                                          94,128                      105,736                      (11.0) %                                  263,202                      313,762                       (16.1) %
Patient days - total                                                                                    784,013                      782,643                        0.2  %                                2,282,375                    2,385,554                        (4.3) %
Adjusted patient days(2)                                                                              1,302,605                    1,381,862                       (5.7) %                                3,782,576                    4,177,844                        (9.5) %
Average length of stay (days)                                                                              5.20                         4.60                       13.0  %                                     5.06                         4.65                         8.8  %
Licensed beds (at end of period)                                                                         17,242                       17,206                        0.2  %                                   17,242                       17,206                         0.2  %
Average licensed beds                                                                                    17,242                       17,208                        0.2  %                                   17,226                       17,217                         0.1  %
Utilization of licensed beds(3)                                                                            49.4  %                      49.4  %                       -  % (1)                                 48.4  %                      50.8  %                     (2.4) % (1)

(1) The change is the difference between 2020 and 2019 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.


                                                                                             Same-Hospital                                                                                  Same-Hospital
                                                                                         Continuing Operations                                                                          Continuing Operations
                                                                                           Three Months Ended                                                                             Nine Months Ended
                                                                                             September 30,                                                                                  September 30,
                                                                                                                               Increase                                                                                       Increase
Outpatient Visits                                                   2020                           2019                       (Decrease)                           2020                           2019                       (Decrease)
Total visits                                                            1,402,346                  1,673,801                     (16.2) %                              4,002,194                  5,054,470                     (20.8) %
Paying visits (excludes charity and uninsured)                          1,302,562                  1,562,010                     (16.6) %                              3,710,299                  4,721,200                     (21.4) %
Charity and uninsured visits                                               99,784                    111,791                     (10.7) %                                291,895                    333,270                     (12.4) %
Emergency department visits                                               463,836                    627,055                     (26.0) %                              1,493,156                  1,916,014                     (22.1) %
Surgery visits                                                             54,478                     60,099                      (9.4) %                                146,617                    178,931                     (18.1) %
Paying visits as a percentage of total visits                                92.9  %                    93.3  %                   (0.4) % (1)                               92.7  %                    93.4  %                   (0.7) % (1)
Charity and uninsured visits as a percentage of
total visits                                                                  7.1  %                     6.7  %                    0.4  % (1)                                7.3  %                     6.6  %                    0.7  % (1)


(1)   The change is the difference between 2020 and 2019 amounts shown.


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                                                                      Same-Hospital                                                      Same-Hospital
                                                                  Continuing Operations                                              Continuing Operations
                                                                    Three Months Ended                                                 Nine Months Ended
                                                                      September 30,                                                      September 30,
                                                                                              Increase                                                           Increase
Revenues                                             2020                 2019               (Decrease)                 2020                 2019               (Decrease)
Total segment net operating revenues(1)        $     3,661$  3,707                     (1.2) %       $    10,336$ 11,078                     (6.7) %
Selected revenue data - hospitals and
related outpatient facilities:
Net patient service revenues(1)(2)             $     3,502$  3,562                     (1.7) %       $     9,874$ 10,666                     (7.4) %
Net patient service revenue per adjusted
patient admission(1)(2)                        $    13,589$ 11,620                     16.9  %       $    12,827$ 11,638                     10.2  %
Net patient service revenue per adjusted
patient day(1)(2)                              $     2,688$  2,578                      4.3  %       $     2,610$  2,553                      2.2  %

(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                                                                             Same-Hospital
                                                                                                 Continuing Operations                                                                     Continuing Operations
                                                                                                  Three Months Ended                                                                         Nine Months Ended
                                                                                                     September 30,                                                                             September 30,
                                                                                                                                    Increase                                                                                  Increase
Total Segment Selected Operating Expenses                                     2020                        2019                     (Decrease)                           2020                        2019                     

(Decrease)

Salaries, wages and benefits as a percentage of net operating revenues

                                                                     49.7  %               49.5  %                    0.2  % (1)                               50.7  %               49.0  %                    1.7  %    (1)
Supplies as a percentage of net operating revenues                                     17.9  %               17.6  %                    0.3  % (1)                               17.8  %               17.4  %                    0.4  %    (1)
Other operating expenses as a percentage of net operating
revenues                                                                               24.5  %               23.8  %                    0.7  % (1)                               25.2  %               24.1  %                    1.1  %    (1)


(1)   The change is the difference between 2020 and 2019 amounts shown.



Revenues


Same-hospital net operating revenues decreased $46 million, or 1.2%, during the
three months ended September 30, 2020 compared to the three months ended
September 30, 2019, primarily due to lower patient volumes as a result of the
COVID-19 pandemic, partially offset by higher patient acuity, a more favorable
payer mix and improved terms of our managed care contracts. Our Hospital
Operations segment recognized a reduction of income from federal grants totaling
$57 million in the three months ended September 30, 2020 due to the September
2020 PRF Guidance, which is not included in net operating
revenues. Same-hospital admissions decreased 11.4% in the three months ended
September 30, 2020 compared to the same period in 2019. Same-hospital outpatient
visits decreased 16.2% in the three months ended September 30, 2020 compared to
the prior-year period.

Same-hospital net operating revenues decreased $742 million, or 6.7%, during the
nine months ended September 30, 2020 compared to the nine months ended
September 30, 2019, primarily due to the same factors that impacted the
three-month period ended September 30, 2020. Our Hospital Operations segment
also recognized income from federal and state grants totaling $417 million in
the nine months ended September 30, 2020, which is not included in net operating
revenues. Same-hospital admissions decreased 12.0% in the nine months ended
September 30, 2020 compared to the same period in 2019. Same-hospital outpatient
visits decreased 20.8% in the nine months ended September 30, 2020 compared to
the prior-year period.

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The following table shows the consolidated net accounts receivable by payer at
September 30, 2020 and December 31, 2019:
                                                                         September 30,         December 31,
                                                                             2020                  2019
Medicare                                                                $        158$        189
Medicaid                                                                          55                    69
Net cost report settlements receivable and valuation allowances                   42                    12
Managed care                                                                   1,436                 1,618
Self-pay uninsured                                                                16                    25
Self-pay balance after insurance                                                  74                    76
Estimated future recoveries                                                      158                   162
Other payers                                                                     300                   337
Total Hospital Operations                                                      2,239                 2,488
Ambulatory Care                                                                  239                   253
Total discontinued operations                                                      1                     2
                                                                        $      2,479$      2,743



Collection of accounts receivable has been a key area of focus, particularly
over the past several years. At September 30, 2020, our Hospital Operations
segment collection rate on self-pay accounts was approximately 24.4%. Our
self­pay collection rate includes payments made by patients, including co-pays,
co-insurance amounts and deductibles paid by patients with insurance. Based on
our accounts receivable from uninsured patients and co-pays, co-insurance
amounts and deductibles owed to us by patients with insurance at September 30,
2020, a 10% decrease or increase in our self-pay collection rate, or
approximately 2%, 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
co-pays and deductibles to be made by patients with insurance, and business
practices related to collection efforts. These factors continuously change and
can have an impact on collection trends and our estimation process.

Payment pressure from managed care payers also affects the collectability of our
accounts receivable. We 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 97.4% at
September 30, 2020.

We manage our implicit price concessions using hospital-specific goals and
benchmarks such as (1) total cash collections, (2) point-of-service 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
$2.197 billion and $2.476 billion at September 30, 2020 and December 31, 2019,
respectively, excluding cost report settlements receivable and valuation
allowances of $42 million and $12 million, respectively, at September 30, 2020
and December 31, 2019:
                                             September 30, 2020
                                                                   Indemnity,
                                                      Managed       Self-Pay
                       Medicare         Medicaid       Care        and Other       Total
0-60 days                     90  %         40  %        57  %           21  %      51  %
61-120 days                    5  %         28  %        15  %           13  %      14  %
121-180 days                   2  %         12  %         6  %            7  %       6  %
Over 180 days                  3  %         20  %        22  %           59  %      29  %
Total                        100  %        100  %       100  %          100  %     100  %



                                             December 31, 2019
                                                                  Indemnity,
                                                     Managed       Self-Pay
                      Medicare         Medicaid       Care        and Other       Total
0-60 days                    91  %         49  %        56  %           21  %      51  %
61-120 days                   5  %         21  %        16  %           14  %      15  %
121-180 days                  2  %         10  %        10  %           10  %       9  %
Over 180 days                 2  %         20  %        18  %           55  %      25  %
Total                       100  %        100  %       100  %          100  %     100  %


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Conifer continues to implement revenue cycle initiatives to improve our cash
flow. These initiatives are focused on standardizing and improving patient
access processes, including pre-registration, registration, verification of
eligibility and benefits, liability identification and collections at
point-of-service, 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.

At September 30, 2020, we had a cumulative total of patient account assignments
to Conifer of $2.381 billion related to our continuing operations. These
accounts have already been written off and are not included in our receivables
or in the allowance for doubtful accounts; 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 Medicaid Eligibility Program ("MEP") 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
MEP, with appropriate contractual allowances recorded. Based on recent trends,
approximately 97% of all accounts in the MEP are ultimately approved for
benefits under a government program, such as Medicaid. The following table shows
the approximate amount of accounts receivable in the MEP still awaiting
determination of eligibility under a government program at September 30, 2020
and December 31, 2019 by aging category:
                    September 30,       December 31,
                         2020               2019
0-60 days          $           82      $          89
61-120 days                    16                 11
121-180 days                    5                  4
Over 180 days                   6                 11
Total              $          109      $         115


Salaries, Wages and Benefits


Same-hospital salaries, wages and benefits decreased by $17 million, or 0.9%, in
the three months ended September 30, 2020 compared to the same period in 2019.
This decrease is primarily attributable to reduced patient volumes, as well as
necessary employee furloughs and headcount reductions throughout the
organization due to the COVID-19 pandemic; the effect of these changes was
partially offset by annual merit increases for certain of our employees, a
greater number of employed physicians, increased incentive compensation expense
and an increased average patient length-of-stay, as well as the impact of higher
temporary labor and premium pay. Our continued focus on strategic cost-reduction
and efficiency measures partially mitigated the impact of the COVID-19 surges in
certain markets in the three months ended September 30, 2020. Same­hospital
salaries, wages and benefits as a percentage of net operating revenues increased
by 20 basis points to 49.7% in the three months ended September 30, 2020
compared to the three months ended September 30, 2019, primarily due to reduced
patient revenues as a result of the COVID-19 pandemic. Salaries, wages and
benefits expense for the three months ended September 30, 2020 and 2019 included
stock-based compensation expense of $7 million and $8 million, respectively.

Same-hospital salaries, wages and benefits decreased $189 million, or 3.5%, in
the nine months ended September 30, 2020 compared to the same period in 2019.
This decrease is primarily attributable to the same factors that affected the
three-month period, as well as lower health benefit costs. Same-hospital
salaries, wages and benefits as a percentage of net operating revenues increased
by 170 basis points to 50.7% in the nine months ended September 30, 2020
compared to the nine months ended September 30, 2019, primarily due to reduced
patient revenues as a result of the COVID-19 pandemic. Salaries, wages and
benefits expense for the nine months ended September 30, 2020 and 2019 included
stock-based compensation expense of $22 million and $24 million, respectively.

Supplies


Same-hospital supplies expense increased $5 million, or 0.8%, in the three
months ended September 30, 2020 compared to the same period in 2019. The
increase was primarily due to the increased cost of certain supplies, such as
personal protective equipment, as a result of the COVID-19 pandemic, partially
offset by reduced patient volumes. Same-hospital supplies expense as a
percentage of net operating revenues increased by 30 basis points to 17.9% in
the three months ended September 30, 2020 compared to the three months ended
September 30, 2019 due to reduced patient revenues and the increased cost of
certain supplies as a result of the COVID-19 pandemic. Same-hospital supplies
expense decreased $95 million, or 4.9%,
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in the nine months ended September 30, 2020 compared to the same period in 2019.
The decline was primarily due to reduced patient volumes, partially offset by
the increased cost of certain supplies as a result of the COVID-19 pandemic.
Same-hospital supplies expense as a percentage of net operating revenues
increased by 40 basis points to 17.8% in the nine months ended September 30,
2020 compared to the nine months ended September 30, 2019 due to reduced patient
revenues and the increased cost of certain supplies as a result of the COVID-19
pandemic.

We strive to control supplies expense through product standardization,
consistent contract terms and end-to-end contract management, improved
utilization, bulk purchases, focused spending with a smaller number of vendors
and operational improvements. The items of current cost-reduction focus include
personal protective equipment, cardiac stents and pacemakers, orthopedics,
implants, and high-cost pharmaceuticals.

Other Operating Expenses, Net


Same-hospital other operating expenses increased by $14 million, or 1.6%, in the
three months ended September 30, 2020 compared to the same period in 2019. The
increase was primarily due to higher medical fees, partially offset by lower
patient volumes as a result of the COVID-19 pandemic. There is proportionally a
higher level of fixed costs (e.g., rent expense) in other operating expenses
than salaries, wages and benefits or supplies. Same-hospital other operating
expenses as a percentage of net operating revenues increased by 70 basis points
to 24.5% for the three months ended September 30, 2020 compared to 23.8% for the
three months ended September 30, 2019, primarily due to reduced patient revenues
as a result of the COVID-19 pandemic. The changes in other operating expenses
included:

•increased medical fees of $21 million;

•increased rent and lease expense of $12 million;

•decreased costs of contracted services of $4 million;

•increased malpractice expense of $4 million; and


•decreased costs of $12 million associated with funding indigent care services
at our hospitals, which costs were substantially offset by reduced net patient
revenues.

Same-hospital other operating expenses decreased by $66 million, or 2.5%, in the
nine months ended September 30, 2020 compared to the same period in 2019.
Same-hospital other operating expenses as a percentage of net operating revenues
increased by 110 basis points to 25.2% in the nine months ended September 30,
2020 compared to 24.1% for the nine months ended September 30, 2019, primarily
due to reduced patient revenues as a result of the COVID-19 pandemic. The
changes in other operating expenses included:

•increased medical fees of $78 million;

•increased rent and lease expense of $25 million;

•decreased consulting and legal fees of $24 million;

•decreased costs of contracted services of $12 million;

•decreased expenses related to our risk-contracting business in California of $16 million;

•decreased repairs and maintenance costs of $17 million;

•decreased malpractice expense of $37 million; and


•decreased costs of $41 million associated with funding indigent care services
at our hospitals, which costs were substantially offset by reduced net patient
revenues.

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Ambulatory Care Segment

Our Ambulatory Care segment is comprised of USPI's ambulatory surgery centers,
urgent care centers, imaging centers and surgical hospitals. USPI operates its
surgical facilities in partnership with local physicians and, in many of these
facilities, a healthcare 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 day-to-day basis through management
services contracts. Our sources of earnings from each facility consist of:

•management 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 day-to-day manager provides us with significant
influence over the operations of each facility. For many of the facilities our
Ambulatory Care segment operates (108 of 352 facilities at September 30, 2020),
this influence does not represent control of the facility, so we account for our
investment in the facility under the equity method for an unconsolidated
affiliate. USPI controls 244 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 consolidated 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 day-to-day 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 69% 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 consolidated statements of operations items for the periods indicated:

                                                               Three Months Ended                                           Nine Months Ended
                                                                 September 30,                                                September 30,
                                                                                      Increase                                                     Increase
Ambulatory Care Results of Operations            2020              2019              (Decrease)               2020              2019              (Decrease)
Net operating revenues                       $     565$   522                      8.2  %       $   1,423$ 1,526                     (6.7) %
Grant income                                 $      (9)         $     -                         N/A       $      28          $     -                         N/A
Equity in earnings of unconsolidated
affiliates                                   $      41$    37                     10.8  %       $     102$   102                        -  %
Salaries, wages and benefits                 $     157$   157                        -  %       $     438$   467                     (6.2) %
Supplies                                     $     128$   109                     17.4  %       $     319$   316                      0.9  %
Other operating expenses, net                $      97$    86                     12.8  %       $     258$   254                      1.6  %



Our Ambulatory Care net operating revenues increased by $43 million, or 8.2%,
during the three months ended September 30, 2020 as compared to the same period
in 2019. The change was driven by an increase in same-facility net operating
revenues of $29 million due primarily to higher patient acuity, incremental
revenue from new service lines and improved terms of our managed care contracts,
as well as an increase from acquisitions of $26 million. These increases were
partially offset by a decrease of $12 million due to the deconsolidation of a
facility. Our Ambulatory Care net operating
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revenues decreased by $103 million, or 6.7%, during the nine months ended
September 30, 2020 as compared to the same period in 2019. The change was driven
by a decrease in same-facility net operating revenues of $128 million due
primarily to the COVID-19 pandemic, as well as a decrease of $27 million due to
the deconsolidation of a facility, partially offset by an increase from
acquisitions of $52 million.

Salaries, wages and benefits expense remained the same during the three months
ended September 30, 2020 as compared to the same period in 2019. Salaries, wages
and benefits expense was impacted by a decrease in same-facility salaries, wages
and benefits expense of $3 million due to the impact of the COVID-19 pandemic
and a decrease of $3 million due to the deconsolidation of a facility, offset by
an increase from acquisitions of $6 million. Salaries, wages and benefits
expense decreased by $29 million, or 6.2%, during the nine months ended
September 30, 2020 as compared to the same period in 2019. This change is
attributable to a decrease in same-facility salaries, wages and benefits expense
of $36 million due primarily to the necessary flexing of staff as patient
volumes decreased at our centers due to shelter-in-place orders and the mandated
suspension of many elective procedures due to the COVID-19 pandemic, as well as
a decrease of $6 million due to the deconsolidation of a facility. These impacts
were partially offset by an increase from acquisitions of $13 million.

Supplies expense increased by $19 million, or 17.4%, during the three months
ended September 30, 2020 as compared to the same period in 2019. The change was
driven by an increase in same-facility supplies expense of $14 million due
primarily to an increase in cases at our consolidated centers, higher costs
driven by the higher level of patient acuity, and higher pricing of certain
supplies as a result of the COVID-19 pandemic, as well as an increase from
acquisitions of $9 million, partially offset by a decrease of $4 million due to
the deconsolidation of a facility. Supplies expense increased by $3 million, or
0.9%, during the nine months ended September 30, 2020 as compared to the same
period in 2019. The change was driven by an increase from acquisitions of
$17 million, partially offset by a decrease in same-facility supplies expense of
$6 million as a result of the COVID-19 pandemic, as well as a decrease of $8
million due to the deconsolidation of a facility.

Other operating expenses increased by $11 million, or 12.8%, during the three
months ended September 30, 2020 as compared to the same period in 2019. The
change was driven by an increase in same-facility other operating expenses of
$8 million due primarily to higher professional fees and facility expenses, as
well as an increase from acquisitions of $5 million, partially offset by a
decrease of $2 million due to the deconsolidation of a facility. Other operating
expenses increased by $4 million, or 1.6%, during the nine months ended
September 30, 2020 as compared to the same period in 2019. The change was driven
by an increase from acquisitions of $12 million, partially offset by a decrease
in same-facility other operating expenses of $3 million due primarily to strong
expense management while patient volumes were reduced as a result of the
COVID-19 pandemic, as well as a decrease of $5 million due to the
deconsolidation of a facility.

Facility Growth


The following table summarizes the changes in our same-facility revenue
year-over-year 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      Nine Months Ended
Ambulatory Care Facility Growth            September 30, 2020      September 30, 2020
Net revenues                                      6.5%                   (7.8)%
Cases                                            (0.3)%                 (12.9)%
Net revenue per case                              6.9%                    5.9%



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Joint Ventures with Healthcare System Partners

USPI's business model is to jointly own its facilities with local physicians
and, in many of these facilities, a not­for­profit healthcare system partner.
Accordingly, as of September 30, 2020, the majority of facilities in our
Ambulatory Care segment are operated in this model.
                                                           Nine Months Ended
Ambulatory Care Facilities                                 September 30, 2020
Facilities:
With a healthcare system partner                                   224
Without a healthcare system partner                                128
Total facilities operated                                          352
Change from December 31, 2019:
Acquisitions                                                         9
De novo                                                              3
Dispositions/Mergers                                                (6)
Total increase in number of facilities operated                      6



During the nine months ended September 30, 2020, we acquired controlling
interests in two multi-specialty surgery centers in Florida, one multi-specialty
surgery center in each of Arizona, Colorado, Tennessee and Washington, and one
imaging center in Texas. We paid cash totaling approximately $59 million for
these acquisitions. The facilities in Arizona, Colorado and Tennessee are
jointly owned with local physicians and a healthcare system partner. The
Washington facility is jointly owned with a healthcare system partner. During
the nine months ended September 30, 2020, we acquired noncontrolling interests
in one surgical hospital and one multi-specialty surgery center, both of which
are located in California. We paid cash totaling approximately $23 million for
these ownership interests. Each of these facilities is jointly owned with local
physicians and two healthcare system partners.

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 of control. These transactions are primarily the acquisitions
of equity interests in ambulatory care facilities and the investment of
additional cash in facilities that need capital for acquisitions, new
construction or other business growth opportunities. During the nine months
ended September 30, 2020, we invested approximately $1 million in such
transactions.

Conifer Segment


Our Conifer segment generated net operating revenues of $325 million and $336
million during the three months ended September 30, 2020 and 2019, respectively,
and $962 million and $1.040 billion during the nine months ended September 30,
2020 and 2019, respectively, a portion of which was eliminated in consolidation
as described in Note 18 to the accompanying Condensed Consolidated Financial
Statements. Conifer revenues from third-party customers, which are not
eliminated in consolidation, decreased $7 million and $31 million, or 3.6% and
5.1%, for the three and nine months ended September 30, 2020, respectively,
compared to the same periods in 2019. Conifer's net operating revenues were
negatively impacted by the unfavorable downstream impact of the COVID-19
pandemic on its clients' patient volumes, as well as attrition due to planned
hospital divestitures by its clients.

Salaries, wages and benefits expense for Conifer decreased $13 million, or 7.2%,
in the three months ended September 30, 2020 compared to the same period in
2019, and decreased $41 million, or 7.4%, in the nine months ended September 30,
2020 compared to the same period in 2019, in both cases primarily due to
furloughs and headcount reductions.

Other operating expenses for Conifer decreased $3 million, or 4.6%, in the three months ended September 30, 2020 compared to the same period in 2019. Other operating expenses for Conifer were unchanged during the nine months ended September 30, 2020 as compared to the same period in 2019.


Agreements document the current terms and conditions of various services Conifer
provides to Tenet hospitals, as well as certain administrative services our
Hospital Operations segment provides to Conifer; however, execution of a
restructured services agreement between Conifer and Tenet is a condition to
completion of the proposed spin-off. Conifer's contract with Tenet represented
40.0% of the net operating revenues Conifer recognized in the nine months ended
September 30, 2020.

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Consolidated

Impairment and Restructuring Charges, and Acquisition-Related Costs


During the three months ended September 30, 2020, we recorded impairment and
restructuring charges and acquisition-related costs of $57 million, consisting
of $3 million of impairment charges, $52 million of restructuring charges and $2
million of acquisition-related costs. Restructuring charges consisted of $16
million of employee severance costs, $15 million related to our Global Business
Center in the Philippines, $14 million of contract and lease termination fees,
and $7 million of other restructuring costs. Acquisition-related costs consisted
of $2 million of transaction costs. Our impairment and restructuring charges and
acquisition-related costs for the three months ended September 30, 2020 were
comprised of $44 million from our Hospital Operations segment, $2 million from
our Ambulatory Care segment and $11 million from our Conifer segment.

During the three months ended September 30, 2019, we recorded impairment and
restructuring charges and acquisition-related costs of $46 million, consisting
of $2 million of impairment charges, $43 million of restructuring charges and $1
million of acquisition-related costs. Restructuring charges consisted of
$20 million of employee severance costs, $1 million of contract and lease
termination fees, and $22 million of other restructuring costs.
Acquisition-related costs consisted of $1 million of transaction costs. Our
impairment and restructuring charges and acquisition-related costs for the three
months ended September 30, 2019 were comprised of $22 million from our Hospital
Operations segment, $7 million from our Ambulatory Care segment and $17 million
from our Conifer segment.

During the nine months ended September 30, 2020, we recorded impairment and
restructuring charges and acquisition­related costs of $166 million, consisting
of $8 million of impairment charges, $155 million of restructuring charges and
$3 million of acquisition-related costs. Restructuring charges consisted of
$53 million of employee severance costs, $40 million related to our Global
Business Center in the Philippines, $23 million of charges due to the
termination of the USPI management equity plan, $15 million of contract and
lease termination fees, and $24 million of other restructuring costs.
Acquisition-related costs consisted of $3 million of transaction costs. Our
impairment and restructuring charges and acquisition­related costs for the nine
months ended September 30, 2020 were comprised of $94 million from our Hospital
Operations segment, $33 million from our Ambulatory Care segment and $39 million
from our Conifer segment.

During the nine months ended September 30, 2019, we recorded impairment and
restructuring charges and acquisition­related costs of $101 million, consisting
of $7 million of impairment charges, $90 million of restructuring charges and
$4 million of acquisition-related costs. Restructuring charges consisted of
$38 million of employee severance costs, $3 million of contract and lease
termination fees, and $49 million of other restructuring costs.
Acquisition-related costs consisted of $4 million of transaction costs. Our
impairment and restructuring charges and acquisition-related costs for the nine
months ended September 30, 2019 were comprised of $58 million from our Hospital
Operations segment, $12 million from our Ambulatory Care segment and $31 million
from our Conifer segment.

Litigation and Investigation Costs


Litigation and investigation costs for the three months ended September 30, 2020
and 2019 were $9 million and $84 million, respectively. Litigation and
investigation costs for the nine months ended September 30, 2020 and 2019 were
$13 million and $115 million, respectively. The costs in the 2019 period
included accruals for matters described in Note 17 to the Consolidated Financial
Statements in our Annual Report.

Net Gains (Losses) on Sales, Consolidation and Deconsolidation of Facilities


During the three months ended September 30, 2020 and 2019, we recorded net gains
(losses) on sales, consolidation and deconsolidation of facilities of
approximately and $1 million and $(1) million, respectively, primarily related
to consolidation changes of certain USPI businesses due to ownership changes.

During the nine months ended September 30, 2020, we recorded net gains on sales,
consolidation and deconsolidation of facilities of approximately $4 million,
primarily comprised of gains of $12 million related to consolidation changes of
certain USPI businesses due to ownership changes, partially offset by $5 million
of post-closing adjustments on the sale of three of our hospitals in the
Chicago-area and $3 million of post-closing adjustments on the sale of MacNeal
Hospital.

During the nine months ended September 30, 2019, we recorded net losses on sales, consolidation and deconsolidation of facilities of approximately $3 million, primarily comprised of a $6 million loss on the sale of our Chicago-area facilities,

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Interest Expense


Interest expense for the three months ended September 30, 2020 was $263 million
compared to $244 million for the same period in 2019. Interest expense for the
nine months ended September 30, 2020 was $761 million compared to $742 million
for the same period in 2019.

Loss From Early Extinguishment of Debt


Loss from early extinguishment of debt was $312 million and $316 million for the
three and nine months ended September 30, 2020, respectively. The loss incurred
during the nine-month period consisted of aggregate losses of $320 million
related to the debt redemption and purchase transactions described in Note 6 to
the accompanying Condensed Consolidated Financial Statements, partially offset
by $4 million of gains on the extinguishment of mortgage notes. Loss from early
extinguishment of debt was $180 million and $227 million for the three and nine
months ended September 30, 2019, respectively, arising from the debt
transactions described in Note 8 to the Consolidated Financial Statements in our
Annual Report.

Income Tax Expense

During the three months ended September 30, 2020, we recorded an income tax
benefit of $197 million in continuing operations on a pre-tax loss of
$304 million compared to income tax expense of $22 million on a pre-tax loss of
$125 million during the three months ended September 30, 2019. During the nine
months ended September 30, 2020, we recorded an income tax benefit of
$227 million in continuing operations on a pre-tax loss of $5 million compared
to income tax expense of $75 million on pre-tax income of $111 million during
the nine months ended September 30, 2019. The reconciliation between the amount
of recorded income tax expense and the amount calculated at the statutory
federal tax rate is shown in the following table:
                                                              Three Months Ended                     Nine Months Ended
                                                                 September 30,                         September 30,
                                                             2020               2019               2020               2019
Tax expense (benefit) at statutory federal rate
of 21%                                                  $       (64)$   (26)$        (1)$    24
State income taxes, net of federal income tax
benefit                                                          (6)              (3)                   9                6
Tax benefit attributable to noncontrolling
interests                                                       (18)             (17)                 (48)             (53)

Nontaxable gains                                                  -                -                    3               (1)
Nondeductible litigation costs                                    -                7                    -                7
Stock-based compensation                                          1                4                    1                4
Change in valuation allowance                                  (113)              53                 (201)              88
Change in tax contingency reserves, including
interest                                                          -               (3)                   -               (3)
Other items                                                       3                7                   10                3
Income tax expense (benefit)                            $      (197)

$ 22$ (227)$ 75




As a result of the change in the business interest expense disallowance rules,
as discussed in Note 14 to the accompanying Condensed Consolidated Financial
Statements, we recorded an income tax benefit of $88 million during the nine
months ended September 30, 2020 to decrease the valuation allowance for interest
expense carryforwards due to the additional deduction of interest expense. We
reduced our valuation allowance by an additional $113 million in the nine months
ended September 30, 2020, including a reduction of $119 million related to the
change in tax accounting method discussed in Note 14 and an increase of $6
million related to state interest expense and charitable contribution
carryforwards.

Net Income Available to Noncontrolling Interests


Net income available to noncontrolling interests was $90 million for the three
months ended September 30, 2020 compared to $80 million for the three months
ended September 30, 2019. Net income available (loss attributable) to
noncontrolling interests for the three months ended September 30, 2020 was
comprised of $(7) million related to our Hospital Operations segment,
$80 million related to our Ambulatory Care segment and $17 million related to
our Conifer segment. Of the portion related to our Ambulatory Care segment,
$3 million related to the minority interests in USPI.

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Net income available to noncontrolling interests was $237 million for the nine
months ended September 30, 2020 compared to $259 million for the nine months
ended September 30, 2019. Net income available (loss attributable) to
noncontrolling interests for the nine months ended September 30, 2020 was
comprised of $(8) million related to our Hospital Operations segment,
$200 million related to our Ambulatory Care segment and $45 million related to
our Conifer segment. Of the portion related to our Ambulatory Care segment, $6
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 in the
United States of America ("GAAP"). However, we use certain non-GAAP 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 non-GAAP measure defined by the Company as net income
available (loss attributable) to Tenet Healthcare Corporation common
shareholders before (1) the cumulative effect of changes in accounting
principle, (2) net income available (loss attributable) 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 non-operating 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 acquisition-related
costs, (11) depreciation and amortization, and (12) income (loss) from divested
and closed businesses. Litigation and investigation costs do not include
ordinary course of business malpractice and other litigation and related
expense.

The Company believes the foregoing non-GAAP measure is useful to investors and
analysts because it presents additional information about the Company's
financial performance. Investors, analysts, Company management and the Company's
board of directors utilize this non-GAAP measure, in addition to GAAP measures,
to track the Company's financial and operating performance and compare the
Company's performance to peer companies, which utilize similar non­GAAP measures
in their presentations. The human resources committee of the Company's board of
directors also uses certain non­GAAP measures to evaluate management's
performance for the purpose of determining incentive compensation. The Company
believes 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 non-GAAP measures, as factors in determining the
estimated fair value of shares of the Company's common stock. Company management
also regularly reviews the Adjusted EBITDA performance for each operating
segment. The Company does not use Adjusted EBITDA to measure liquidity, but
instead to measure operating performance. The non-GAAP Adjusted EBITDA
measure the Company utilizes 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 the Company's financial performance.

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The following table shows the reconciliation of Adjusted EBITDA to net income
available to Tenet Healthcare Corporation common shareholders (the most
comparable GAAP term) for the three and nine months ended September 30, 2020 and
2019:
                                                                                Three Months Ended                   Nine Months Ended
                                                                                   September 30,                       September 30,
                                                                               2020              2019             2020              2019

Net loss attributable to Tenet Healthcare Corporation common shareholders

$ (196)$ (226)$ (15)$ (212) Less: Net income available to noncontrolling interests

                           (90)             (80)             (237)             (259)
Income from discontinued operations, net of tax                                    1                1                 -                11
Income (loss) from continuing operations                                        (107)            (147)              222                36
Income tax benefit (expense)                                                     197              (22)              227               (75)
Loss from early extinguishment of debt                                          (312)            (180)             (316)             (227)
Other non-operating income (expense), net                                          -               (3)                3                (3)
Interest expense                                                                (263)            (244)             (761)             (742)
Operating income                                                                 271              302             1,069             1,083
Litigation and investigation costs                                                (9)             (84)              (13)             (115)

Net gains (losses) on sales, consolidation and deconsolidation of facilities

                                                                         1               (1)                4                (3)

Impairment and restructuring charges, and acquisition-related costs

      (57)             (46)             (166)             (101)
Depreciation and amortization                                                   (215)            (205)             (624)             (627)
Loss from divested and closed businesses                                           -               (1)                -                (2)
Adjusted EBITDA                                                            $     551$   639$  1,868$  1,931

Net operating revenues                                                    

$ 4,557$ 4,568$ 12,725$ 13,673 Less: Net operating revenues from health plans

                                     -                -                 -                 1
Adjusted net operating revenues                                            

$ 4,557$ 4,568$ 12,725$ 13,672

Net loss attributable to Tenet Healthcare Corporation common shareholders as a % of net operating revenues

                                   (4.3) %          (4.9) %           (0.1) %           (1.6) %

Adjusted EBITDA as % of adjusted net operating revenues
(Adjusted EBITDA margin)                                                        12.1  %          14.0  %           14.7  %           14.1  %


LIQUIDITY AND CAPITAL RESOURCES

CASH REQUIREMENTS


There have been no material changes to our obligations to make future cash
payments under contracts, 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 additional lease
obligations and the long-term debt transactions disclosed in Notes 1 and 6 to
our accompanying Condensed Consolidated Financial Statements.

At September 30, 2020, using the last 12 months of Adjusted EBITDA, our ratio of
total long-term debt, net of cash and cash equivalent balances, to Adjusted
EBITDA was 4.66x. This ratio at September 30, 2020 was temporarily impacted by
the increase in cash received from advances from Medicare. We anticipate this
ratio will fluctuate from quarter to quarter based on earnings performance and
other factors, including the use of our revolving credit facility as a source of
liquidity and acquisitions that involve the assumption of long-term 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 long-term objective to manage our capital structure, we may issue
equity or convertible securities, and we may seek to retire, purchase, redeem or
refinance some of our outstanding debt or equity securities, in each case
subject to prevailing market conditions, our liquidity requirements, operating
results, contractual restrictions and other factors. Our ability to achieve our
leverage and capital structure objectives is subject to numerous risks and
uncertainties, many of which are described in the Risk Factors section in Part
II of this report and in each of our 2020 10­Qs, as well as the Forward-Looking
Statements and Risk Factors sections in Part I of our Annual Report.

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, and various other capital improvements, as well as

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commitments to make capital expenditures in connection with acquisitions of
businesses. Capital expenditures were $374 million and $492 million in the nine
months ended September 30, 2020 and 2019, respectively. We have reduced our
planned capital expenditures for 2020 by approximately 30%. We now anticipate
that our capital expenditures for continuing operations for the year ending
December 31, 2020 will total approximately $500 million to $550 million,
including $136 million that was accrued as a liability at December 31, 2019.

Interest payments, net of capitalized interest, were $757 million and $705 million in the nine months ended September 30, 2020 and 2019, respectively. Interest payments in the 2020 period included $105 million of accelerated interest payments due in October 2020 and paid in the three months ended September 30, 2020 in connection with our redemption of debt.

Income tax payments, net of tax refunds, were $10 million in the nine months ended September 30, 2020 compared to $18 million in the nine months ended September 30, 2019.

SOURCES AND USES OF CASH


Our liquidity for the nine months ended September 30, 2020 was primarily derived
from net cash provided by operating activities, cash on hand and borrowings
under our revolving credit facility. We had $3.3 billion of cash and cash
equivalents on hand at September 30, 2020 to fund our operations and capital
expenditures, and our borrowing availability under our credit facility was
$1.777 billion based on our borrowing base calculation at September 30, 2020.

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.


Net cash provided by operating activities was $2.961 billion in the nine months
ended September 30, 2020 compared to $713 million in the nine months ended
September 30, 2019. Key factors contributing to the change between the 2020 and
2019 periods include the following:

•$1.380 billion of cash advances received from Medicare pursuant to COVID-19 stimulus legislation;

•$848 million of cash received from federal and state grants, including the Provider Relief Fund;

•A $178 million deferral of our payroll tax match in 2020 pursuant to COVID-19 stimulus legislation;

•Decreased cash receipts of $36 million related to supplemental Medicaid programs in California and Texas;

•An increase of $116 million in payments on reserves for restructuring charges, acquisition-related costs, and litigation costs and settlements; and

•The timing of other working capital items.


Net cash used in investing activities was $406 million for the nine months ended
September 30, 2020 compared to $426 million for the nine months ended
September 30, 2019. The 2020 amount included an increase in investments for
purchases of businesses or joint venture interests of $38 million, primarily for
increased USPI acquisition activity. The 2019 period included proceeds from
sales of facilities and other assets of $44 million primarily from the sale of
three hospitals and hospital-affiliated operations in the Chicago area. Capital
expenditures were $374 million and $492 million in the nine months ended
September 30, 2020 and 2019, respectively.

Net cash provided by financing activities was $483 million for the nine months
ended September 30, 2020 compared to net cash used in financing activities of
$384 million for the nine months ended September 30, 2019. The 2020 amount
included proceeds from the issuance of $2.5 billion aggregate principal amount
of our 2028 Senior Notes, $700 million aggregate principal amount of 7.500%
senior secured first lien notes due 2025 and $600 million aggregate principal
amount of 4.625% senior secured first lien notes due 2028. The 2020 amount also
included $3.1 billion of payments for our redemption and purchase of $2.8
billion aggregate principal amount of our outstanding 2022 Senior Notes,
$109 million of cash advances from Medicare and $42 million of stimulus grants
received by our Ambulatory Care segment's non-consolidated affiliates. The 2019
period included net borrowings under our credit facility of $275 million and $63
million of cash paid for debt issuance costs.

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We record our equity securities and our debt securities classified as
available-for-sale 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-We have a senior secured revolving credit facility that, at
September 30, 2020, provided for revolving loans in an aggregate principal
amount of up to $1.9 billion with a $200 million subfacility for standby letters
of credit. At September 30, 2020, we had no cash borrowings outstanding under
the revolving credit facility, and we had less than $1 million of standby
letters of credit outstanding. Based on our eligible receivables, $1.777 billion
was available for borrowing under the revolving credit facility at September 30,
2020. At September 30, 2020, we were in compliance with all covenants and
conditions in our senior secured revolving credit facility.

On April 24, 2020, we amended our credit agreement (as amended, the "Credit
Agreement") to, among other things, (i) increase the aggregate revolving credit
commitments from $1.5 billion to $1.9 billion, subject to borrowing
availability, and (ii) increase the advance rate and raise limits on certain
eligible accounts receivable in the calculation of the borrowing base, in each
case, for an incremental period of 364 days. For additional information
regarding the Credit Agreement, see Note 6 to the accompanying Condensed
Consolidated Financial Statements.

Letter of Credit Facility-In March 2020, we amended our letter of credit
facility (as amended, the "LC Facility") to extend the scheduled maturity date
of the LC Facility from March 7, 2021 to September 12, 2024 and to increase the
aggregate principal amount of standby and documentary letters of credit that
from time to time may be issued thereunder from $180 million to $200 million. On
July 29, 2020, we further amended the LC Facility to increase the maximum
secured debt covenant from 4.00 to 1.00 on a quarterly basis up to 6.00 to 1.00
for the quarter ending March 31, 2021, which maximum ratio will step down on a
quarterly basis through the quarter ending December 31, 2021. Obligations under
the LC Facility are guaranteed and secured by a first­priority pledge of the
capital stock and other ownership interests of certain of our wholly owned
domestic hospital subsidiaries on an equal ranking basis with our senior secured
first lien notes. At September 30, 2020, we were in compliance with all
covenants and conditions in our LC Facility. At September 30, 2020, we had
$88 million of standby letters of credit outstanding under the LC Facility.

Senior Unsecured and Senior Secured Notes-On September 16, 2020, we sold $2.500
billion aggregate principal amount of unsecured 6.125% 2028 Senior Notes. We
will pay interest on the 2028 Senior Notes semi-annually in arrears on April 1
and October 1 of each year, commencing on April 1, 2021. The proceeds from the
sale of the 2028 Senior Notes were used, after payment of fees and expenses,
together with cash on hand, to finance the redemption of all $2.556 billion
aggregate principal amount then outstanding of our 2022 Senior Notes for
approximately $2.843 billion. In connection with the redemption, we recorded a
loss from early extinguishment of debt of approximately $305 million in the
three months ended September 30, 2020, primarily related to the difference
between the purchase price and the par value of the 2022 Senior Notes, as well
as the write-off of associated unamortized issuance costs.

In July and August 2020, we purchased approximately $109 million aggregate
principal amount of our 2022 Senior Notes for approximately $114 million. In
connection with the purchase, we recorded a loss from early extinguishment of
debt of $7 million in the three months ended September 30, 2020, primarily
related to the difference between the purchase price and the par value of the
2022 Senior Notes, as well as the write-off of associated unamortized issuance
costs.

In June 2020, we purchased approximately $135 million aggregate principal amount
of our 2022 Senior Notes for approximately $142 million. In connection with the
purchase, we recorded a loss from early extinguishment of debt of approximately
$8 million in the three months ended June 30, 2020, primarily related to the
difference between the purchase price and the par value of the 2022 Senior
Notes, as well as the write-off of associated unamortized issuance costs.

On June 16, 2020, we sold $600 million aggregate principal amount of 4.625%
senior secured first lien notes, which will mature on June 15, 2028 (the
"2028 Senior Secured First Lien Notes"). We will pay interest on the 2028 Senior
Secured First Lien Notes semi-annually in arrears on June 15 and December 15 of
each year, commencing on December 15, 2020.

On April 7, 2020, we sold $700 million aggregate principal amount of 7.500%
senior secured first lien notes, which will mature on April 1, 2025 (the
"2025 Senior Secured First Lien Notes"). We will pay interest on the 2025 Senior
Secured First Lien Notes semi-annually in arrears on April 1 and October 1 of
each year, which payments commenced on October 1, 2020. A portion of the
proceeds from the sale of the 2025 Senior Secured First Lien Notes was used,
after payment
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of fees and expenses, to repay the $500 million aggregate principal amount of
borrowings outstanding under our Credit Agreement as of March 31, 2020.

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


Broad economic factors resulting from the COVID-19 pandemic, including increased
unemployment rates and reduced consumer spending, are impacting our service mix,
revenue mix and patient volumes. Business closings and layoffs in the areas we
operate may lead to increases in the uninsured and underinsured populations and
adversely affect demand for our services, as well as the ability of patients to
pay for services as rendered. Any increase in the amount of or deterioration in
the collectability of patient accounts receivable will adversely affect our cash
flows and results of operations. If general economic conditions continue to
deteriorate or remain uncertain for an extended period of time, our liquidity
and ability to repay our outstanding debt may be impacted.

While demand for our services is expected to rebound in the future, we have
taken, and continue to take, various actions to increase our liquidity and
mitigate the impact of reductions in our patient volumes and operating revenues
from the COVID-19 pandemic. In September 2020, we sold $2.500 billion aggregate
principal amount of our 2028 Senior Notes, the proceeds of which were used to
redeem our 2022 Senior Notes. In June 2020, we sold $600 million aggregate
principal amount of our 2028 Senior Secured First Lien Notes. In April 2020, we
sold $700 million aggregate principal amount of our 2025 Senior Secured First
Lien Notes, a portion of the proceeds of which were used to repay borrowings
outstanding under our Credit Agreement. In addition, we amended our Credit
Agreement in April 2020 to increase our borrowing availability and make certain
changes with respect to the calculation of our borrowing base. We also have
reduced our planned capital expenditures for 2020 by approximately 30%.
Furthermore, we have decreased our employee headcount throughout the
organization, and we have deferred certain operating expenses that are not
expected to impact our response to the COVID-19 pandemic. In addition, we are
reducing variable costs across the enterprise as a result of softening patient
volumes due to the COVID-19 pandemic. We believe these actions, together with
government relief packages, to the extent available to us, will help us to
continue operating during the uncertainty caused by the COVID-19 pandemic. As
more fully described under "Sources of Revenue for Our Hospital Operations
Segment - Government Programs" above:

•The Medicare Fee-for-Service accelerated and advanced payment program has been
expanded. Through September 30, 2020, our hospitals and other providers applied
for and received approximately $1.5 billion of accelerated payments. We expect
to repay these advances within the allocated recoupment period.

•Beginning March 27, 2020, all employers may elect to defer payment of the 6.2%
employer Social Security tax through December 31, 2020. Deferred tax amounts are
required to be paid in equal amounts over two years, with payments due in
December 2021 and December 2022. We expect that we will defer approximately $270
million of taxes in 2020 pursuant to this CARES Act provision.

•To address the fiscal burdens on healthcare providers created by the COVID-19
public health emergency, the CARES Act and the PPP Act authorized $175 billion
for the Provider Relief Fund. In the nine months ended September 30, 2020, we
received cash payments of $890 million due to grants from the PRF and state
grant programs. Payments from the PRF are not loans and, therefore, they are not
subject to repayment. However, as a condition to receiving distributions,
providers must agree to certain terms and conditions, including, among other
things, that the funds are being used for lost revenues and COVID-related costs
as defined by HHS, and that the providers will not seek collection of
out­of­pocket payments from a COVID-19 patient that are greater than what the
patient would have otherwise been required to pay if the care had been provided
by an in-network provider. As previously noted, HHS guidance related to grant
funds is still evolving and subject to change.

•Effective May 1, 2020 through December 31, 2020, the 2% sequestration reduction
on Medicare FFS and Medicare Advantage payments to hospitals, physicians and
other providers is suspended and will resume effective January 2021 as
authorized by the Sequestration Transparency Act of 2020. The estimated impact
of this change on our operations is an increase of approximately $67 million of
revenues in 2020.

•The CARES Act eliminated the scheduled nationwide reduction of $4 billion in
federal Medicaid DSH allotments in FFY 2020 mandated by the Affordable Care Act
and decreased the FFY 2021 DSH reduction from $8 billion to $4 billion effective
December 1, 2020. The CA Act delays the 2021 reduction until December 11, 2020.
The
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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 day-to-day 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, as well
as cash disbursements required to respond to the COVID-19 pandemic. These
fluctuations result in material intra-quarter net operating and investing uses
of cash that have caused, and in the future will 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,
anticipated future cash provided by our operating activities and possible
additional government relief packages 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 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, in our Annual Report and in each of our 2020 10-Qs, 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 sheets. 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.

OFF-BALANCE SHEET ARRANGEMENTS


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
$194 million of standby letters of credit outstanding and guarantees at
September 30, 2020.

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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